A representation agreement is an important document to take seriously, but it’s not to be feared. Understanding what you’re signing lets you move ahead confidently, knowing that you’re protected and have an agent who’s going to work hard to help you buy a new home. Let’s explore how to decode these agreements, and how you can make sure it’s wise to sign.
What is a buyer representation agreement?
A buyer representation agreement establishes the nature of your working relationship with a real estate agent or broker who is helping you buy a home. It’s a legally binding written contract that both parties agree to and sign before putting in an offer on a home. Sometimes a buyer representation agreement is casually used in reference to a handshake deal or spoken agreement, but your agent is legally obligated to offer this agreement in writing for both parties to sign.
What’s included in a buyer representation agreement?
A buyer representation agreement outlines commissions and expectations. It should include the following:
- Correct names of the home buyers and the agents or brokers
- Closing date and time length of the agreement
- Location and correct address for the home being purchased if you are at a closing stage
- Terms of exclusivity: a buyer representation agreement is often exclusive, but it can also include terms that allow for sales with other agents
- Commission that the salesperson will receive for the sale: in Canada, this typically ranges from 2- 5%, and may include a fixed percentage (percentage of the total) or a split percentage (the percentage goes down once a threshold amount is reached). Some percentages will be higher if the realtor is offering additional marketing services or as an incentive for a home that’s hard to sell.
- A flat fee or a fee for services might also be part of the deal
- Information outlining what can be disclosed and how your information is used; including what the agent is allowed to tell the seller about you, your financial standing, and other information
- Liabilities, responsibilities, and indemnification: who is responsible for what, and what happens if there’s a legal dispute or an issue with the home
- Permission to use your financial information or credit checks to establish financial viability
- Room for both parties to sign
Buyer representation agreements 101
It’s important to completely understand any document you’re signing, and a buyer representation agreement is no different. A good agreement can protect both you and your real estate agent before you make an offer.
You aren’t legally obligated to sign a buyer representation agreement
Your agent may ask you to sign an agreement but you’re never legally obligated to sign any agreement, or to buy a home if you sign. You can also negotiate or challenge parts of an agreement that you don’t agree with to see if a compromise can be reached.
Only sign an agreement you fully understand
You wouldn’t take a job unless you knew what you were getting paid or understood what the hours were. Take a buyer representation agreement in the same regard. Discuss all elements of the agreement in full and make sure you understand the language used.
Most contracts will include a clause on indemnification which protects the agent or brokerage from liability in case the home you buy has physical defects or issues. Make sure you do your due diligence in understanding the language and inspecting the home to make sure you are protected as well.
In addition, the contract will outline the responsibilities for paying the commissions. The buyer does not usually pay a commission because the seller will pay a fee to the buyer’s agent. However, make sure to review the real estate commission agreement portion of your agent’s contract to understand certain circumstances that will make the buyer responsible for the commissions, in case the seller does not pay the buyer’s agent fee.
Ask questions and get clarification
Your agent isn’t a lawyer so they can’t offer you counsel or legal advice, but they should fully understand the contract and be able to explain what each part of it means for your relationship. You can also seek outside counsel to look at the agreement. If you’re agreeing to a spoken agreement, follow up in writing to ensure that everyone understood the conversation in the same way and so that there’s a clear record of it to refer back to. Ask about costs, services, and what each part of the agreement and process entails.
How long is a buyer representation agreement enforced?
The terms of each agreement are different and will be outlined in writing. Most buyer representation agreements don’t exceed six months and are valid for around 90 days, but some are longer.
How can I cancel a buyer representation agreement?
The easiest way to cancel a buyer representation agreement is if you and your agent or broker both agree to part ways. If your representative is not fulfilling the terms laid out in the contract, you have grounds to fire them because they haven’t performed the agreed upon tasks. When you sign your contract, ask about the terms and the consequences of ending a contract early, or if the agreement allows for any leniency in this regard.
Typically, the standard contract will not include an early termination clause, however, you can request to include it. If you want to cancel a contract, you can also try contacting the brokerage your agent works for directly, since they often have the legal authority to cancel a contract.
What is a holdover clause?
A holdover clause protects the brokerage and states that if you enter into an agreement of purchase within a specified time (the “holdover period”) after the expiration of the contract, you may still need to pay commission to the brokerage.
For buyers, the holdover clause applies to properties that you were introduced to while you were under an agreement. For example, you were shown a property but you did not enter a deal for that property before your contract expired. Then, you could choose to work with a different brokerage — but if you buy one of those properties during the holdover period, you could also owe commission to the original brokerage.
When you are introduced to the property matters, and while there isn’t a standard number of days for a holdover clause, it’s an important detail to pay attention to. Always ask questions about language you may not understand, and do not hesitate to ask a legal professional for further clarification.
Reasons to sign a buyer representation agreement
When your working relationship is defined in writing, you can move ahead confidently without either side making assumptions or misunderstanding what the plan is.
- A buyer agreement must be in place before an offer to purchase can be submitted on behalf of a buyer.
- When you sign an agreement, you legally become a client of the agent. Real estate professionals in Canada are legally obligated to act in the best interest of clients, so by signing you are also adding a layer of protection to your working relationship.
- Agreements might outline an allowance for you to use other agents, or state the terms of ending the agreement. This can help you avoid future conflicts; you can point back to the terms that are clearly outlined to assert your rights.
- A good agreement could make your agent more motivated to find you a great home. If you have a written agreement that outlines what percentage they’ll receive and what they get out of a sale, there’s a guaranteed incentive for an agent who knows that you won’t go with someone else after they’ve put in a ton of work.
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