When you are thinking of buying a home one of the first things many Real Estate Agents will ask you to do is sign a Buyer Representation Agreement so that they can represent you. If you’ve been watching the news in the past few years you may have noticed some negative publicity about Buyer Representation agreements “BRA’s”. A few people considering buying a home have not known what they signed and been caught in a situation owing thousands of dollars.
Make no mistake, a buyer representation agreement is a legally binding contract that can have serious repercussions if you do not know what you are signing. While we do explain it to everyone that we work with we think everyone should be aware of a few key aspects no matter who you hire to represent you when buying a house.
When you sign a Buyer Representation Agreement it means that you cannot use another agent to purchase a home thats described in the agreement. If you do you will be liable to pay the commission to the agent you have signed an agreement with.
Consideration 1: Length
When you are signing a Buyer Representation Agreement you need to know how long it is valid for. A BRA could be for one day or could go one for years. For most residential property purchases you will usually find that most people sign for six months to a year. That means that during that period you are required to work with that agent for the purchase of a property.
If the length of the BRA is longer than six months you will have to separately initial a specific spot on the agreement. If you’re buying a commercial property it may be a few years long but most residential are a year or less.
It’s also very important to note the length of the Holdover Clause. The Holdover Clause, which usually ranges from 60-120 days, means that any property you saw during the length of the BRA you are still required to use them for that length of time. So if you see a property during the BRA and then it expires, you are still required to use the agent during the length of the holdover clause.
Consideration 2: Area
It’s also every important when signing a BRA to pay attention to the area that its valid for. There is no requirement for how specific you can be with the area its valid for. It can be as specific as a single property, listed by street boundaries, or list entire cities. Some have tried listing the an entire Province in the BRA but some judges have ruled that is too vague. It’s important to make it more specific though.
When you sign a BRA, if a home is located in the area listed, during the length of time listed in the agreement, you will be required to use the agent you signed with to purchase the property.
You can sign multiple BRA’s during the same time period as long as they are for different locations. If you are unsure if you want to work with someone at the beginning you may want to consider making it for a specific property at the beginning and then making a larger commitment once you see how you work with them.
Consideration 3: Commission
While sellers almost always pay the commission it is still important to know when you may be required to pay it or cover a shortfall. In the remuneration section of the BRA it is usually either filled out with a specific number, for example: 2.5% + HST, or it will be filled in saying “as per MLS” which means that they will be paid whatever is listed on MLS by the listing brokerage.
So when would you be required to pay commission? If the number listed in your agreement is 2.5% but the listing brokerage is only offering 2% then legally you’d be required to cover the 0.5% shortfall. Sometimes you can negotiate the extra 0.5% during the negotiation of the price of the home but it is possible you’d have to cover that. So make sure that you know this when putting in an offer because that will obviously affect what price you are able to offer.
It’s important to read any contract carefully before you sign it. It’s more than just the length, area, and commission included in the contract so be sure to read it and ask questions so you understand fully.
If you have any questions leave them in the comments below!