June 1st - 2011

Buyer Representation Agreements: Make sure buyers understand what they’re signing

The most common complaint to the Real Estate Council of Ontario (RECO) is from consumers who say they didn’t understand what they were signing when they entered into a Buyer Representation Agreement.

The most common complaint to the Real Estate Council of Ontario (RECO) is from consumers who say they didn’t understand what they were signing when they entered into a Buyer Representation Agreement.

Hundreds of telephone inquiries are fielded by RECO on this topic each year, according to Registrar Allan Johnston, who adds that consumers and registrants need more education and awareness around this particular document.

“This is very prevalent and is likely the number one issue among RECO officers who deal with complaints,” says Allan Johnston. Disputes arise on points such as the services to be provided, the length or term of the agreement, options available to the consumer, whether early termination of the agreement is available and under what terms, and how complaints will be resolved.

“The more educated that both consumers and registrants are about what they’re signing and what it means, the better the chances are of reducing complaints,” he adds. “It’s much better to prevent misunderstandings at the outset than to deal with the consequences after the fact.”

Most registrants are well aware of this and make every effort to ensure that their clients are protected and understand the document in front of them, says Allan Johnston. “However, real estate is a competitive business and people can be in a hurry these days, so some may not take the time they should to explain things.”

The Toronto Real Estate Board (TREB) ran an advertising campaign to raise awareness and promote the value of Buyer Representation Agreements and the services that REALTORS® bring to the public, says Bill Johnston (no relation), President of TREB. Visit www.BRAfirst.ca to check it out.

“It’s important for REALTORS® to sit down with prospective buyers from the very beginning and have a full, thorough discussion about their wants, needs and desires, and at that time you should also lay out clearly what services you can provide,” he says. “It’s important because you’ll learn whether you want to work with them and vice-versa. At the end of that comprehensive discussion, the Buyer Representation Agreement should be presented and explained thoroughly in order to create an exclusive, mutually beneficial relationship.”

Complaints from a consumer who claims she didn’t know what she was signing can sully the reputation of the real estate profession as a whole, Bill Johnston notes. “It tars us all with the same brush, and if a thousand real estate transactions occur, unfortunately the public will focus on the one that wasn’t done properly rather than the 999 that went well.”

The duration of an agreement can be an issue if the buyers are unaware of what they are signing or if the agreement is introduced at an inappropriate moment, Bill Johnston notes. The document should not be slipped into a stack of paperwork during an offer on a particular property, he says.

“That is unscrupulous behaviour and it cheats the consumer,” he says. “When buyers are putting in an offer on the house of their dreams, they’re so excited that they have stars in their eyes and they don’t care about paperwork, so they may not realize the implications of that document. Then if they don’t get the house and the relationship sours, they may discover that they’re committed to something they didn’t realize. They say they feel like they went on a blind date and ended up in a marriage that they couldn’t get out of for six months.”

Shorter terms on an initial Buyer Representation Agreement are a way for both parties to test the waters, he adds. This agreement can be like a “trial marriage,” says Bill Johnston, and it can be structured initially for 10 days or two weeks rather than three months.

From the REALTORS’® perspective, a Buyer Representation Agreement is beneficial because it demonstrates a commitment on both sides, even if it’s for a short time, he adds. The agreement ensures that the broker or salesperson will put the buyers’ best interests at heart, while committing the buyer to the REALTOR® for a given period. “Without the agreement, the buyers are like second-class citizens who lack the commitment from me that I’m working for their best interest, and meanwhile I’m concerned that despite the hours and effort I’m putting in for them, the buyers may drop me at any time and go to work with someone else. Once both parties have signed, I’m committed to them and they’re committed to me, even if it’s just for a few weeks.

“Many REALTORS® say that prospective buyers won’t be willing to sign a contract, but they will if they are properly approached,” says Bill Johnston, who is also a lawyer with a specialty in agency law. “Explain it thoroughly and get it all down in writing from the outset.”

Verbal arrangements are sometimes the basis by which buyers and real estate professionals operate, but they are non-binding on the buyer and do not benefit either party, he says. Verbal agreements aren’t worth the paper they’re not printed on, he laughs. Without a signed agreement, misunderstandings can develop, he says. The Buyer Representation Agreement outlines in detail the length of the exclusive relationship, the amount and nature of the commission (i.e. flat fee or percentage), and the geographical area to be covered.

Once an agreement is signed, the REALTOR® is fully committed to putting the clients’ best interests first, and the contractual relationship outlines in detail the rights and duties of both parties. “At that point I’m bound by laws and a code of ethics to look out for your best interests as a buyer,” says Bill Johnston. “One of the key obligations to the buyer is to stay within the confines of the REALTOR’S® expertise. That means if a buyer wants to look in a market area unfamiliar to me as a REALTOR®, then I should refer the buyer to an expert in that area.”

Guidelines for REALTORS® on Buyer Representation Agreements
To prevent misunderstandings, use the following guidelines as a minimum to ensure that you are protected and that consumers are fully informed on their Buyer Representation Agreement before they sign.

  • Inform them of the type of services that CAN be provided and, once agreed upon, the particular services that WILL be provided under the agreement
  • Ensure that the buyer is fully aware of the geographic area to which the agreement applies as well as the type of property and price range
  • Make the buyer aware of the term of the agreement and what process is in place to resolve disputes
  • Encourage the consumer to ask questions related to the agreement’s content and that the answers provided are truthful and fair
  • Be sure that the buyers fully understand their obligations related to any commission that they may be required to pay under the agreement
  • Take time to ensure that the consumer has carefully read the agreement, understood its terms and acknowledged the agreement.

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