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February 8, 2012
Buyers Benefit from Written Agency Agreements
Most consumers know that if they want to “hire” a real estate broker/agent to sell their home and represent their interests, they are going to sign a contract. REALTORS® are not allowed to list a property for sale without one. The contract clearly spells out the terms of the agreement including the duration of time, the compensation the agent will earn and when, who the agent represents and each party’s responsibilities.
While buyer brokerage is not a new concept – it has been legal in Alberta since the mid-1990s and a few years ago (in 2006) real estate laws that govern agent-consumer relationships were updated to further ensure consumer protection – many buyers and some agents still don’t understand the benefits to both parties that a written Buyer Brokerage Agreement affords.
In Alberta, an exclusive representation is only permitted with a written agreement. So until the agent has a written agreement with a client, they (the Buyer) can, in fact, be working with several agents at the same time. The agent who writes up the Purchase Agreement will be the only one that gets paid for the buyer's side of the transaction (even if that agent represents the Seller and doesn't represent the Buyer). It is in the interest of the Buyer to have their own agent since they're paying for one whether they use their own or not. Clearly, it is also in the interest of the Buyer's agent to get a Buyer Brokerage Agreement signed by the Buyer at their first opportunity, for the largest geographic area, and for the longest duration. It ensures that if there is a sale that they will get paid.
However, these last two items (the largest area and the longest duration) are usually not in the best interests of the Buyer. Several self-proclaimed consumer advocates have come out and stated in no uncertain terms that buyers should ever sign these agreements. These advocates have their own agenda and perpetuate somewhat short-sighted thinking that a buyer will be "trapped" into using that agent for an inordinate amount of time, or worse, end up paying two commissions to two agents. Unfortunately, what these "doomsday preachers" don't seem to understand is that most, if not all, agents are professional and reasonable. With the Buyer's agreement in writing, they can terminate these contracts with the other side's agreement like any other contract. All agents are, in fact, required to work in their client's best interest. It does no one any good for an agent to have dozens of written contracts in place – unless they are one of the rare agents that take upfront buyer agency, retainer fees. Few agents do. And you'll clearly know if they are because it will need a written amendment to the standard, pre-printed Buyer Brokerage Agreements that we're required to use which details that any up-front money collected is not a retainer but is only a deposit and will be applied to the purchase price. If you don't buy, you should be getting that money back at the expiration of the contract (actually, just a few days after since the deposit was required to be placed in the brokerage's Trust Account on your behalf.
Buyers often call me to ask for help in finding a home. Many of them tell me they've had disappointing experiences with "their buyer agent" in the past. When I ask if they had a written contract with their agent, their answer is almost always, “No”. Well, of course they're disappointed! How did the agent know clearly what the buyer expected? Did they have clearly defined: a time-frame, a home style, a price range or geography to work within? Did they know if the buyers' expectations were even realistic? Did the agent know that if the Buyer was interested in seeing new homes or homes of other unrepresented Sellers, that they would get paid for their work? Most often, the Buyer Brokerage agreement wasn't even presented to them as an option.
As an industry professional, there are two obligations that any agent must share with a potential customer or client on their first significant meeting: 1. How they are being paid, and 2. Who they represent in a transaction. Both of these are covered in the Buyer's representation agreement. While I never require a buyer to sign a Buyer representation agreement on our first meeting, I do provide them a copy and go over the fine details during that meeting or tour of homes.
The benefit of a written contract is that both the Buyer and the agent know what to expect and that each is accountable. The Buyer knows which geographic areas the agent covers (and doesn't cover), what types of homes the agent is going to search for, how the agent is going to be compensated and if excessive fees (bonuses) are being rebated back to the Buyer, and that the agent is legally obligated to act solely on their behalf unless they subsequently release them in writing. They further detail what they expect the agent to do regarding unrepresented Sellers (whether listed on the MLS® System or not) that may not be offering the agent any fee at all. It would be reasonable to expect an agent that is unsure that they will get paid on a particular home, that they will show you many other homes first and possibly never get around to showing you the questionable compensation ones - afterall, you as the Buyer may balk at being asked to pay a top-up fee when you know that your agent's fee is customarily included in the amount the Buyer pays the Seller as the purchase price. You know that any fee you will have to pay comes out of your downpayment and you'll need the seller to further lower their price by a similar amount (or more since any financed amount is often based on or significantly influenced by the size of your downpayment). Occasionally, we still find "represented" Sellers that haven't quite understood the benefits of our co-operative system that offer an amount far less than is usually acceptable to most agents (say only 1% of the selling price of a $200,000 home). While these Sellers have probably had an explanation from their agent that they will most likely not get as many showings and will most likely net less than in a sale with a fair compensation included, they have chosen to forego the customary practice or don't realize that their agent may not be working in their best interests right from the signing of the listing agreement. At best they will achieve the same amount and will have had their home on the market possibly weeks or months longer. Buyer's agents have the Buyers; seldom, if ever, does a listing agent bring a Buyer to their own listing. And if they do, they get paid both sides of the fees - the fees for the Seller agent AND the fees for the Buyer agent. In the industry, this is known as "double dipping."
A written agreement that outlines how the agent is to be paid in these infrequent circumstance will allow you to see ALL the homes that ideally meet your needs and gives your agent the written authorization to contact the ones that don't offer any, or limited, compensation.
Buying a home is a process that takes time, effort and tenacity; it's a long way from finding a house that suits your needs to getting to the closing table. Successful negotiations are based on trust, confidentiality, and mutual respect. Buyers, you are entitled to have a qualified buyer agent on your side to ensure you get the representation you deserve and a written agreement is the first step.
While any agent can call themselves a "buyer's agent," an ABR® (an Accredited Buyer's Representative®) has additional, certified training and is a member of the Real Estate Buyer Agency Council, the network that provides ongoing education and resources for representing buyers. Finding one is your first step in the process. Out of the 5,000 or so real estate agents that work the Calgary market, there are almost a hundred that have earned and maintain this designation. Search for current ABRs on the International tab at REBAC.net. Check the box in step 3 called "Find ABRs only" to find only those who have completed both the in-depth course AND the accreditation standard.
Before you start looking for a house, find a qualified buyer broker/agent who will listen to you and respect your needs; one who knows the market in the area, knows how to negotiate, has a network of resources – lenders, home inspectors, real estate lawyers, movers, etc., and who will educate you so you can make the best decisions about purchasing your new home. Real estate is about relationships, so make sure you have your own agent who knows and cares about your well-being.
Also, it should be noted that as often as there are Sellers who offer significantly reduced compensation to real estate agents (usually because they don't see the value of an agent) there are just as many that offer significantly more compensation to agents that do bring them a buyer. It is only through a written agreement that: 1) You know for sure that your agent isn't "steering" you to the homes that can double their income, or 2) that any excess above your agreed to amount of commission (or fee) will be rebated directly to you. Until there is a written agreement to the contrary, the agent that brings the buyer gets paid whatever the Seller and the Seller's agent have contractually agreed to in the listing agreement - no more, and no less. As a buyer, don't you deserve the opportunity to negotiate your own agent's salary? Afterall, their fees are built into the selling price of your home. It's just part of "market value."
About Real Estate Professional Tom Bushey:
Tom Bushey is an experienced Associate Broker and REALTOR® in Calgary, Alberta. He's passionate about family, friends, technology and specializes in northwest Calgary condos and prestige homes. He welcomes the opportunity to earn the business of you, your friends, neighbours and associates for buying or selling real estate in the Calgary area.
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