About Buyer Brokerage Agreements
Are you a client of a brokerage, or a customer? Read our Agency Relationships section to find out.
Starting January 1, 2017, brokerage agreements will be mandatory for all buyer clients of a brokerage in Nova Scotia. Find out more.
- describe the role and services of the brokerage and designated agent, if applicable
- outline the obligations of the client, the brokerage and designated agent, if applicable
- explain the extent to which personal information can be shared
- establish clear commencement and expiry dates for the relationship
- address conflicts of interest
TIMING OF SIGNING THE AGREEMENT
Every buyer does not have to sign a Buyer Brokerage Agreement. Brokerage Agreements are reserved solely for clients of a brokerage. Not sure if you’re a client? Click on the link at the top of this article.
As licensees transition into using buyer brokerage agreements on a regular basis, it is important to understand when clients should be signing a brokerage agreement. As of January 1, 2017:
- existing buyer clients of common law brokerages (those already working with the brokerage as clients but not under a written agreement) must complete a Buyer Brokerage Agreement prior to drafting an offer on a property.
- New buyer clients must complete a Buyer Brokerage Agreement upon agreeing to an agency relationship with a brokerage.
WHAT IS A CLIENT?
When initially meeting with a licensee about the prospect of a future relationship, all real estate buyers and sellers will be presented with a disclosure form that details the various forms of relationships they can receive for the brokerage. One of the options outlined in this disclosure is a
As a client, brokerages and/or designated agents are legally obligated to:
- protect and promote your negotiating position at all times;
- disclose all relevant facts about a property or a transaction, including material latent defects;
- obey your lawful instructions;
- provide undivided loyalty;
- act in your best interest;
- keep your confidence;
- exercise reasonable care and skill in performing all assigned duties; and
- account for all money and property placed in their possession while acting on your behalf.
It is important that the consumer and licensee discuss their relationship when they first meet.
BUYING REAL ESTATE WITHOUT SIGNING A BROKERAGE AGREEMENT
A buyer can use the services of a licensee without requiring a brokerage agreement if they do not enter into an agency relationship. For example, this might occur when a licensee is showing an unrepresented buyer their seller’s property. In this case, the buyer would be a customer.
ROLES & OBLIGATIONS
The standard roles and obligations are outlined for both the client, the brokerage and designated agent (if applicable) in our standard brokerage agreements. Should a licensee offer services or make promises that are not in the standard form, ask for them to be added in writing. The biggest benefit to the client is that written brokerage agreements provide the opportunity for consumers to ensure they are getting the services they want, need and expect.
FEES & REMUNERATION
If you have reviewed the new Buyer Brokerage Agreement or Buyer Designated Brokerage Agreement, you’ll notice that the Brokerage Remuneration clause has been revised.
After considering several different options and consulting with licensees and consumers, the remuneration clause was modified to suit a variety of business models by allowing brokerages to have discretion on how that clause is competed.
However the brokerage initially charges remuneration, two blank lines have been used for flexibility. Examples of what can be inserted are:
- a flat fee: $1000;
- a percentage of the purchase price: 3% of the purchase price;
- a range of percentages of the purchase price: 2%-3% of the purchase price;
- a range of a flat rate: $1000-$2000; or
- a combination of any of those options: $100 plus 2% of the purchase price.
If the amount is unclear at the time the brokerage agreement is completed, or if the remuneration changes prior to the facilitation of an offer (i.e. from a range of 2%-3% of the purchase price to a set 2.5%), the brokerage agreement must be amended to reflect the actual remuneration once that remuneration amount is known and before an offer is prepared. As you see in the bolded note below the blank lines, licensees have a duty to disclose that the amount the brokerage is to be paid (when it is ultimately determined) to the buyer prior to an offer being made.
It is possible that in searching for that next perfect home, a buyer could become interested in a property also listed with the brokerage they have an agreement with. This unique situation creates a conflict of interest with the brokerage or designated agent, talk to your licensee about what options you have if you wanted to put an offer in on the property.
NEGOTIATING TERMS OF THE AGREEMENT
Nearly everything in the brokerage agreement is negotiable. You can negotiate terms for the agreement that suit your needs; clauses can be added, amended or removed so long as both parties agree to the change. Clients should discuss with their licensee any clauses they are not comfortable with as it is critical that clients are signing an agreement that they both understand and agree with.
TERMINATING THE AGREEMENT
If you believe you can fire your real estate licensee if you are unsatisfied, it unfortunately isn’t that simple. Firstly, all brokerage agreements are legal contracts, which mean that both parties must agree to terminate. Secondly, all brokerage agreements are with the brokerage itself, not the licensee you’ve agreed to work with. This distinction is important because it is possible that the broker could assign a different licensee to the client and continue on with the initial brokerage agreement.
Brokerage agreements lay out specific scenarios when the agreement can be terminated, though it is also possible to add conditions where the agreement can be terminated, if agreed to by both parties. A consumer may want to include clauses to cover unique circumstances that would impact their ability to purchase a home, for example, a clause that states that the agreement will terminate if the buyer suffers a severe illness or unexpected financial loss. It is also possible to include a termination clause in the event of poor service, for example, a clause that states that the client will give the brokerage 3-weeks’ notice to terminate if they are unsatisfied with the service from their licensee.
It is important to note that even if both parties agree to a termination clause, the client may be charged a fee for the work done up to the termination date.
If a client has service-related concerns that cannot be resolved between the client and the licensee, the client should first communicate their dissatisfaction to the brokerage’s broker. If speaking with the broker does not resolve the issue, consumers should speak with their lawyer to determine if there are grounds for early termination of the agreement.
Other tips for consumers working with a buyer’s brokerage agreements
- The duration of your agreement with your licensee is negotiable.
- Before signing, get answers to all your questions and be sure you are comfortable with the licensee and that you understand and agree with all the terms of the Buyer Brokerage Agreement.
- Never sign any blank documents or papers that you don't understand. If you do not understand the documents, ask your licensee to explain them to you or ask a lawyer for assistance.
- Having a lawyer oversee your paperwork and advise you on all legal aspects of the deal is time and money well spent. Real estate salespeople and brokers are prohibited from engaging in the practice of law and must not give legal advice.
- You should have a professional home inspection done on any property that you are seriously considering. The home inspector should be someone you choose yourself, though your buyer’s representative can supply you with a list of inspectors. Always confirm that the home inspector carries Errors and Omissions insurance.
- There is no rule that the seller must accept your offer, nor are there requirements as to which offer the seller must accept for their property.
- Monies held in a real estate brokerage trust for a transaction are held for both parties to the contract. For the deposit to be released to either party, both parties must agree to the release in writing.