There continues to be debate across the country about whether real estate agents should use a buyer representation agreement (BRA) prior to working with buyers.
Some agents say that they would never sign one and have long relied on the trust and the relationships that they have established over the years. They are not concerned with a customer using their services and then later trying to avoid paying them by going directly to the seller or to the listing agent.
Others state that due to the time and financial commitment they are making to buyers, they want to have the BRA signed by the prospective buyers to demonstrate that same level of commitment to them. Others state that they only sign the BRA at the time the first offer is presented.
Based on recent case law and public reaction to buyer representation agreements in general, here are five things to remember:
1) It is hard to claim commission without a signed BRA.
In a recent decision, an agent introduced a buyer to a property without a signed BRA. The buyer went directly to the listing agent and advised the listing agent that they were not working with any buyer agent. The listing agent then had them sign a BRA with them so they were acting in dual agency, or multiple representation.
The listing agent received the full commission payable. The buyer agent sued the listing agent for “unjust enrichment”, stating that they had done the work in introducing the buyer to the property and deserved to share in the commission. The court disagreed, stating that without a signed BRA, no claim could be made.
2) Can a buyer agent sue a buyer directly when no BRA is signed?
This is a difficult area of the law. With no signed BRA, a buyer agent must do more than introduce a buyer to a seller or to a seller’s property. They must also participate in the negotiations for the purchase and have an expectation of being paid commission. Without this, it will be difficult to claim commission from the buyer.
3) Is taking a buyer to court for commission a good idea?
I always try and discourage people from going to court, for the simple reason that decisions are made public and are then shared on the Internet. In a recent case, a buyer brokerage was successful in collecting $12,000 in commission against a buyer who signed a 12-month BRA and then purchased a home during the holdover period. Although this was a good result for the brokerage, there was substantial negative publicity associated with this case, as the media reported that the salesperson signed the buyer to a 15-month contract without explaining it to him and collected commission even though he did not represent the buyer in the actual transaction.
4) What some buyers do to avoid paying commission, even with a signed BRA.
In my experience, buyers will state that they signed the BRA late at night, without any explanation, at the time the first offer was prepared, and that no copy was left with them. They understood that if the offer was accepted, the buyer agent would be paid but if not accepted, there would be no future obligations. This is also the subject of many complaints made to the Real Estate Council of Ontario, by buyers stating they were never made aware when they signed the BRA that the term would be for a minimum of six months.
5) How do I make sure I use the BRA properly?
It is better to properly explain the BRA and have it signed as early as possible in the process, preferably before you are about to prepare a first offer for the buyer. Do it the same way every time. This means that all terms of the BRA are properly explained, including the initial term and any holdover provision. The term of the agreement, even if six months or less, should always be initialled by the buyers, to make sure that it was properly explained.
Always give a signed copy of the buyer representation agreement to each of the buyers immediately upon signing. When you explain agreements carefully, buyers will be less likely to try and avoid paying you commission.
By understanding your rights and obligations regarding the BRA, it is hoped that it can be used as a source of building loyal client relationships and protecting your commission at the same time.