Buyer's Representation Agreement
Or, Do I Even Need A Buyer's Agent?
Buying a Home?
Learn why Tom Bushey recommends a Buyer's Representation Agreement to protect you throughout the home buying process.
If you're searching for a home or property in Alberta, at some point YOU WILL BE ASKED to sign a Buyer's Representation Agreement (or, sign an acknowledgement that you're foregoing any representation). We regularly receive questions about why this is necessary, so I've taken the time to answer the most frequently asked questions on this page. This agreement is one of the simplest ways to protect yourself throughout the search and buying process, and to help ensure that you have a true ally with your best interests in mind.
What is a Buyer's Representation Agreement?
A Buyer Representation Agreement is a document that is required whenever a buyer is being REPRESENTED in a real estate transaction. The written document is required through the Real Estate Act of Alberta. Without the document, then there is no representation, and you will be (should be) forewarned that the agent you are working with is actually working AGAINST your interests when it comes to negotiating an Agreement of Purchase and Sale. Simply put, it is a document in which a real estate broker or associate agrees and contracts to represent the Buyer (their client) in the search, and eventually, the purchase of a home or property. Every real estate associate or broker within the Province of Alberta requires this agreement to REPRESENT a buyer client. There are a couple of reasons for this: First, we really do need permission from a legality standpoint, making it clear who we represent in the transaction. By doing so, we are committing to be your very best friend and to look after your interests and fiduciary responsibility.
What are the Advantages of Signing a Buyer's Representation Agreement?
All real estate agents in Alberta are required to be honest and to treat people with respect. Once you sign a Buyer Representation Agreement, you are effectively saying that you are committing to us and us to you. We are committing to be your best friend and that we have your back in your real estate search. We owe you complete loyalty as long as it is within the terms of the agreement and the limits of the law. We are clearly going to follow your instructions and recommend what's best for you. Of course, we CAN NOT make decisions for you. And, clearly, we can't force you to buy a home!
Wasn't there a time that a Buyer could be represented by a Real Estate Agent without signing an Agreement?
The simple answer is: Yes. And it wasn't that long ago. Sellers were required to sign a representation agreement. Customers were required to sign an acknowledgement that they were aware that they were not being represented by the agent in a transaction, but the agent that was representing the buyer had no responsibility to get a written acknowledgement of the agreement. As a result of this, there were several issues that happened:
a) The potential buyer had the impression that the agent was working for free and therefore wasn't too committed to them and was little more than a tour guide that unlocked doors, so they would go from agent to agent to agent looking for homes (when in reality they all have exactly the same access; but clearly, not the same knowledge or expertise),
b) The potential buyer would go directly to the seller's agent (or an open house) thinking that the service would be "just as good" or that the seller's agent could share privileged information,
c) Even though it is the buyer's money (through the purchase price) that paid their buyer's agent, they had no way of knowing how much their agent was earning in the transaction.
This third item was later addressed with a written acknowledgement that the buyer was aware that the seller was paying the buyer agent working with the buyer – but they really didn't know how they were being paid nor how much. The mandatory written agreements now address those three issues.
What is the difference in the Types of Buyer's Representation Agreements?
The real estate agent/broker and their client have an option of using three different versions of the agreement. In their business practice, many agents will only use one version and the consumer may not be made aware of the other versions.
- Exclusive Buyer Representation Agreement – this is the most restrictive of the versions and as a result have given all Buyer Representation Agreements a bad rap. Granted, early versions deserved that bad rap. The current version commits a buyer to an agent for a specific type of home in a specific general area. The agreement has a start date and end date and details each party's roles and responsibilities throughout the term of the agreement. The agreement indicates exactly how much money the agent is going to earn during the transaction. Any excess that is paid by the seller will be refunded back to the buyer and any shortfall will be paid by the buyer. When this version of the agreement was introduced, the agent was prohibited from leaving their fee open-ended to take advantage of any extra "bonus" the seller is willing to pay the agent to bring the buyer (although we hear this is happening now). Because this is a strict "loyalty agreement," the buyer further commits that if they buy any home that meets the criteria defined in the agreement in the area identified in the agreement, then they will ensure their agent gets paid – even if they mistakenly (or intentionally) don't use them for the transaction. Keep in mind, there is nothing in these agreements that forces the potential buyer to buy a home at all.
- Non-Exclusive Buyer Representation Agreement – this is the least restrictive of the versions of the agreement. It is like the previous verbal agreements of years gone by. This agreement also defines criteria, geographic location, roles and responsibilities. There is no requirement for the buyer to use this agent for their purchase and no requirement to ensure they are paid if they do. The agreement specifically states, "You will not be responsible for payment of our fee in any circumstances." There are two very significant and real issues with this version of the agreement: 1) If the seller offers a fee enhancement to the buyer's agent to encourage them to bring a binding contract, then the buyer is not made aware of this "bonus" (that is being paid to their agent through the purchase price); 2) If the seller offers little or no fee to the buyer's agent to assist with the sale of their home, the agent knows at the outset that they will not be paid by the seller (or the buyer) should the buyer wish to purchase that home. An agent could steer a buyer client towards are home offering higher compensation or away from one offering lower compensation: Both situations are considered "steering" and quite likely are less than legal. Unfortunately, any steering is difficult to determine since it could be argued that the buyer wanted or didn't want to see particular homes.
- Non-Exclusive Buyer Representation Agreement (with Fees) – this is the version that has the terms that most consumers, and their lawyers, are looking for. And yet, few real estate associates/brokers even offer it. Here is how this straightforward agreement works: When a buyer uses their agent to buy a home, they want them to get paid for their services. And, they typically want them to get paid "fairly." The agreement specifically outlines who is going to pay their agent and under what circumstances (In almost every case, the agent is paid by the seller out of the proceeds of the sale). Clearly, any excessive "bonus" compensation offered will be returned to the buyer and any shortfall will either be paid by the buyer or, more likely, the seller will be required to pay their shortfall from the proceeds of the sale through additional terms of the purchase contact. Our current Alberta standard forms require an addendum to be included to show the full details.
No matter which version of agreement the designated agent decides to offer you, you should expect to see some form of "tire-kicker clause" inserted into the agreement that basically states that if you decide not to buy a home during the term of the agreement that you will reimburse the agent for their expenses and/or a flat fee of, say, $250 or $50 per home viewed. Obviously, this is a fee not paid if you actually buy a home as the agent is already adequately compensated through the purchase price.
Do You Guarantee Confidentiality with a Buyer's Representation Agreement?
Yes, confidentiality is a very big thing to us. If you DON'T sign a Buyer's Representation Agreement and you tell the agent that you are working with that you are willing to pay up to $300,000 for a home (but the seller is only asking $290,000), that agent is REQUIRED to tell the seller or the seller's agent that information. On the flip side, and if the agent is not concurrently representing the seller, and they find out the seller is willing to sell the property for $275,000, your buyer's agent has that loyalty and responsibility to tell you, "Let's offer $275,000 because the seller will take it." If you sign a Buyer Representation Agreement, it's like "doctor-patient privilege." You can confide in your agent about any aspect of the property or sales process and they would not and could not speak a word of that. It protects you throughout the process.
Does a Buyer's Representation Agreement Cost Me More as a Buyer?
No. As the buyer, it would be an extremely rare occurrence that you would be required to pay your agent directly – and even then, you would likely be saving more money on your purchase than you'd be paying your agent. All the services that you receive, along with the confidentiality, the honesty, the loyalty, etc. that your agent is going to provide you is paid for by the seller through their contract with their listing brokerage (if they used one) using your money. By listing on the local MLS®, they have committed to paying the buyer's agent. The amount can be negotiated through the Offer to Purchase if there is a shortfall from the amount agreed to in your Buyer's Representation Agreement. In practice, and by contract, the seller agrees to pay the listing brokerage a fee for listing their home for sale and when it sells, to split a portion of that fee with the agent/broker that brought the buyer (if any). If there was no agent representing the buyer, the seller is still obligated to pay the full amount to the listing brokerage even though there would be no-one to split it with. So, with no savings to be had in going directly to the listing agent/broker, why wouldn't you work with your own agent that works for YOU instead of the seller? Can you save money by asking the seller and their agent reduce the commission they have contractually agreed upon? Sure, technically it is possible, but it's highly improbable that that would ever happen. Why? Because in this circumstance, the agent substantially increases their liability in the transaction by working with both parties: You're asking them to reduce their fee in order to take on more legal risk. Saving money by going directly to the seller's agent is a myth that has gone on far too long!
What Kinds of Services are Provided as Part of the Buyer's Representation Agreement?
Experience: You'll receive the full benefits of our decade of experience in vetting all of the peripheral professionals that you are going to need to complete the process. Not only will we "hold your hand" through the process, but we'll share exclusive insight like:
- Which lawyers you do/don't want to use for your real estate transaction,
- Which mortgage lender has the fastest processing time,
- Which mortgage brokers consistently don't get mortgage approvals until the last minute,
- Which home inspectors do an outstandingly thorough job and provide a timely, written follow-up document,
- Which condo document review companies provide the most insight versus a cursory review.
Knowledge: We'll explain the entire process and handle your expectations from home search, mortgage pre-approval, to purchase and closing. We'll cover what closing costs you should expect and when. We'll provide some insight into mortgage insurance and various mortgage terms that your lender may not cover.
Assistance: Effectively, anything that you can't do or that you don't want to do, your agent would handle that for you under the terms of the Buyer's Representation Agreement. Some examples include document and deposit delivery, meeting with movers, home inspectors and other contractors to help ensure that your closing is completed on time.
What's the Biggest Reason Some People Don't Want to Sign a Buyer's Representation Agreement?
One of the biggest myths of not signing a Buyer's Representation Agreement is that it saves you money — a LOT OF MONEY. Let's consider a typical scenario: You're out on a Saturday afternoon and you decide that you want to look at some homes. You pass by a house and believe you've found the house of your dreams, but you don't have your agent with you so you call the phone number on the listing agent's real estate sign. You've just contacted the very person who legally has the seller's best interests in mind, not yours. It is a common misunderstanding that if you don't bring another agent in the process, then you can save money on the contract: Unfortunately, it really doesn't work that way. The commission you pay through the purchase price remains the same whether you have an agent representing you or not. The question is really whether all that commission will be paid to the listing agent or split with another real estate agent (one who represents you and has your best interest at heart — they work FOR YOU and not just WITH YOU). You don't pay more regardless, but NOT having clear and confidential representation could end up costing you A LOT.
So, can you find a listing agent that will reduce their commission that the seller has already committed to paying to get you a better deal on the price? Sure, I guess it's possible, although I've never seen it done. You may have heard of this through your co-workers as an option, but it really is more of a myth than the truth in practice. Actually, you're more likely to be able to find your own agent that works FOR YOU that is willing to provide you a rebate of the commissions the seller has already agreed to pay to them. This could be enough to pay for your home inspection, legal fees, or both.
Occasionally, we'll find a very experienced buyer who contacts us directly to see homes because they have completed dozens of purchases with the assistance of a real estate agent or with the help of only a lawyer who specializes in residential real estate transactions. It doesn't happen often as most buyers with this kind of experience truly value the input of an experienced real estate professional knowing that the expertise, they receive doesn't cost them any more in their purchase transaction.
I'm new to the buying process and haven't decided if I've found the right buyer's agent yet. Can I limit the duration of the agreement?
Absolutely. While you must have a written agreement with the agent to represent you in showing homes to you and providing you with advice, you absolutely can limit the time period of the agreement to one day, one week, a month or two and you can even limit the agreement to a particular neighbourhood, home style or even just a home or two. Your obligation is only for what is specifically detailed in the agreement. If you allow your agent to fill in the agreement to cover the entire province for an entire year, then that is what you are going to be committed to. Typically, we try to make the agreement fairly encompassing but only enough to cover what you've told us you are looking for. There really aren't any restrictions on how many homes you can ask to see; we're going to be your Buyer's Representative and represent you on any property you wish. From that point on, it's as simple as telling every agent you encounter that you are already dealing with an agent under written contract. You'll be protected and guided through the process properly.
Benefits of working with your own Buyer's Agent:
When you work with the Listing Agent
(i.e. the Seller's Agent and therefore you're working on your own without representation as a "Customer", that is "unrepresented"):
|When you work with your own Buyer's Agent:|
The SELLER'S agent can:
YOUR real estate agent will:
Please don't hesitate to contact Tom Bushey with any follow-up questions. And thank you for entrusting your dream home search to us!
FIRST-TIME BUYER'S TIP: Choosing the right Buyer's Agent may be your most important decision when buying a home. An exceptional one doesn’t cost any more than a mediocre one! In fact, they'll likely save you lots of money, time and frustration.