My Agent wants me to sign a Buyer Brokerage Agreement

I recently did a post about buyer brokerage agreements and it seems they are becoming more and more common, as I’m getting asked by people who are looking to buy a home if they will have to sign one or if they will have the option to sign one. Some agents will not work with you unless they have a buyer brokerage agreement in place while others won’t use them at all. I’d suggest the latter are going to be the minority in the future.

I don't always use buyer brokerage agreements, but there are instances where I will require a signed agreement.  I'm not sure how appealing working for free is to you but its not very appealing to me. Nathan in our office recently had clients who were buying a property for their daughter, and since they were paying for it they weren’t really concerned with what she wanted. What they did want was to see almost everything on the market - house, condo, anywhere in Edmonton between $350,000 and $450,000. At last count they had been out looking 9 times and had viewed about 50 properties and written several offers that were not accepted.

In this day of mere postings the likelihood of them picking a listing that offers the buyer's agent $1.00 in compensation for all their time and effort isn't that unlikely.  In fact I almost think that it's a law in real estate that the more time I spend with someone who is looking to buy a property, the more likely it is that they will choose a property offering $1.00 in compensation. In a nutshell, that’s why I would consider using a buyer brokerage agreement in this case. It spells out what I’ll be paid and what my clients expect of me for that compensation. If you are a buyer like this, it will be increasingly more difficult to find an agent who will work as they used to (on the promise of compensation) without the protection of a buyer brokerage agreement. 

This is one of the main reasons buyer brokerage agreements will become more common place.  The competition bureau seems to want to model the Canadian real estate industry after the U.S. industry (cause that's worked so great for the U.S.).  In the States buyer brokerage has been common place for well over a decade.  In the end I won't be surprised if our MLS® looks like the states in a few years as well and thats a whole other story.

About 

Sheldon is very familiar with the ins and outs of real estate; he has been licensed to sell Real Estate in Alberta for over 20 years. Sheldon has served on the Real Estate Council of Alberta, the Real Estate Insurance Exchange and the REALTORS® Association of Edmonton. Find Sheldon on Twitter @edmontonsheldon.

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16 Responses to “My Agent wants me to sign a Buyer Brokerage Agreement”

  1. TaraZNo Gravatar 23. Apr, 2012 at 8:28 pm #

    So if they sign a “buyer’s brokerage agreement” and then buy a property that the didn’t show them (for example, a for sale by owner property that they found on comfree or craislist), do they still owe the realtor money?

    Sounds like even more incentive to do your own searching.

    • Sheldon JohnstonNo Gravatar 23. Apr, 2012 at 9:34 pm #

      potentially. it would depend on what they agreed to however that would be the basic intent. For example I had some clients that I worked with for months showed them quite a few properties, wrote a couple of offers with them (plus the negotiations) and at 9pm they called one night that they wanted to see a property I emailed them (insert for sale by owner here if you’d like) and they wanted to see it at 10 am the next morning. I unfortunately had prior committments so she told me she would call someone else to show it to her then. Many agents might have a brokerage agreement in place to protect them from just that situation.
      However in some cases certain properties are and have been excluded. In the past on some agreements I have worked out with the buyer we agreed I would only show them properties listed through MLS that they would not have to compensate me. The reality is that recent changes to the real estate industry are pushing the onus on to the buyer to decide what and how much they value the service of their agent.

  2. rnsNo Gravatar 24. Apr, 2012 at 8:42 am #

    What is Buyer missing if not sign Buyer Brokerage Agreement?

  3. Inspector GadgetNo Gravatar 24. Apr, 2012 at 9:28 am #

    Interesting topic, thanks to Sheldon and Sarah for bringing this up.

    I think in the end we need to do away with the very common myth, and one you hear all the time that people use a buyers agent because “it is free!”. I cannot count how many times I have heard this.

    The buyers agent has always been paid, and I could be wrong but they are usually paid as much as the sellers agent as the two split the commission paid by the seller.

    In this age of Comfree and other discount realty options it is no wonder that a realtor would want a guarantee of renumeration for driving people around looking at homes, writing offers etc. Of course, with a buyers agreement in place that pays the relator no matter what happens that realtor should be searching for and showing FSBO’s, Comfree and discount lisitngs as much as full pop MLS lisitings. I would bet that many (but not all) realtors would still stay “in the club” and only show MLS lisitings unless instructed by the client.

    I know a couple of people that tried FSBO and one that tried a discount broker. Of course, neither got any visits as realtors would not show the properties. In fact, one friend had realtors contacting them telling them they would not show the property to anyone without incentive and that they had buyers that would cetainly be interested. FSBO only works in super hot markets, or if just by luck your neighbour wants your house.

    In the United States all the information that is exclusive to realtors in Canada is available to everyone, very quickly and easily. This includes price histories, days on market, comparables etc. I believe this is one of the changes Sarah is referring to and are likely ineveitably coming to Canada eventually.

    At the end of the day, if you don’t want to pay your share of the commission for a property, don’t hire a buyers agent. Do all the searching yourself, negotiate for yourself and use a lawyer for the paperwork. You can then ask for a reduction in price equal to half the lisitng agents commsion, including the GST that they would have paid had you hired the buyers agent.

    I

    • Sheldon JohnstonNo Gravatar 24. Apr, 2012 at 10:55 am #

      This assumes a perfect world scenario that a buyer can bring themselves up to speed on what they need to know and have the time to do that. Most of the real problematic files I have are from people who bought on their own. They either didn’t know what to ask for, didn’t get it written up correctly or their lawyer goofed (this happens more than people know). However the option is available to people to decide what they need and the level of service and competency they want. Seems pretty simple.

  4. bobble headNo Gravatar 24. Apr, 2012 at 10:44 am #

    Like any job there are good and bad points to what we do for a living, Realtors make a lot of money by selling a property, and this has been split between the buyer and sellers realtors. The comission that is charged to simply take some pictures , word smith a little blurb to put on MLS and fill out a fill in the blank form is more than enough for the realtors to split. Whan it is actually the buyers agent that is doing all the work, the sellers agent puts a sign out front and Might have an open house if they feel the urge. There is no real education to make a realtor worth the money they charge, you simply have to pass a test and poof you are a realtor. So if you average the money you make listing a home and the money you make working for the buyer when they buy a home you are doing pretty good for the work you do.
    This industry seems to be forgetting that it is a customer service industry and the customers have the final decision and like travel agents one day you may be replaced by the internet and a lawyer!

    • rnsNo Gravatar 24. Apr, 2012 at 11:43 am #

      We always talked about MLS search (available to all), drive (all have cars), provide comparison (Data hiding), Negotiating on basis of comparison with both the parties and write offer for Buyer agent.

      Lot of people may not know what more information/service Realtor provide?
      If Buyers signs Buyer agreement and deal/relationship does not work out then buyer is free to go after Buyer agreement expires?

      • Sheldon JohnstonNo Gravatar 24. Apr, 2012 at 12:58 pm #

        MLS search is available to all. Some people tend to misinterpret the data but it is available. I have written articles on what buyer agents can provide but most importantly beyond understanding the trends, assisting in valuation, preparing contracts, facilitating negotiation, and minimizing their clients time wasted and risk that you can check out. The answer to your question is it depends on the agreement. I have had agreements in place as short as 3 days and as long as 6 months. The buyer can work with or do whatever they chose after the expiry of the agreement. However I would caution that there are probably provisions in place to prevent the negotiations being picked up once the agent is out of the picture.

  5. Inspector GadgetNo Gravatar 24. Apr, 2012 at 2:20 pm #

    Sheldon is it true that some BRA s even cover the signing of a lease if someone decides to rent instead of buy?

    • Sheldon JohnstonNo Gravatar 24. Apr, 2012 at 10:22 pm #

      The standard Alberta agreement we use does not provide a provision for compensation for leasing however that does not mean that a term of that nature can’t be added. Often when handling corporate relocations the request from the company/client is to assist the client find suitable housing to buy or lease. In those situations we would insert a term into the agreement that would allow for compensation in a lease situation.

  6. House HunterNo Gravatar 25. Apr, 2012 at 11:28 am #

    It will be the day if I ever sign one of those.Whats next open house fee?

  7. bubuNo Gravatar 25. Apr, 2012 at 6:44 pm #

    If you are not able to buy a house without a realtor you should not own a house…. I lived in countries where this job didn’t exist at that time and everybody bought houses without any problem. why would you pay these money to a realtor in Canada I still don’t get it. What you need is a good lawyer, a good trade guy who built houses and can inspect the property ( don’t hire inspectors, hire people who build houses) an read on internet few hours about the process.

    Another cheap way is to get a 5 week training a realtor gets.. It is way cheaper than to pay commission and on top of that you can help your family if they want to buy a house, but really… you find everything you need on internet these days…. I’m amazed how people are renovating houses on their own but they use realtors to buy a house….

  8. MsMarieNo Gravatar 26. Apr, 2012 at 2:57 pm #

    I have both bought and sold a property with diffrent realtors in the past. I think both agents I’ve dealt with were great people and i can’t say anyhting negative about the service i received. I have great respect for realtors, but not the cost.

    When i bought I didn’t really think about the cost as i wan’t paying the commision, but looking back it was built into the price i paid.

    When i sold it seemed like all my realtor did was take some pictures and let me know when a showing was scheduled, or i had received an offer. My house did sell, and i got a fair price for it, but in the end i did feel pretty ripped off with the huge commisson bill. I realize that it was split with the buyers agent, and like any bussiness overhead & expenses must be paid. However, i don’t feel that i got a great value for my dollar, in that my lawyer seemed to do the bulk of the work anyway! (he cost substanitally less than the realtor)

    I don’t think that i am alone in this, and this is why we are seeing the discount services like comfree and property guys pop up. I can understand the need for the agreements, but maybe this wouldn’t be an issue if enlisting a realtors services to sell didn’t cost so much in the first place!

    Last weeks average home price $394.000. So you could say an average commision would be:5% on the first 100,000 & 3% on the rest equals $13,820 thousand dollars in commison plus gst if i remember correctly.
    So each realtor would get $6910 for the sale.

    Now I realize some houses take longer to sell than others, but say you make $30.00 an hour. That 460 hours or 11.5 weeks worth of pretax wages you are paying to sell your house.

    I might be persuaded to sign one of these agreements with a good realtor, but no way i would agree to pay half a traditonal commision.

    Sheldon & Sara, what would you write into an agreement as your compensation for a sale? A flat fee? A percentage?

    • Sheldon JohnstonNo Gravatar 27. Apr, 2012 at 11:28 am #

      In answer to your question. I have done both: flat fee and percentage for both buyer and seller agreements.

      I guess I must be doing something right in that I have alot of repeat clients who have obviously felt they’ve received fair value in the investment, strategy, consultations, marketing efforts, advice, expertise, accountability, legal responsibilities, time and results. There is certainly alot more involved in selling a property then what you have described above. If you aren’t happy you don’t have to sign the offer.

      The hourly wage often comes up in discussions. I guess its not used because people would have to pay up front or as they go regardless of the results. I don’t know what type of self motivated driven individual is going to work for that kind of wage or what type of person would hire someone who shows the property routinely with no results but keeps getting bills. If the hourly wage would work it my guess is it would have been done by now. Does the seller pay hourly for the agents training and how does that get factored in? If you are a buyer and you had to pay an agent hourly do you think you’d feel pressure from your self to buy because your costs are running up. Lets say your example for fees above are correct. What about the people who just sold with a limited service company who for $45,000.00 less than what the market value really is. However since they are a mere posting, their agent is not allowed to give them any advice. In the end the market will decide. Maybe people will go to Bubu for advice. ;) now that would be funny.

  9. Inspector GadgetNo Gravatar 27. Apr, 2012 at 6:23 am #

    There is a lesson here.

    Lots of people, while climbing the property ladder end up spending a ton of money on the transactions themselves.
    This money rarely gets “counted” because it gets lost in the very large other numbers, and is ignored because of the excitement moving to a bigger, better house brings.
    My Parents have been very happy in the same home since the late 50′s. Most of my 40 something friends have felt the need to upgrade several times already, and have paid a lot of money to do so.
    These transactions are big money makers for the while industry, hence the TV ad campaigns promoting the move up lifestyle!

  10. Wayne SchaferNo Gravatar 03. May, 2012 at 11:28 am #

    I have read all of the blogs on this site, and found the conversations most interesting. I am a Realtor in Penticton BC, and it appears that the various sides of the issue of Buyer’s Agency, as we call it here, are somewhat universal. Here is how I view the issues.
    First, the notion that anyone can be a Realtor by taking a course for a few hours is patently false, and way off the mark. More than half of the people who take the course do not succeed. Of those that do succeed, more than half are not in business a year later. Extend that to 10 years, and you are down to single digits.
    Real Estate is incredibly complex, and to stay on top of the legal requirements of the industry takes a lot of work, and a lot of education. I am looking at several feet of manuals on my bookshelf, from the courses I have taken over the years, and I am still learning every day. That is the definition of a true profession, in my view.
    So, the idea that a Realtor can just slap up a sign, sign a few papers, and collect a bunch of money is way off the mark. I would like to illustrate why everyone should use a Realtor. A client of mine who had a property for sale on his own, a FSBO (for sale by owner) thought he had his place sold, when the buyer backed out of the sale. In the meantime, he purchased another property. The seller was represented by a Realtor. It turns out that his first property sale was invalid due to a faulty contract, and his purchase of the second property was required because the contract was valid. The Realtor saw to that, and he could not get out of the contract. He now owns two properties, and both are listed with a Realtor.
    The next thing to consider is the extensive knowledge of the market that a Realtor who works all day, everyday, has top of mind. The Realtor knows neighborhoods, usually has a number of buyers available who are looking for certain property, and understands what it will take to negotiate a specific sale. More often than not, a Realtor will gain a seller more money from the commission on a sale, or save a buyer more money on a sale than his share of the commission. This is referred to as not “leaving any money on the table.” In other words, we more than earn our money for services provided.
    Another protection that clients receive is the coverage provided by the Realtor’s Errors and Omissions Insurance, so that if something actually does go sideways, and somebody sues, the client is covered. This happens more often than people realize, and seven digits of insurance is a nice back-up to have.
    I guess the last thing I would draw attention to is the huge input that Realtors make to the economy. We also have homes, families, kids in school, pets, vehicles, etc. We buy groceries, clothes, fuel, and pay dues to local clubs, and eat in local restaurants. We also put our pants on one leg at a time. Real Estate is a very expensive business to operate, and is not for the faint of heart. Realtors provide an essential service to the community, in what is an ever increasingly complicated world. I would not dream of selling or buying property without the services of a real estate professional.
    Knowing what I do about this profession, my advise to the public is that, if you are thinking of handling your own transactions, don’t do it. Hand the job to a professional, and you will have a much higher chance of successful completion.
    Thank you all, and Have a Great Day.