An Explanation of Representation
Buying a home can be a difficult task and therefore utilizing the services of a Realtor is almost a necessity. However, it’s important to understand what type of relationship you have with your Realtor in order to ensure you receive the type of service you expect. When buying, there are really two types of Agreement that you will need to consider, the Buyer Representation Agreement and the Buyer Customer Service Agreement.
Buying a home is no small matter. Besides being the largest financial transaction you may ever undertake, it’s probably also the most complex. There are many good reasons to work with a qualified Real Estate Professional.
Buyer Representation Agreement
The Buyer Representation Agreement is essentially what you sign when you want an Agent (Sales Rep.) to work on your behalf during the transaction. You are considered a Client and the Agent commits to you and to representing your best interests throughout the process. At the same time, you are committing to working with that Agent. Having one person working for you and looking after your needs is always preferred over using multiple Agents. It not only allows you to build a relationship, but allows the Agent to better understand you and exactly what your needs are. This can save time and aggravation for everyone involved. Working with multiple Agents creates unnecessary duplication of effort. There is no real benefit to you when this occurs and in fact, it’s highly likely it will diminish the type of service you will receive. If an Agent knows you are “playing the field”, there’s a good chance you won’t receive the highest level and quality of service you might normally expect as most Agents won’t commit their full time and services to you, if you won’t commit to them.
In the contract, there are certain elements that must be determined by the Buyer and the Agent. These elements are included for the benefit and protection of both parties. A brief explanation of each is listed below.
Time Period - The length of time for which the Agreement will be in effect. Although there are no standards that have to be followed, generally when buying a cottage three months is the minimum time frame you should consider with six months or longer being typical.
Property Type – This refers to the type of property you’re hoping to buy. Generally this will be a home, cottage or vacant land. In any case the description is usually fairly general with the term “Residential” commonly being used.
Geographic Location – This can be a somewhat vague or a very specific description. It is used to limit the area in which the agreement is binding. It enables you as the Buyer to utilize the services of another Agent if you decide to purchase in different area. For example, if you signed an agreement with an Agent in Halton County, but then decided to look in the Niagara region, you wouldn’t be bound to the Halton Agent and have to rely on them to provide you with information about an area they have no knowledge of.
Time Period - The length of time for which the Agreement will be in effect. Although there are no standards that have to be followed, generally when buying a cottage three months is the minimum time frame you should consider with six months or longer being typical.
Property Type – This refers to the type of property you’re hoping to buy. Generally this will be a home, cottage or vacant land. In any case the description is usually fairly general with the term “Residential” commonly being used.
Geographic Location – This can be a somewhat vague or a very specific description. It is used to limit the area in which the agreement is binding. It enables you as the Buyer to utilize the services of another Agent if you decide to purchase in different area. For example, if you signed an agreement with an Agent in Halton County, but then decided to look in the Niagara region, you wouldn’t be bound to the Halton Agent and have to rely on them to provide you with information about an area they have no knowledge of.
Commission – This is possibly the most confusing part of the Agreement. As a Buyer, you usually will not have to pay any commission to anyone as it will come from the Seller’s proceeds of the sale. There are two instances where you may have to pay commission to your Agent. On the agreement there is a section that indicates the amount of commission the Agent is to be paid. Generally this amount coincides with the amount the Seller indicates on the Listing Agreement. However, if there is a deficiency between this amount and the one posted on the listing agreement, you may be required to make up the difference. This rarely happens and your Agent must notify you of the situation before you make an offer on a property. The other instance would be if you violated the agreement and purchased a property through another Agent in the area the Agreement was meant to represent, or you bought privately. You would then be liable for the total amount of commission owed to the Agent with whom you had signed the Buyer Representation Agreement.
Holdover Period – This is a specific period of time, usually at least 90 days, that states that if, once the agreement has expired, you enter in to an agreement to purchase a property within that holdover period, either privately or through another Agent, and that property was introduced to you by the Agent you originally had the Representation Agreement with, you are liable to pay the full amount of commission to that Agent.
When you enter in to a Buyer Representation Agreement, the Agent is governed by a strict Code of Ethics and legal contractual obligations to ensure all parties are treated fairly and with the highest possible level of service. This is also deemed to be a “Fiduciary Relationship” and accordingly, there are fiduciary duties that an Agent owes to his or her Clients.
Accountability – The Agent must maintain accurate record keeping and upon the clients request, the Agent must provide details of all funds held in trust and all monies handled on behalf of the client.
Confidentiality – The Agent must not use any information received from the client in a way that may harm or negatively affect the client with regard to the transaction.
Competence – The Agent must maintained a sufficient level of knowledge and skill in order to carry out the required duties as well as exercise a degree of care and professionalism that could be expected from the average person in that field.
Good Faith/Full Disclosure – The Agent is required to disclose any direct or indirect personal interest they may have regarding a transaction and must not let any personal interest conflict with the performance of their duties. The Agent must also disclose any known relevant and material information that may affect the value or desirability of a property to the client.
Loyalty – The Agent must at all times place the interests of the client above all else except the law and is obligated to act solely in the best interests of the client.
Obedience – The Agent is under a duty to follow the clients’ lawful instructions regarding a transaction whether the Agent agrees with them or not.
When you sign a Buyer Representation Agreement, it is a legally binding contract between the two parties and both are bound by it until its completion or expiration. A good Agent will always allow you to cancel the agreement at anytime if you are not satisfied with the service they are providing. But then again, if they’re a good Agent, you should have no reason or need to cancel the contract!!
Buyer Consumer Service Agreement
- They have the legal duty to avoid misrepresentation of the property and any A Buyer Customer Service Agreement is somewhat the opposite to the Buyer Agency Agreement. This is used when the Buyer does not want to commit themselves to any one particular Agent. They want the freedom to be able to deal with any number or combination of Agents they choose. When you sign a Customer Service Agreement, you are essentially saying you will Represent Yourself during the transaction and that the Agent will be working on behalf of the Seller and be looking after the sellers best interests. There are still valuable services the Agent can provide to you under this type of relationship such as searching for specific properties, showing the properties to you and drawing up an Offer to Purchase. However, it will be up to you to inquire, verify and confirm any information regarding the state or condition of the property. Even in this case, there are certain guidelines and duties the Agent must follow when dealing with you, the Customer.
- They have the ethical duty to deal fairly, honestly and with integrity.
- They have the legal duty to exercise due care when answering questions and providing information element that may affect the outcome of the transaction.
In this type of arrangement, as the Buyer, you will never be liable to pay commission to anyone unless previously agreed by both parties in writing. The agreement uses the same property description and geographic location as the Buyer Representation as well as whatever time frame the two parties decide the Agreement will be for.
Multiple Representation
One point that needs to be discussed is Multiple Representation. This is when the Agent acts on behalf of both the Buyer and Seller. This generally occurs when you are under a Buyer Representation Agreement and the property you are putting an offer on is listed by the same brokerage. You are then creating a Multiple Representation situation. This must be acknowledge by all parties in writing at the earliest practical time and must be done so prior to any Offer to Purchase being submitted. By signing the Buyer Representation Agreement, you have previously acknowledged that this situation may arise and you consent to the Agent acting for both parties during the transaction. In this situation, the Agent has the duty of full disclosure to both the Buyer and Seller including the requirement to disclose all factual information they may know about the property. However, there are certain items the Agent can not disclose unless instructed to do so in writing by the party involved:
One point that needs to be discussed is Multiple Representation. This is when the Agent acts on behalf of both the Buyer and Seller. This generally occurs when you are under a Buyer Representation Agreement and the property you are putting an offer on is listed by the same brokerage. You are then creating a Multiple Representation situation. This must be acknowledge by all parties in writing at the earliest practical time and must be done so prior to any Offer to Purchase being submitted. By signing the Buyer Representation Agreement, you have previously acknowledged that this situation may arise and you consent to the Agent acting for both parties during the transaction. In this situation, the Agent has the duty of full disclosure to both the Buyer and Seller including the requirement to disclose all factual information they may know about the property. However, there are certain items the Agent can not disclose unless instructed to do so in writing by the party involved:
- That the Seller will accept less than the listed price.
- That the Buyer will pay more than the offered price.
- The motivation of or any personal information about the Buyer or Seller.
- The price the Buyer should offer or the Seller should accept.
- The terms of any other offer.
Although not an ideal situation in the minds of some people, the occurrence of multiple representation is now very common. It’s not something to fear and shouldn’t interfere with the level or quality of service you’ll receive from your Agent, but because it can have an effect on some of the information your Agent is able to share with you, it’s important to be aware of it and to understand its implications.
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