Why sign a service agreement or buyer brokerage agreement

Since July 2014, the RECA, the Real Estate Council of Alberta, made it mandatory that realtors sign an agreement with buyers. These service agreements have always existed, but before this agreement became mandatory, most realtors didn’t use them. Even today, sometimes realtors take buyers home hunting without any agreement in place. It is mandatory, but some realtors wait until clients signed an actual offer before having them sign this agreement. Actually, though, an agreement between buyer and agent is beneficial for both parties.
The service agreement is often called the buyer brokerage agreement and is affixed in the Real Estate Act for the protection of the consumer. A realtor who hasn’t signed an agreement is in breach of the law.

What is in the buyer brokerage agreement?

The service agreement, also called the buyer brokerage agreement, lays out, in writing, the obligations a realtor has towards the buying client. But it also sets out the obligations the buyer has towards the realtor. Thus, the agreement serves both parties. It is very important to read the entire agreement before you sign. And never be afraid to ask questions.

Commissions are clear with a buyer brokerage agreement

This service agreement also indicates the realtor’s commission that a buyer has to pay when a property is bought. However, in most cases in Calgary, the seller pays a commission to the seller’s brokerage and this seller’s brokerage pays the buying brokerage a part of that commission. Thereafter, the buying brokerage pays out to the buying realtor. This all means that, again in most cases, no money comes out of the buyer’s pocket. This structure is laid out in this agreement, so there cannot be any misunderstanding about any compensation between the buyer’s realtor and the buyer.

Exclusive and non-exclusive agreements

There are two service agreements available: exclusive and non-exclusive agreements. Non-exclusive agreements give a buyer the option to work with more than one agent. However, most, if not all agents, will only work with an exclusive agreement.
But if a buyer has an interest in more than one specific property and wants to use a ‘specialized’ realtor for a purchase, these written agreements can include different wording. However, specialization within real estate does not really exist in Calgary. Most realtors can and will buy and sell any type of property in Calgary and all surrounding towns: condos, single family homes, townhouses, vacant land, etc. Only country residential or commercial properties require a different license.

Why signing a buyer brokerage agreement may work to the buyer’s advantage

A buyer brokerage agreement lays out a base of trust between the realtor and the buyer. Trust in each other is important and comes back in commitment and dedication; that is just a human factor. If a buyer is not willing to sign a buyer brokerage agreement, there may be a lack of trust. However, the buyer still expects a realtor to get into action, driving buyers around showing properties 7 days a week, doing research, writing offers and negotiating. And if a realtor is not sure of ever getting reimbursement for the work done, that can be a reason for a realtor to push a buyer into a quick sale of a home.

Even though it is mandatory, it is somewhat understandable that buyers may be cautious about signing a buyer brokerage or service agreement. If that is the case, it is only fair that the buyer honestly discuss this with the realtor upfront because many things are easy to explain and clarify. And if the explanations still don’t give satisfaction, then a buyer and realtor can part ways before the signing of any agreement.

 

 

No sale no pay makes the real estate system more expensive

Real estate is designed on a business model that is 100% based on commission only. It is actually the last profession that works 100% on commission only. This means that realtors can spend weeks, months if not years, driving around with buyers when, at any time, the buyer can decide not to buy home. A buyer deciding not to buy a home after a substantial house hunting is not an uncommon scenario, and it happens to practically every realtor. This causes real estate fees to be higher.

 

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FAQ’s about a buyer brokerage agreement or service agreement

 

 

What if a realtor is not asking you to sign a buyer brokerage agreement?

First of all, a realtor who does not have an agreement in place with a buyer is in breach of the law. In Calgary, service agreements or buyer brokerage agreements are mandatory since 2014. When a realtor does not ask for this agreement, it can be a red flag from several perspectives. Possibly the realtor is not up to date on the rules and regulations that are part of the real estate license. Or, perhaps, the realtor is too afraid to ask for a commitment because asking for an agreement can end up in losing the client. But one of the biggest red flags of a realtor working without any agreement may be that the realtor does not wish to show that many homes. Rather, ‘the deal’ needs to be done quickly to not lose it. There are many realtors in Calgary, on average over 5500, and a buyer can easily ask another realtor to show and purchase a home.

What if I signed a buyer brokerage agreement but don’t buy a house at all?

If you don’t buy a house, you don’t pay the realtor anything. That is, unless you had agreed upon a retainer fee. We have never asked for a retainer fee, but we have heard of agents who do. Consequently, it is another one of the reasons that real estate commissions are perceived as high. There are always buyers who end up not buying, even after seeing many homes and even after writing offers that didn’t come to fruition. We have gone as far as showing 80+ homes to a buyer who decided to move to another city.

What happens if the seller does not pay all the commission, and how often does that happen?

Sometimes, the commission offered by the seller does not cover the commission that the buyer’s agent requests. In that case, the buying realtor may ask the buyer for the difference. Every buying realtor deals with this scenario differently, so it is good to discuss this beforehand. In our practice, it rarely happens.

Not all, but many self-represented sellers offer less commission to save on selling costs. They save on both sides: their selling side and their buying side. Also, in Calgary, there are a few discount brokerages. These discount brokerages can offer less commission on the buying side. However, if they are in the role of buying agent, they take full commission. Eventually, nearly all builders offer commissions, yet some offer less commission than often expected by a buyer’s agent.

What if I want to buy a home from a builder while under a service agreement?

Nearly all home builders in Calgary offer buying realtors some remuneration. However, the realtor must join the buyer into the showhome on the very first visit! If a buyer does not bring a realtor on the first visit, then the builder has the right to exclude the realtor. And if there is a buyer’s agreement in place, then the buyer may be “on the hook” to pay personally for the commissions as agreed upon. Another note to mention is that not all new home builders offer the exact commission laid out in the buyer’s agreement.
If you are thinking of exploring newly built homes as well, discuss this with your realtor before signing the agreement.
Builders have their own sales staff who are not bound by the Real Estate Act like realtors are. They are 100% sales driven. The sales staff will never ask if you have an agreement with a realtor.

What if a service agreement is in place and the realtor is not available?

Officially, every service agreement is between the brokerage and client, while the realtor is the dedicated representative and usually the only person the buyer deals with. If the realtor is not available (i.e. on vacation), that realtor needs to find another realtor to help out with showings and negotiations. Ideally, this ‘back-up’ realtor is from the same brokerage. Essentially, a buyer has signed for representation and must expect this one way or another. Never venture on your own and have the listing realtor sell the house. The listing realtor is only working, by law, in the best interests of the seller. So, this is a situation that can go wrong in many ways. If the realtor cannot be contacted, and no back-up realtor is in place, the next best step is to contact the broker. Brokerages and brokers can be found here at the RECA website for contact information.

How committed is the realtor anyway?

Once a realtor and buyer have signed a service agreement, the buyer should expect full commitment from the agent. In Calgary, about 50% of all realtors only do one or two transactions a year. Many realtors work part-time or even full-time at another type of employment. Either way, these realtors have more time at their disposal than full-time and dedicated agents, for whom real estate is their livelihood. But realtors with commitments to another job are often less flexible with showings and negotiations. Naturally, if the buyer has signed a service agreement, s/he should expect a realtor who has extensive experience with negotiations, is skilled and knowledgeable. A part-time realtor may not be as qualified a full-time realtor.

Can I get out of the agreement with my realtor?

The short answer is yes, you can get out of the agreement with your realtor if the realtor is in breach of agreement. Maybe the realtor is not performing or not acting in the buyer’s best interests. Or maybe the buyer’s personal situation has changed, such as having lost a job, or having to move to another city for work or personal reasons.

For a more detailed response, we wrote a separate article about how to get out of the agreement with your buying realtor.

Why is it called a buyer brokerage agreement?

It is called a buyer brokerage agreement because every realtor’s license is held by a brokerage. Ultimately, every buyer or seller has an agreement with a brokerage, while the realtor is the representative for this brokerage. The brokerage’s broker is, in essence, responsible for the actions of the realtor.

While the buyer’s first contact is obviously the realtor, the buyer can always contact the broker if s/he has complaints or concerns.
Be aware that some real estate teams appear as a brokerage, while they are, instead, a well promoted team within this brokerage. This is very deceiving to the public but is allowed. So, make sure you understand exactly whom you are dealing with before signing anything.

How we work

We do understand that the public can be cautious about signing a buyer brokerage agreement. We have all heard the horror stories. Who can you trust? Who does perform as promised? For that reason, we never ask you to sign a buyer brokerage at our first meeting. We will take you out on showings a few times, and when you feel comfortable with us, we then have you sign.
We have been in real estate since 2009, and we have always had our clients sign an agreement. Whether buyers need to see 5 homes or 100 homes, this allows us to give buyers all the dedication they need to make the biggest purchase of their life.
It seems only fair to us that you as a buyer get to know us first, to earn our trust. A first impression counts, but if it comes to the biggest investment of your life, you want to know whom you are dealing with. We, like you, would never want to be pushed into signing with someone we barely know.
Because of hard work, our business is 90 to 95% referral based. And your friends or family referring us already gives an indication that they trust us with your real estate matters. It lays the basis of trust.

 

Contact us any time if you want to chat further, or if you have any questions about the buyer brokerage agreement.