What is a Buyer-Broker Agreement?

When buying a home, there are hundreds of documents to review and sign. Perhaps none are as consequential to the success or failure of a transaction as the representation agreement you make with your broker. Before entering into purchase, you should know the reason for the documentation and the implications of adding your signature. 

In this latest post, we’ll explain the buyer-broker agreement, its role in defining your relationship with the broker, and the terms of your purchase. 

Types of Representation in Toronto

The Real Estate Council of Ontario governs real estate regulations in Ontario. RECO clearly defines the two types of buyer-broker agreements available to Ontario buyers.

Brokerage Representation Agreement

A brokerage representation agreement is a contract through which the brokerage represents you and your best interests while one of their agents will be your primary point of contact.

Designated Representation Agreement

Under a designated representation agreement, one or more agents from the brokerage will be your designated representative(s) and must promote and protect your best interests. However, the brokerage and its other agents are required to treat you objectively under this agreement. 

The Scope of the Buyer-Broker Agreement

The agreement must clearly outline the scope of the buyer-broker relationship and the services the broker will provide. The scope of the agreement can include:

The Duration of the Contract

What is your timeframe for finding a property? This brokerage agreement should include the timeline to find and buy a home. Generally, the contracts include durations of several months up to one year.

The Area of Your Search

What is the geographical target area in which you’re looking to buy a home? Setting clear boundaries for the target area helps ensure that, should you pursue other real estate transactions within the same timeframe in a different region, there’s no room for the broker to claim payment for a non-related transaction.

Property Description

Within the scope of the buyer-broker agreement, there should be clear language explaining what type of property you’re looking to buy. Is your ideal new home a condo investment property or a single-family home in the countryside? Setting clear parameters for your target property will help ensure the broker can immediately begin finding your ideal new home.

Payment Terms

The financial elements of your buyer-broker agreement require close analysis. Because no RECO rules or government regulations define brokerage payment terms, you and your broker will decide the amount you pay. The agreement should highlight the specific payment terms to which all parties agree. The payment terms and structure explained in the buyer-broker agreement should include the following:

Commission

Commission is the primary method by which buyer’s agents receive compensation. Their commission is usually a split commission with the seller from the total paid by the seller. When selling the properties, the seller pays the commission and divides it between the agent and the seller’s agent.

Percentages

The agreement should also specify the percentage of the total commission the agent will receive. Percentages vary depending on the brokerage but are typically between 2.5% and 3%. Note, however, that Joseph Bitton's Full Service MLS Listing Commission is only 1.25%. See https://torontorealestate4u.com for details and a sliding scale to see how much you will save in commissions.

Payment conditions

The payment conditions are the obligations parties must fulfill for the buying agent to receive their commission. Usually, this is contingent on the purchase and finalization of the transaction. 

Other Fees and Expenses

Within the buyer-broker agreement, the contract will also specify any additional fees or expenses you may be responsible for, including administrative costs such as document purchases or printing. The agreement may also explain whether there are any additional fees or expenses that the buyer may be responsible for, such as administrative fees or costs related to specific services requested by the buyer.

Termination of the Buyer-Broker Agreement

Termination clauses are another crucial element of the buyer-broker contract. The buyer and the broker must agree to the circumstances for termination of the agreement. Included within the termination section of the agreement will be the following:

Termination clauses in buyer-broker agreements define the conditions under which the buyer or the real estate agent can end the contract before its natural expiration. Here’s agreements typically define termination:

Expiration of Term

The agreement will specify the duration for which it is valid (e.g., three months, six months, one year). Upon reaching the end of this term, the agreement naturally expires unless both parties agree to extend it.

Completion of the Transaction

If the buyer successfully purchases a property with the agent's assistance during the term, the agreement may specify that it terminates automatically upon completion.  

Notice Period

The contract will specify a notice period during which either party can provide written notice that they intend to terminate the agreement. Generally, this notice period will be 30 days. 

Legal Grounds for Termination

The buyer-broker agreement should articulate the legal grounds by which the contract can be terminated. For example, the contract may define misconduct, breach of fiduciary duty, and misrepresentation as potential reasons to terminate the agreement. For example, the contract may define misconduct, breach of fiduciary duty, and misrepresentation as potential reasons to terminate the agreement. Most Buyer-Broker Agreements and Listing Agreements to sell a property contain no option or grounds on which the buyer or seller may terminate the agreement. However, Joseph Bitton’s More For Less, Concierge Service System includes an “EZ-EXIT” clause in the buyer-broker agreement as well as in the listing agreements. Joseph Bitton’s EZ EXIT policy allows both buyers and sellers to terminate their contracts on ten days notice where they are not satisfied with services provided by Joseph Bitton and his team.

FAQs on Buyer-Broker Agreements

Should I Sign a Buyer-Broker agreement?

It’s generally always in your best interest to sign a buyer-broker agreement when buying a home. Until you sign a contract, a broker does not have a fiduciary responsibility as your representative. The agreement helps clarify roles and responsibilities and protects you for the contract term. However, in order to protect yourself from an under-performing realtor and being locked into a lengthy agreement, ensure that your agreement contains an EZ EXIT clause allowing you to terminate the agreement in the event that the broker does not fulfill the promised level of service. 

I’ve Signed an Agreement, Can I Speak with Another Broker?

Your buyer-broker agreement should set clear terms for mutually ending the contract. If there is no clear legal guidance within the contract, and you wish to end the relationship with the broker, it’s best to approach them directly about your concerns and the options available.

What If the Agreement Contains a Holdover Clause?

A holdover clause entitles the real estate broker to a fee if you buy a property after the contract ends. If an agent shows you a home and the agreement ends, you would still be required to pay the agent a commission if you purchase the property within the period stated under the holdover clause. 

Call Joseph Bitton for Decades of Experience Buying Toronto Real Estate

The real estate market requires buyers to carefully consider their options before they sign a deal. Joseph Bitton has been helping Toronto buyers find their dream homes for decades. With his years of experience as a Toronto lawyer and realtor, he’ll help you navigate the marketplace and save money on your home purchase or sale. Call Joseph Bitton now at 416-801-8600 to learn more.