BUYER BROKERAGE EXPLAINED

Starting in October 2008, Brokerages are encouraged to obtain written contracts with both a buyer and a seller. It is impossible for your agent to be completely objective without a Buyer Brokerage Agreement in Place. Here's why.

The Competition Bureau is ensuring that the real estate system in Canada has absolutely no uniformity, consistency or standards with respect to commissions payable, either by the seller to their agent, or by the seller, to the buyers agent. From a buyers agent's point of view, this makes it impossible for REALTORS® to represent their clients in an even handed and impartial manner, as it creates a conflict of interest between them, and their buyer, for each and property which is shown (Or not shown).

Under pressure by the competition bureau, and subsequently from the public, some seller's agents will recommend to their clients to reduce the amount payable to the buyer's agent, and still realize the benefit of the MLS® system. In theory at least the seller could reduce the list price by the amount he would have had to pay the buyers agent in hopes of a faster sale. The reality is that this practice results in a higher likelihood that the listing agent will in fact increase the possibility that the listing agent may then ""double-end" the sale. By reducing the brokerage fee being offered to the buyer's agent, the home will in all probability receive fewer showings than those other listings which offered a higher commission. Given the variety and scope of available properties, struggling agents might "accidentally" overlook properties based on a commission offered, regardless of what they will admit to. Whether or not that actually happens, there is the perception that it is happening and this may not sit well with you and certainly doesn't sit well with me.

The system created an unconscionable imbalance whereby it is now completely impossible for real estate practitioners to fairly represent the buyers. No matter how well intended. It's really hard to get excited about a property the benefit to the agent is being weighed on each and every property.

The Federal Government, had now opened the door to a system which was no longer transparent and could adversely affect the buying public in a very negative way. Under the direction of the Real Estate Council, the Real Estate Act (Alberta) was modified to recommend that Realtors now have written service agreements with their customers, buyers and sellers alike. They recognized that unless you believe in the tooth fairy it really wasn't reasonable to expect the Associates to work for nothing, or next to it, and to pretend that it was was creating a smoke and mirror environment where the consumers & the agents lost. It was pretty much impossible for even the most saint-like of us all, to give the same fair and impartial advise on properties offering as little as a dollar commission.

Introducing the Buyer Brokerage Agreement - It has been around for a long time in many parts of the world, but it is pretty new here in Alberta. On the outside, because it's new, the public has difficulty understanding the concept of the Buyer Brokerage, and like anything new, are somewhat resistant to it. They have yet to learn that it was implemented for their benefit.

You Need the Protection of a Brokerage Agreement

The need for a Buyer's Brokerage Agreement has very little to do with whether the agent wishes to lock you into a contract. It has more to do with protecting you, the buyer from any conflict of interest, real or imagined. It allows your agent to work under more favorable conditions so that they can never be accused of anything unethical. The Buyer's Brokerage Agreement accomplishes this by adjusting the amount of the commission being paid to the brokerage, so that it equals the amount which is agreed upon buy the buyer and their agent in advance. The consumer is then ensured of getting the highest level of representation in spite of the commissions being offered. When working under a Buyer Brokerage, the entire transaction becomes transparent and your agent is paid the same, regardless of the commission being offered. All this being said, it's only very rarely does compensation under the agreement actually get triggered. My own experience has been that buyer's as a rule get "turned off" by properties which have any short-fall. More likely than not, once having entered into a Buyer's Brokerage Agreement they will forget all about it and never hear anything of it again, because in the majority of cases the agreement lies dormant until needed.

I have seen fees being offered on the MLS® as low as $1.00 and this is forcing the hand of the industry to take steps to override this type of abuse. Whatever obstacles to business that the competition bureau imparts on the industry, at the end of the day, there must be money available to oil the machine, otherwise the real estate industry would grind to halt. That won't benefit anyone, least of all the consumer. Businesses of any kind cannot operate without a profit and real estate is no exception.

The Buyer Brokerage will become one of the cornerstones of organized real estate. Effective October 1, 2006 amendments to the Real Estate Act state that associates should have a written agreement in place with their customers. The agreement should outline the services which are being offered, the amount of compensation, and how it will be paid. In time, it will be difficult to find an agent of any worth who is willing to start a project without a Buyer Brokerage Agreement simply because without one, it places him/her in an untenable position they are placed. For the time being however, the Real Estate Council, who is legislated to protect the interests of the consumer seems to be taking a wait and see attitude with respect to making these agreements mandatory, probably out of fear of reprisal from industry members. Until such time as the Buyer's Brokerage Agreement becomes legislated, it will always be just another great idea which fell by the wayside due to lack of interest. As a member of the buying public, you need to make sure that you protect yourself against any conflicts of interest. You would be well advised to request a Buyers Brokerage Agreement

This is becoming even more of a reality when in November 2010 the Canadian Real Estate Association escalated the problem by buckling under pressure from the Competition Bureau to allow sellers wishing to represent themselves in a transaction, and still realize the benefit of the MLS® system, be able to do so under reduced service fee models. I foresee a time in the not too distant future when buyer's agents will need to take retainers from prospective buyers, in order to ensure their livelihood, but to date that time has not yet arrived.

Here is a sample Buyers Brokerage Contract dated January 2006. The form has been updated several times so that now, it may be up to four pages long, and much more complicated and convoluted, making it difficult to understand, but it does the same or greater protection than this one.