The Buyer Representation Agreement

What is a Buyer Representation Agreement?

The Buyer Representation Agreement (BRA) is a contract between a buyer and a real estate brokerage that outlines the terms of their working relationship.

To oversimplify it, the buyer is agreeing to work exclusively with a specific real estate brokerage (and agent) and the brokerage is agreeing to work on behalf of the buyer's best interests (fiduciary duty).

The main terms of the BRA are:

• Time Length
  The start and end date that the BRA will cover. If this time length exceeds 6 months, an additional initial is required from the buyer.
• Property Description
  The type (use) and geographic location of the property that the buyer is looking to purchase.
• Commission
  The minimum commission that the brokerage is working for. The standard BRA states that the buyer agrees to pay the brokerage any deficiency between the amount in the BRA and the amount offered by the listing brokerage.
• Holdover Period
  The time period following the expiration of the BRA where the brokerage is still entitled to receive commission, if they introduced or showed the property to the buyer during the term of the BRA.

What happens if a buyer breaches a Buyer Representation Agreement?

If a buyer purchases a property through a different brokerage, despite having a signed BRA with another, this amounts to a breach of contract.

This gives the original brokerage (and agent) the legal right to enforce their BRA and claim damages. Since this is contract law, the brokerage is entitled to damages as if the contract were completed, in other words, they're entitled to the commission amount agreed to in the BRA.

The brokerage can either attempt to settle the matter with the buyer or file a statement of claim and rely on the court system.

If the commission being sought is $35,000 or less, the brokerage can proceed in Small Claims Court. The benefit of this is a quicker and less costly process.

If the commission being sought is more than $35,000, the brokerage will have to proceed through the Superior Court of Justice

What needs to be proven?

Once a BRA dispute gets in front of a judge (or deputy judge), they're going to look for a few key requirements to determine whether the brokerage is entitled to commission.

First off, is the BRA filled out properly?

Does it include the right persons name - meaning the same name as the person who holds title of the purchased property? Is the correct location included in the BRA? Is the property described right?

If any of this information is incorrect, the claim for commission will likely fail before it begins.

But if it is established that the BRA was formed correctly, the issue usually comes down to "informed consent".

This means, did the buyer understand exactly what they were signing? Or in the practical legal context, can the agent prove that they fulfilled their obligation and properly explained the BRA?

Rather than tell you in my own words, there's a 2016 decision (Century 21 People’s Choice Realty Inc v Saleem) where the judge explained exactly what an agent needs to do to:

...when it comes to execution and delivery of buyer representation agreements. They must, at a minimum, ensure they do the following:

a) Explain in very clear terms that the representation agreement is different in form and purpose from any offer to purchase that might be discussed when the representation agreement is tabled;

b) Sign the representation agreement in an office environment, not in, or on a car;

c) Explain to the buyer that the representation agreement is how the agent gets paid for their services;

d) Explain in the buyer’s native tongue, (where necessary), the main terms of the agreement, namely the term, commission rate, exclusive nature of their representation, and draw the buyer’s attention to the nature and purpose of the holdover provision;

e) Make it absolutely clear to the buyer that under the holdover provision their obligations under the representation agreement will continue even if the relationship between agent and buyer breaks down, and

f) Physically separate, and distinguish the representation agreement from any offer to purchase if successive signature of both cannot be avoided.

[121] To my mind, if these simple steps are taken it would make enforcement of buyer representation agreements much easier. It is not enough to rely upon the “acknowledgment” provision toward the end of these agreements as evidence of the buyer’s understanding and acceptance thereof. This provision itself has to be explained if reliance thereon is sought.

Now, I realize that digital signatures and virtual meetings will alter the exact execution of this list in today's practice, but the spirit of the list still holds up. If a brokerage can prove that their agent did all the things mentioned above, that BRA will likely be enforced and the buyer will be liable to pay the agreed upon commission.

Summary

• The BRA establishes an agency relationship between buyer and brokerage
• If a buyer breaches a BRA, the brokerage could still be entitled to commission
• A court will look at whether the BRA was drafted correctly, and whether it was adequately explained to the buyer