Happy New Year- Buyer's Beware

Buyer's Beware


Julie’s story is a great example of what not to do. She and her husband, looking at cottage properties in the Muskoka area, had made appointments with several realtors.



“The agent pushed a form across the desk that said `buyer agreement’ on it. She told us she could not take us to the first showing until we had signed this document,” Julie said.



“We drove in our car, following the agent in her car, to four properties. At most 1.5 hours later, we said goodbye.”



Only when they returned to Toronto did they read what they had agreed to. They were locked into an exclusive relationship for six months, covering any properties in the Muskoka area.



The broker of record at the firm offered to assign a more experienced agent to work with them, but refused to rip up the document.



The couple waited until the agreement expired to look in Muskoka again, not wanting to deal with a firm that abused their trust by filling out forms without consulting them.



“We went on a blind date and turned out to have signed a marriage license,” Julie complained.



Bill Johnston, president of the Toronto Real Estate Board, has heard such stories before. As a lawyer and a realtor, he knows that buyer agreements can cause confusion and stress when not used properly.



“It’s an outrage,” he says about an agreement covering a six-month period when the buyer and agent have just met each other.



“You can have a trial marriage for a week to 10 days to see if it works out. That serves the client’s interests as well as the agent’s.”



He’s also concerned about agreements that cover too wide an area.



“Market knowledge is critical. Residential real estate people are localized in our expertise,” he adds.



Filling out a form that specifies an exclusive relationship for any properties in the province of Ontario — which he’s seen — is also outrageous, he says.



Let’s go back a few decades to see how the relationship between buyers and real estate agents has evolved.



In 1983, the Federal Trade Commission in the United States did a study showing that three out of four buyers believed the agent they worked with represented their interests.



In those days, agents working with buyers were under a legal obligation to get the highest price for the seller. They couldn’t put a buyer’s interests first (though many still did).



The FTC report led to changes on both sides of the border. Starting in 1995, the Canadian Real Estate Association said agents had to disclose in writing how they were acting for buyers.



The disclosure rules were adopted by the Real Estate Council of Ontario, a public agency formed to regulate the industry and protect consumers.



Buyers now have a choice. They can sign a buyer representation agreement, confirming an exclusive relationship for a period of time with a realtor firm committed to make best efforts on the buyer’s behalf.



They can also sign a buyer customer service agreement, acknowledging that a broker has explained agency relationships (such as sub-agency, buyer representation, multiple representation and customer service).



The Toronto Real Estate Board has created YouTube videos and a website, www.BRAfirst.ca, to give the benefits of a buyer representation agreement. Here’s how Johnston sees it.



“I’m investing a lot of time and effort, using my expertise, negotiating on your behalf. I’m obliged to show you any properties that meet your search parameters. I bring a lot of valuable services to the table.



“There needs to be some reciprocity. I need to know you’re serious. Otherwise, it’s like a lottery.”



Here are the best practices he recommends to avoid confusion with buyer representation agreements.



Introduce the agreement at the outset of a relationship. Talk about signing it for a week or 10 days. If that works, go up to a month or two.



Limit the agreement to a specific address or neighbourhood. Don’t write “the city of Toronto.”



Tell buyers they can sign a representation agreement or refuse to sign it. They have a choice.



Provide a written service guarantee, agreeing to release buyers from an agreement if they’re dissatisfied (as long as they pay commissions on any property shown by the agent if purchased later).



Never give buyers a representation agreement to sign — without explaining it — just before they submit an offer on a home.



“That’s unethical behaviour and shouldn’t happen,” Johnston says