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Couple burned by Buyer Representation Agreement

Purchasers should think twice about signing a Buyer Representation Agreement (BRA) after a family was told they are on the hook for a $37,000 commission despite never closing the deal, says Toronto real estate lawyer Daniel Bernstein.

CTV News reports that the Vaughan, Ont. pair agreed to buy a $1.3-million home on the expectation that their own house would sell for a seven-figure sum. However, the Greater Toronto Area’s red-hot real estate market cooled soon afterwards, leaving both homes overvalued.

Without a buyer for their own home, the couple was unable to complete the purchase and backed out of the deal.

The article says the buyers were prepared to lose their deposit but did not anticipate their real estate agent’s subsequent attempt to collect his lost $37,000 commission, based on a BRA they signed, stating that “the buyer agrees to pay such a commission … even if a transaction … is not completed, if such non-completion is (due) to the buyer's default or neglect."

“Had they not signed the BRA, they would not have any obligation to pay for the commission,” Bernstein, a lawyer with Weltman Bernstein, tells AdvocateDaily.com.

He explains that while many agents will ask clients to sign an agreement, buyers should note that they are under no obligation to do so.

“I would never advise a client of mine to sign a BRA,” Bernstein says.

An article on the Real Estate Council of Ontario’s website says that while BRAs are not mandatory, buyers can benefit from the definition it brings to the relationship between a purchaser and the brokerage representing them.

But Bernstein says real estate agents should be acting in their clients’ best interests anyway, and that BRAs should be carefully explained to purchasers well in advance of any offer being made.

“It shouldn’t be coming up 10 minutes before the offer is made. It should be explained way earlier so that buyers are under no pressure to sign,” he says.

Bernstein says it’s not just failed closings that buyers have to worry about when it comes to a BRA. He says the terms of many agreements provide for clients to make up any shortfall in an expected commission.

Since the share owed to a buyer’s agent is usually paid by the selling brokerage out of the total commission, he says that the amount received by the buyer’s agent may not always match the percentage agreed under the BRA.  

“If the amount that the agent gets is less than agreed, for whatever reason, the buyer will have to come up with the difference,” Bernstein says.

Agreements also typically have a holdover period that commits purchasers to pay commissions if they close a new deal with a new agent within a certain time following an incomplete purchase, he adds.  

The agent in the CTV story told the news outlet in a statement that he had spent many hours on the couple’s file, and that his brokerage had acted with “integrity and honesty.” Any money recovered in court would be donated to charity, he added.

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