Will Buyer Representative Agreements Cost Discount Sellers?

It didn’t take long for misinformation and inaccuracies around the upcoming mandatory Buyer Representation Agreement to materialize.

Before I broach the article in question, I’d like to first state that I’m not a “discount” real estate agent so my rebuttal is not motivated out of self-interest.  Secondly, I’ve previously written about whether a client should use a discount or full service brokerage, so feel free to read it if you’re interested in my opinion.

The article that grabbed my attention yesterday evening and left me shaking my head appeared on Newswire, entitled:  “Home Sellers Beware – With Buyer Agreements Coming Into Effect July 1st Are So-Called Discount Real Estate Brokerages Actually Costing You The Sale?

Please have a read through because I’m not going to paraphrase it.   I want to touch on two statements that were outright false.

  “Discounting commission as a seller (to the Buyer’s Agent) can ultimately be a self-defeating strategy because home buyers sign an “Exclusive/Non-Exclusive Buyer Brokerage Agreement or Service Agreement with their agents (which becomes mandatory July 1, 2014). Section 7.1 of this agreement states the fee paid by the seller to the Buyer’s Brokerage will be what is common within the marketplace, in Calgary 3.5% of the first $100,000.00 & 1.5% of the remainder.”

Let’s take a look at Section 7.1 of these agreements, shall we?

For your convenience, here’s a screencap of Section 7.1 from each agreement:

7.1 nonexclusive

Section 7.1 of the Non-Exclusive Buyer Agreement

7.1 exclusive

Section 7.1 in the Exclusive Buyer Agreement

As you can see, the fee is not predetermined to be “what is common within the marketplace.”   The Competition Bureau would fine us out of existence if that were true.    Even the opening line of the Newswire article acknowledges that “it’s against the law to have a fixed or standard commission in the real estate industry.”  Each agent has their own business model which is why the fee section is left blank in the Exclusive BRA.

In the case of the non-exclusive BRA, there isn’t a fee to speak of at all: “You will not be responsible for payment of our fee in any circumstances.”

Another comment I took issue with was:

 “With a Buyer Brokerage/Service Agreement in place, the buyer is not expecting to have to pay any commission on the sale. This causes buyers and their agents to overlook properties listed at discounted commission rates, which prevents the seller from obtaining maximum market exposure for their property.”

Whether the buyer is expecting to pay commission out-of-pocket depends entirely on the type of service agreement they signed and what fee was agreed upon.   To make a blanket statement that all buyers that sign a BRA are not expecting to pay their buyer agent directly is wrong.

In conclusion I’d like to address the question: If I were a buyer, would I ever sign the Exclusive Buyer Representation Agreement?   No.  Section 3 of  both the exclusive & non-exclusive agreement that outlines the agent’s responsibilities are exactly the same.

Real estate lawyer Lou Pesta with Walsh LPP asked this thought provoking question to make a great point:  ” If a buyer was comparing between two different Brokerages (or even two different representatives within the same Brokerage) and they both provided the same level of service but one of them was prepared to do so under a non-exclusive agreement, can we still argue that it is in their best interest to sign the exclusive contract?”

From an objective point of view, we can clearly answer ‘no’.

Related post:  Buyer Representation Agreements: What You Need To Know

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