Understanding Agreements With Your Realtor®

Hey future home buyers and sellers!

Ready to dive into the real estate game?

Before you do, let’s chat about a crucial aspect that, I think, often floats under the radar: Brokerage Representation Agreements. When we purchased our home, before I became a real estate agent, I don’t remember signing any such document. I must have as it is legally required in Alberta, but it certainly wasn’t explained to me.

So, let me break it down for you so you know EXACTLY what you, and your Realtor®, are responsible for.

Alright, assume you’re gearing up to buy or sell a property and have chosen your preferred Realtor®. Before you hit the ground running, there is an important document that must be signed by both parties – the Brokerage Representation Agreement – let’s break it down.

When you sign on the dotted line, you’re essentially saying, “Hey Realtor®, you’re my official guide in this real estate jungle.” The agreement outlines how long the partnership lasts, which is typically a few months to up to a year but can really be any length – depending on where you’re at in the journey. You are in control when setting this timeframe.

1. Common Misconception

In Alberta, Representation Agreements are between a client and a Brokerage. The brokerage then ‘appoints’ your preferred Realtor®. 

2. Designated Agency vs. Common Law Agency 

There are two different types of agencies in real estate: Designated and Common Law.

Common Law Agency means anyone from that brokerage (not just your assigned Realtor) can step in and represent you. The problem with this type of agency is conflict of interest. Say you’re a buyer and you find the perfect home. If your chosen brokerage is already representing that seller, you are now in a conflict of interest because all agents at that brokerage have access to that seller’s information, motivation, bottom line etc. If you find yourself in this situation, you have two options. 1. You can become a Customer of your agent so that they can still help facilitate the transaction, however, they can no longer guide you in decision making or negotiate on your behalf. 2. You go find a new agent at another brokerage; not ideal when you’ve found your dream home and are ready to pull the trigger! Timing is everything in real estate.

A newer take on agency, and my preferred type, is Designated Agency. Although the service agreement is between you and the brokerage, the agency and fiduciary relationship is between you and your designated agent. Your confidential information is not shared across the brokerage thus making it less likely for your Realtor® to find themselves in a conflict of interest; and you being left to navigate alone! Your agent must disclose upfront which type of agency they belong to. 

Whichever type of agency your Realtor works in, they must uphold the same fiduciary duties – Loyalty, Obedience, Confidentiality, Competence, Disclosure and Accounting.

 3. Exclusive vs. Non-Exclusive

An exclusive agreement means your Realtor® is your sole navigator. No other Realtors® allowed. On the flip side, a non-exclusive agreement lets you work with multiple Realtors® simultaneously. It’s like having a few tour guides in different parts of the jungle. Be careful with this one! If you sign multiple exclusive agreements with different agents but only end up closing a transaction with one, you could be held legally and financially responsible to pay a commission to the other agents you’ve signed an agreement with. 

4. Commission

The standard commission structure for home sales in Cochrane is 7% on the first $100,000 of the sale price plus 3% on the balance. This amount is then split equally between the seller’s agent and the buyer’s agent. The commission is paid out by the completion of the transaction – when the buyer gets the keys to their new home! I think most people see this format as the seller paying the commissions, but I would argue that the buyer is actually paying as they are the ones bringing forward the money to complete the transaction! 

*Important note for buyers* - if you decide to purchase a home where the seller is NOT agreeing to pay the standard rate (ie. for sale by owner or discount brokerages such as 1% and 2% Realty) you may be on the hook to pay your agent’s commission, out of pocket. Remember, the Buyer Representation Agreement you signed notes how much the agent is to be paid. If the transaction is not paying the amount in full, you are responsible for paying for your Realtor’s help. 

5. What’s in it for you?

So, now that we know what’s in it for your agent, what are the perks of this partnership for you? The agreement spells out your Real Estate Professional's duties, from scouting properties to negotiating deals to protecting your privacy. It’s like a job description, ensuring you know exactly what to expect and you can hold them accountable to always work in your best interest.

6. Respect the clock

Timelines matter in the real estate realm. Your agreement will have a start date and end date clearly stating how long your Realtor® will be your wing-person in the real estate jungle. Remember, your agreement is between you and a Brokerage so if you decide your Realtor® is not a good fit, you can speak to them and their Broker to find a better match. 

7. Communication is Key

Navigating the real estate jungle is a team effort. A Real Estate Professional's job exists because it’s impossible to know everything about everything - regardless of what the internet might make you believe! They are here to educate, to guide, to protect. Keeping the lines of communication open, honest and direct will help ensure a smooth and enjoyable experience. After all, buying or selling a home is a huge life decision! Let the experts help you make informed decisions. 

In the world of real estate, the Brokerage Representation Agreement is your trusty guidebook. It clarifies expectations and keeps everyone on the same page ensuring a great experience. So, before you embark on your real estate adventure, take a moment to understand and appreciate this roadmap.