What happens when a buyer client violates their agreement?

Just like tall fences make good neighbours, clear contracts make good relationships, and AREA’s representation agreements make clear, and in plain language, the parties expectations. When clearly explained and reviewed by the parties to the agreement, there is some ambiguity about the parties’ responsibilities in a representation agreement. Let’s think through the process of a buyer violating their agreement.

The Agreement

The simple fact about an Exclusive Buyer Representation Agreement is that, in plain terms, the brokerage agrees to provide representation services, and in exchange, the buyer agrees those services are worth a certain fee payable to the brokerage. The agreement permits the brokerage to seek their fee from the seller’s brokerage or the seller in a transaction instead of the buyer paying directly, which happens in most cases for properties marketed on the MLS^® system. However, the most common issue is when a buyer uses another brokerage to purchase a property despite having already signed an Exclusive Buyer Representation Agreement with a brokerage for the same type of property covered by the agreement. This does not negate the buyer’s obligation to the brokerage. In fact, the buyer agrees in advance that any property they purchase during the agreement that falls under the search criteria established in the agreement will prompt payment to the brokerage even if they don’t buy through the brokerage in the agreement.

The Most Common Cause

Although there are times when the buyer simply disregards the agreement they made for unknown reasons, I would suggest the most common cause is a need for more understanding. When using an exclusive agreement, the brokerage must take the extra time to walk through it with the buyer to ensure they understand what they agree to and how the agreement will function in various situations, including a breach. It is not best practice to include the Exclusive Buyer Representation Agreement in a multi-page package of documents to be e-signed by the client. With any relationship agreement, the best time to avoid conflicts is before the conflicts happen, and the best way to do that is to clearly explain the relationship agreement section-by-section with the client and, when possible, in person. That said, the agreements are written in plain language and can be understood by the client in a plain reading of the text and, once signed, are binding upon the client.

What is the Brokerage Recourse?

In situations where a buyer does purchase a property that the agreement would cover but through another method outside of the brokerage, the fee is owed, and the agreement, if appropriately completed, is legally binding and defensible. Unfortunately, the only method of collecting the fee is directly from the buyer and, if necessary, through civil litigation alone. There is no recourse for compensation through the other brokerage, who did end up representing the client in the purchase since the agreement is with the buyer rather than the other brokerage. Under provincial Harmonized Rules, all REALTORS^® must ask a buyer if they have signed an agreement with another brokerage, and if so, inform them that the buyer could be required to pay a fee under that agreement as well as theirs. If the REALTOR^® failed to ask this question and inform the buyer of the risk, this could be a professional standards complaint, but there is no path to compensation by that method. Civil litigation is expensive, time-consuming, and publicly messy against a buyer, so making the best attempts to ensure the buyer knows and understands their obligations to the brokerage from the offset is still the best way to avoid conflicts.

Retainers. Really?

Yes! The standard AREA Exclusive Buyer Representation Agreement includes the ability to take and hold a retainer fee against the fee ultimately paid for services provided to the buyer. Although unconventional in traditional real estate transactions, this concept is not unfamiliar to most consumers. Mandatory for most law firms today for the provision of legal services, retainer fees for real estate brokerages are a method of ensuring that the client understands their financial obligation to the brokerage and participates in the process by providing security to the brokerage that they will abide by the agreement they are making.

I have personally known REALTORS^® in my career who successfully integrated retainers into their buyer consultation process and had very little resistance from their buyer clients about it. Still, the benefits of an increased understanding of professionalism and the security of the buyer’s loyalty provided a base for a wonderful and successful transaction. Retainers are an option that has been summarily dismissed by many REALTORS^® and may be worth a fresh look as markets shift. By way of mention, the retainer fee must be payable to the brokerage and never the REALTOR^®, and not deposited in trust since there are no terms of trust established in the agreement for retainer fees.

Non-Exclusive Agreements

A final mention about non-exclusive buyer representation agreements: everything discussed in this article does not apply to my REALTOR^® friends using Non-exclusive buyer agreements because they are non-exclusive. The non-exclusive agreement requires the brokerage to offer full fiduciary duties and services to the buyer. However, the buyer is free to use any other brokerage or method to purchase without any requirement to compensate the brokerage or offer any loyalty to the brokerage. Sometimes, a non-exclusive agreement is viable, but it is wholly one-sided and should be the exception and not the rule as a best practice.

The best way for a consumer to find the perfect property is to hire a REALTOR^® to do all the work of searching, filtering, showing, and advising. The best way to ensure a strong, smooth relationship is to clarify the expectations of the buyer and the REALTOR^® before the work begins by using and explaining the right agreement for the relationship.