There's nothing like the humdrum of paperwork to bog down the excitement of a house hunt. But much like opening a new bank account or purchasing a car, buying a home comes with its fair share of contracts to sign and legalese to decode.
Arguably the first contract that comes into play for buyers is a Buyer Representation Agreement (commonly abbreviated to BRA).
A BRA is a legally binding contract that puts in writing that you will work exclusively with one real-estate brokerage for a certain amount of time. So, why would you sign a BRA as a buyer and what do you need to be aware of before putting your name on the dotted line?
Below, TheRedPin has outlined the six key facts you need to be aware of regarding BRAs:
1. There are benefits to signing a BRA for home buyers
A home is a huge financial and emotional purchase, and a BRA helps bring some much-needed clarity and formality to the process.
By a signing a BRA, you can outline all your wants and needs for a property (legally on paper), clearly outlining all the services your realtor is obliged to deliver and remove any possible concerns around how commissions will be paid out.
A BRA also makes it so a real-estate brokerage has a fiduciary responsibility to work in your best interest and ensures they're prohibited from sharing anything you'd like to be kept private from the home seller. Remember, while your agent is helping you find a home, technically, they're also working with the seller's agent to get a deal closed. With a BRA, you can rest assured knowing your agent isn't sharing anything without your explicit permission.
2. Signing a BRA isn't a legal requirement
You don't have to sign a BRA and you can hire a real-estate agent when buying a home without putting anything on paper. While some agents have it as a personal customer-client requirement, many agents are receptive to working without a BRA in place.
The big takeaway here is, don't let anyone rush you into signing paperwork under the guise it's a legal requirement.
3. You don't have to buy a home even if you signed a BRA
BRAs have an expiry date and you can negotiate with your realtor the extent of the contract period.
Also, you're not required to buy a home during the BRA period, so if you negotiated a one-month contract with your agent, don't worry, you won't actually have to put an offer on a home during that time. A BRA can expire without you ever buying a home.
A BRA is a legal agreement, so take that into account when signing off your name and initials.
4. BRAs help sort out commissions
Real estate commissions are confusing, but BRAs go a long way in clearing them up.
As a buyer, you don't directly pay any commission to your realtor, as they receive their earnings from the home seller. However, in some cases, such as when the property you're looking at is a for sale by owner, you may have to fork over the commission yourself.
In such cases, a BRA helps clarify what percentage of a property's selling price you would owe to an agent. This helps remove any confusion around how and by how much your agent will be compensated ahead of time.
If you want to read more about how realtor commissions work, make sure to read TheRedPin's blog post here.
5. Keep an eye out for the holdover period
The holdover period is a clause present in most BRAs that all buyers should be aware of because, in those rare situations where it can come into play, it can add up to thousands more in unexpected commissions for buyers.
When does the holdover clause apply?
Let's say your agent showed you a home, and you liked it but didn't put an offer down. Once your BRA expires, you decide to go to the home seller directly (or with a different agent) and sign an agreement to purchase the property. If you do so during a short window of time after your BRA with the first agent expired, you may still have to pay them commissions.
The holdover clause is meant to protect the buyer's agent to ensure if he or she was responsible for showing you the property, they get appropriately compensated.
6. Read the fine print. BRAs can be tough to cancel
While some agents may be willing to cancel a BRA before it expires, that won't always be the case. A BRA is a legal agreement, so take that into account when signing off your name and initials. If you do face issues and an agent isn't willing to scrap or amend the contract, raising your concerns with your agent's brokerage should be your first course of action.
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