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Mandatory Written Service Agreements for Buyer-Clients in Alberta - Effective July 1, 2014.

On July 1st, 2014, the Real Estate Council of Alberta (RECA) will require real estate industry members (REALTOR® members and non-REALTOR® members) who establish a AGENT-CLIENT relationship with a buyer who is trading (or intends to trade) in residential real estate (buying or renting) to enter into a written service agreement with that buyer-client.

Alberta becomes one of first provinces to require written service agreement with EVERY client-buyer. Ontario has had this requirement for several years, however, there is a difference. It's only where a agent-client relationship created requires the document. In fact, in Ontario, if a buyer refuses to sign a written service agreement with "their" agent, then that agent is duty bound to the seller (and not the buyer). In contrast, for years in Alberta if an agent acted like they were representing a buyer, then they were deemed to have formed a agent-client relationship through the actions alone. In Alberta, it was only through a written acknowledgment from that buyer-consumer that the agent could be assured that they have no fiduciary duties to the buyer-consumer.

The written service agreements have been optional for real estate agents to use since 2006. A minority of agents were using them on a regular basis, and as a result, there has been a scramble in the last three or four weeks with agents trying to understand which mandatory form to use and how to fill in the blanks in the standard forms.

The intention of these documents is to provide buyer-clients with clarity in the obligations that their agent has to them and they have to their agent. Also, it specifically details that the agent is due payment for services performed. This is in contrast to a somewhat widely believed myth that the buyer's agent provides their services free to the buyer. in truth, the buyer has always paid for their agent through the purchase price of the home which they purchase, but the calculation or the amount of the fee had most often been hidden from the buyer. As a client, they are owed this information. Now, the amount is plainly detailed and shouldn't be hidden if an agent-client relationship is formed.

In the standard terms of the agreement, the buyer-client directs the agent to seek their compensation directly from the seller's brokerage or, if the seller is unrepresented by an agent, from the seller themselves. This is how real estate transactions have been conducted for over a hundred years in North America: the seller pays their agent, and when another agent brings the buyer, the selling agent gives up a cut of their compensation that the seller contractually offers out of the proceeds of their sale. In the somewhat rare case of a seller trying to sell their home privately without the professional services of an agent, then they too provided the buyer's agent with compensation "out of the proceeds of their sale" and buyers rarely, if ever, were asked to pay their agent themselves (since it would be considered to be already in the purchase price). In these required buyer represention agreements the amount (or a calculation of the amount) of the compensation will most often be clearly detailed. The type of property being sourced and the geographic areas for a search are also clearly included in the agreement.

It should be noted that, in Alberta, new home builders generally employ their own sales persons. As a result of them not being governed by the Real Estate Act of Alberta, they will not be using these agreements because they clearly are not forming an agency relationship with the buyer at all. They are working as employees of, and for, the builder. The buyer is a customer, not a client. In the case where the builder does not have their own sales force, they sometimes hire licensed agents as their employees. In these cases the agent needs to clearly outline to the consumer that they are working for the builder and will need the buyer sign a Customer Status Acknowlegement since, they are working as an employee but they remain governed by the Act.

It's interesting to participate in social media discussions and engage in conversations with other Aberta real estate agents that are stuggling to understand how to fill in these agreements. In many cases the agents are viewing the documents as a self-serving tool to bind a consumer's loyalty to them and, if they buy a property without including them, to cause the buyer to additionally pay for their services. Sure, if it is written that way that is a possiblity. Having used these documents since their inception, I knwo this is is clearly not going to fly with consumers. If these agents proceed down that pathway, there will be a consumer backlash and consumers will avoid using buyer agents at all and deal directly with the listing agents (most often as an unrepresented consumer and not knowing that the agent isn't sharing a cut of the predetermined selling fee with anyone else) -- like in, I believe, Britain and Australia. The sooner Alberta agents adapt to the new reality and use (and be able to explain) these agreements as intended, the sooner consumers will trust the document as a tool for their protection and not misconstrue them as protection for real estate agents -- against consumers. Consumers who are buyers, DESERVE as many protections as sellers receive. These buyer representation ageements provide clear descriptions of the many protections. Without them, buyer-consumers are subject to the whims of the seller or unscupulous agents.

Not too much has been said in the press about these agreements and I thoroughly believe consumers in Alberta have not been adequately educated in the last year about these mandatory agreements. Nor have they had enough time to digest the importance of the documents and how the agreements benefits the buyer-consumer by requiring competent service from their real estate agent and provides the abiltiy to limit that agent's income to what they can agree upon as fair compensation for the work performed. In return for this fair compensation, the buyer-client agrees to direct the seller to pay the agent's fees for services rendered to them, and if they end up not buying a home or buy through someone else, that their agent's minimal costs and significant time invested will be fairly compensated.

This is part of the future of real estate sales!


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