Enforcing the Buyer’s Representation Agreement when the Buyer Buys
Direct from the Builder
This situation seems simple enough.
The standard Form OREA Buyer Representation Agreement actually covers this. It’s included. The reason why it’s included, is that it’s “not excluded”. That’s how you figure it out.
The technical wording would require payment of a commission should the Buyer suddenly decide to purchase a new home from a new home Builder. But, naturally, that doesn’t necessarily make any sense:
· The Buyer went to the Agent only after they considered that they couldn’t afford what they wanted in a new home.
· The Builder doesn’t pay Agents a commission at all.
· The Builder doesn’t pay a referral fee to real estate agents.
· The Builder doesn’t co-operate or send deals to real estate agents.
· The Builder doesn’t even want real estate agents to be “onsite” with their clients.
So, what value does the real estate agent bring to the table? Basically, little or nothing when it comes to some new homes!
Now, of course, there are exceptions. Some Builders love agents. They encourage them to bring their clients and pay full commissions. We are not really talking about those particular Builders. For our discussion about the Buyer Representation Agreement, we are talking about the other ones.
What we are talking about is the BIG SURPRISE. The Buyer decides to buy a new house from a Builder after a long and unsuccessful search with an agent. Yes, there was a standard Form up to date OREA BRA in place. It was signed. No one mentioned “new homes”, or “new home builders” or anything remotely like that.
The Buyer buys and the Agent suddenly says “you owe me a commission”, namely, “2.5 % on the purchase price of your new home plus all the extras you ordered from the Builder plus the HST on top of everything.” That’s over $25,000.00 for starters on a million dollar home.
Let’s assume Bob and Mary are looking for a house. They would prefer a new home and visit many new home sites. Two issues come up, they are too expensive and they are “sold out”. When leaving a site, they come across an Open House for a house that was built two years ago. They go in, meet Fred the agent, provide Fred with their email address as required. Fred asks them if they are working with a Realtor. They say “no, they are just looking at new homes”.
A week passes and Fred calls them and says “a great property has just come up on the market”. They meet Fred at the property. Fred produces a Buyer Representation Agreement and says that they have to sign this before he can show them the house. They sign it on the trunk of Fred’s car and Fred gives them their copy. They don’t like the house. They know that after 30 seconds inside but in order to be polite because the Seller is still there, they continue to look throughout the house for 10 minutes.
That was in September. The following March they come across a new site by a Builder they like. They are early and get to pick the model and the lot. They are thrilled.
The deal closes the following October.
They are quite surprised that Fred has now surfaced and wants $25,000.00 plus in commission.
Here are a few points to consider:
· Fred met them at an Open House
· Fred showed them one single house in a year
· Fred never mentioned anything about new houses, or new home builders
· They only met with Fred twice, and received one phone call from him and one email
Fred decides to sue and recover the commission he is due under the Buyer Representation Agreement.
The Standard OREA Agreement is Interpreted Technically
This is a good result for Fred. Here is the relevant wording in the Agreement:
“If, during the currency of this Agreement, the Buyer enters into an agreement to purchase any property of the general description indicated above, the Buyer agrees that the Brokerage is entitled to be paid a commission of ................................................... % of the sale price of the property…”.
There are no exceptions. Property is property. There’s nothing said about new homes.
Assuming that Bob and Mary don’t put up much of an argument, it is likely that the Trial Judge will interpret the Agreement technically and provide Fred with a Judgment for the commission.
A Strong Defence by the Buyers
This time, the Buyers decide to engage legal counsel and are very much opposed to paying Fred a commission on this transaction. Over $25,000.00 for showing them one house for 10 minutes that they didn’t like over a year before they closed their deal doesn’t make any sense.
What defences might be available:
1) Non-est Factum,
3) Contra Proferendum,
4) Informed Consent,
5) Breach of Fiduciary Duties,
6) Penalty Provision,
7) Consumer Protection Act.
If any of those defences were successful, then the Judgment would go in their favour and they would recover a portion of their costs and expenses from Fred.
Of course, many agents never sue their clients ever. It’s expensive, it’s time consuming and it’s not a way to become popular.
In other cases, agents have done a fair amount of work, but after 20 showings, the clients have just given up and moved on. Their preference was a new house, so they bought one.
Ensuring Payment for New Homes From Builders
It’s not that complicated. All the agent really has to do is to send a text, email, letter or some kind of communication making sure that the Buyers realize that the Agreement covers new homes.
What would even be better, is to mention this specifically on page 1 of the document under “description”, or to include a Schedule which states: “this Agreement applies to new homes purchased from Builders”. That’s simple enough to avoid any problems going forward. And, it would avoid any misunderstandings.
Brian Madigan LL.B., Broker