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The brokerage contract: 5 things to know

Last modified: 2021/06/25 | Approximate reading time 5 mins

From the moment you decide to entrust the sale of your home to a real estate agent, you have to sign a brokerage contract that establishes a professional relationship between the owner and his or her broker for a specific period of time. The brokerage contract was developed by the Organisme d'autoréglementation du courtage immobilier du Québec  (OACIQ) to ensure maximum protection for consumers.

This document contains several clauses and various information about the property, including the price and sale conditions, the broker's compensation (percentage or lump sum), as well as the broker's obligations towards his client.

Since obtaining information before signing an agreement is critical, here are the essential elements to consider before signing a brokerage contract with your real estate agent.

Brokerage contract: 5 things to know before signing

Glasses

1. You will be asked to choose between an exclusive or non-exclusive brokerage contract.

When you sign the agreement with your real estate agent, you will have to decide whether you prefer an exclusive or non-exclusive brokerage contract for the sale of your property. The difference between the two contracts is quite large!

By deciding on an exclusive brokerage contract, you give your broker the right to act as an exclusive intermediary to assist you in the sale process. He becomes the only person who can sell your property and no other broker can solicit you directly.

However, you have every right to use a mortgage broker or even hire another real estate broker to buy a property, since the purpose of the contract will be different.

The exclusive brokerage contract is the best way to ensure maximum effort on the part of the broker since he is sure to receive a commission if he succeeds in finding you a buyer.

By choosing the non-exclusive brokerage contract, you will be able to find a buyer on your own, or use another broker to sell your home. With this type of contract, your real estate broker will not be guaranteed a salary when you complete the transaction. It is therefore normal that he invests much less compared to a broker who has signed an exclusive brokerage contract and that he concentrates his efforts on the contracts that guarantee him an income.

Two business men talking

2. A brokerage contract can be "revocable" or "irrevocable

The mention "revocable" or "irrevocable" is something to watch out for, since it is a mention that will allow you (or not) to terminate your brokerage contract before its expiration date. The revocable clause will be very useful if you change your mind and decide to keep your home. You can also decide to terminate the contract if your broker doesn't demonstrate sufficient involvement in your sale project.

However, the homeowner may be required to reimburse the broker for any advertising costs incurred.

If a brokerage contract is revocable, it will be revocable in both directions. Indeed, the broker can also stop working with the client for one reason or another (but this is quite rare).  On the other hand, it may happen that the real estate broker simply stops practicing, but this will not prevent him from transferring the file to a colleague, without asking the client's opinion.

Discover how much does a notary cost for a real estate transaction.

Little houses and money

3. A broker's commission is always negotiable

In real estate, everything is negotiable! But you should think about negotiating BEFORE signing the brokerage contract.  In the case of a real estate sale, a broker's commission is generally between 4% and 7%. To negotiate your agent's fee, you will need to have good arguments, because he or she is certainly a good communicator, in addition to being used to negotiating.

Some of the arguments you can discuss with your real estate broker include:

  • The condition of the house, is it new or has it been carefully renovated;
  • The type of house, does it meet the criteria in demand on the market;
  • The selling price, if it is particularly reasonable;
  • The area, if it is particularly sought after.

In short, the more arguments you have to ensure the broker a quick sale, the better your chances of lowering the commission.  For a real estate agent, time is money. So if he succeeds in selling your house as soon as possible, he will be able to concentrate more quickly on other real estate transactions.

As you can imagine, everything has a price! So if you manage to lower your real estate agent's commission considerably, you should expect a less complete service. This means that your broker may give you less visibility (advertising), or spend less time on your sales project

Most clients are only looking to negotiate the broker's commission to save a few hundred or even a few thousand dollars, depending on the value of the property. But there are other ways to save money. For example, some brokers can provide you with a free professional advisor to help you add value to your property to make it more attractive to potential buyers. So talk to your broker!

Business woman in a green suit

4. The notorious "3 days" for the cancellation of a brokerage contract

It may happen that the seller (owner) signs a brokerage contract before withdrawing from it. In this case, the Real Estate Brokerage Act allows him to cancel his contract within 3 days following the day he received a copy of the contract signed by both parties. This is called the right of withdrawal from the brokerage contract, which allows a client to terminate the agreement with his broker without having to justify his action or compensate him in any way. The procedure to follow is to give written notice to the broker.

Although it is possible for the client to hand-deliver the notice of termination, the OACIQ recommends sending the document by registered mail, in order to keep proof of delivery within the time limit set for this purpose.

It should be noted that the client may avail himself of this right of withdrawal, even if the brokerage contract is "irrevocable".

It is worth mentioning that the broker will be entitled to a fee if the house is sold within 180 days of the end of the contract and if the buyer was interested during the effective period of the contract (i.e. within the three-day period). However, the broker must be able to prove that the buyer expressed interest during the life of the contract, for example by means of a visit log.

An exception applies if the client has entered into an exclusive brokerage contract with another real estate broker, unless the client can be shown to be acting in bad faith.

Contract

5. It is possible to decide on the duration of a brokerage contract

As a general rule, a brokerage contract will last for six months. However, this period can be quite long if you find a lazy broker, especially if you want to sell quickly.

It is also worth noting that you have the option of signing a brokerage contract for a shorter period of time (three months for example). If the broker you choose is efficient and has a history of selling properties quickly, this shouldn't be a problem.

Photos: Deposit Photo

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