When working with a REALTOR® it is important to understand who the REALTOR® works for. To whom is the REALTOR® legally obligated?
The Agency Relationship
REALTORS® are governed by the legal concept of “agency.” An agent is legally obligated to look after the best interests of the person he or she represents. The agent must be loyal to that person.
A real estate brokerage may be your agent – if you have clearly established an agency relationship with that REALTOR® with a representation agreement. But often, you may assume such an obligation exists when it does not.
Two Components comprise the Agency Relationship: The agent and the principal. In an agency relationship, the principal agrees to allow the agent to act on their behalf, promoting and protecting the principal’s best interest. In return, the principal agrees to hold the agent harmless (or indemifiable) for actions carried out on their behalf. The principal also agrees to remunerate them for the services performed.
REALTORS® believe it is important that the people they work with understand when an agency relationship exists and when it does not – and understand what it means.
What’s also important to note is that, in Ontario Real Estate, the Agency relationship exists between the client and the Brokerage. This important distinction will assist in understanding exactly how Multiple Representation can occur.
What is Multiple Representation? Multiple Representation is when the same agent or brokerage acts for two or more parties to the same transaction. However, to better understand Multiple Representation, we must first understand the relationship between the representative and their client.
The Scenarios of Multiple Representation
The above noted difference in Agency Relationship in Ontario is important, as it outlines a very unique distinction. If the relationship created is between the Client and the Brokerage, then Multiple Representation can occur if a Buyer and Seller use the same brokerage, even if they are using different salespersons within that brokerage.
However, there is a second, more subtle version that also exists. Recall that Multiple Representation does not specifically require the two parties to the transaction be one Buyer and Seller. This gives rise to the case of multiple representation where two buyers, represented by two different agents at the same brokerage, compete for the same property. This version of Multiple Representation, although more subtle, is important to watch for. Ensuring that your agent is keeping your best interests at heart is vital to your success in Real Estate.
How Do I Know if I’m Involved in Multiple Representation?
In Ontario, registrants are expected to discuss the possibility at the earliest possible time in which they think Multiple Representation could occur. If you suspect that you may be involved in this scenario, its a good idea to speak with your Representative about how it may affect you in your transaction. It’s important to have an agent representing your best interest, and many think that one individual or brokerage could not possibly do so in a completely unbiased matter.
What is double-ending? Are agents allowed to double-end real estate commissions in Ontario?
Double-ending is a practice where an agent represents both the buyer and the seller. Ontario agents can legally double-end. In fact, this is allowed in most of Canada except British Columbia. However, it should be confirmed in writing that all parties involved in the transaction are aware of it and that they understand and agree with its ramifications.
What are the advantages and disadvantages for buyers when agents double-end the deal?
A lot of brokerages that act as double agents will lower the total commission price, which means both the buyer and seller would end up spending less. Also, the process would go smoother and easier because both parties would have to deal with just one brokerage. In addition, because the brokerage already knows the property well, the buyer will get more information about the history of the property.
The goals of the buyer and seller oppose, so one party will surely not maximize his/her advantage. If the agent is sketchy and tempted to side with the seller (because an agent’s commission is based on the selling price), he/she might pretend that there is a higher offer and coax the buyer to increase the offer. In another scenario, the buyer might not just get any advice because the agent is supposed to be neutral.
What happens in a multiple representation situation?
In all situations, before entering into an agreement regarding trading in real estate, registrants are required to:
- Describe the services that are generally available to buyers and sellers;
- Describe the services that will be provided and the alternatives available to the potential client or customer;
- Inform prospective buyers and sellers of the possibility of multiple representation, including a description of the services the brokerage would provide in a multiple representation situation; and
- Make it clear to prospective buyers and sellers that the brokerage cannot represent multiple clients in a transaction unless all of the potential clients consent in writing to that representation.
REALTORS® are obligated to explain what multiple representation means, the nature of the services that the brokerage will provide to each party, before they sign a representation agreement with a client or customer. Under the Act, the REALTORS® and their brokerage must make sure all buyers, sellers, and their REALTORS® confirm in writing that they acknowledge, understand, and consent to the situation before their offer is made.
Say for example the Listing Brokerage has entered into a Buyer Representation Agreement with the Buyer and represents the interests of the Seller and the Buyer, with their consent, for a transaction. The Listing Brokerage must be impartial and equally protect the interests of the Seller and the Buyer. The Listing Brokerage has a duty of full disclosure to both the Seller and the Buyer, including a requirement to disclose all factual information about the property known to the Listing Brokerage.
However, the Listing Brokerage shall not disclose:
• That the Seller may or will accept less than the listed price, unless otherwise instructed in writing by the Seller;
• That the Buyer may or will pay more than the offered price, unless otherwise instructed in writing by the Buyer;
• The motivation of or personal information about the Seller or Buyer, unless otherwise instructed in writing by the party to which the information applies, or unless failure to disclose would constitute fraudulent, unlawful or unethical practice;
• The price the Buyer should offer or the price the Seller should accept;
• And; the Listing Brokerage shall not disclose to the Buyer the terms of any other offer.
However, it is understood that factual market information about comparable properties and information known to the Listing Brokerage concerning potential uses for the property will be disclosed to both Seller and Buyer to assist them to come to their own conclusions.
Written consent from clients
When a multiple representation situation arises, registrants must explain how the services provided to the client will differ from a single representation situation, including any differences in the sharing of information. These disclosures are to be made at the earliest practical opportunity and before an offer to purchase is made.
The brokerage must also obtain the written consent of all of the parties it is representing in that transaction, via their salespersons or brokers. REALTORS® typically use what is called a form 320 “Confirmation of Co-operation and Representation Buyer/Seller” to document this situation.
Written consent is required in situations where a single brokerage represents two or more clients in a trade, even if different salespersons or brokers are involved. Given that the brokerage has a fiduciary relationship with more than one client to a trade, it must be clear to all clients to the trade how information related to the transaction will be exchanged and how services will be provided.
Consent to multiple representation is required when:
- A brokerage is representing both the buyer and seller in a transaction; or
- A brokerage is representing multiple prospective buyers in a single transaction.
In the case of multiple buyers, it may not be clear to the buyer’s brokerage that a single brokerage is representing multiple buyers until one or more buyers have expressed interest in the same property. This knowledge may come through the listing brokerage, or its representatives, as they are in a position to know the source of all buyers. The listing brokerage is then expected to pass on this information to the buyers’ brokerage. Listing REALTORS® typically use what is called a form 652 “Brokerage Communication of Competing Offers, Multiple Representation, Agreements Relating to Commission/Remuneration” to document this situation. In such situations, consent to the multiple representation would be required as soon as the brokerage becomes aware that it is operating in a multiple representation situation.
If written consent from a client is refused
In situations where a client refuses to consent to multiple representation, the brokerage must release one or more of its clients to seek alternate representation with another brokerage. The brokerage cannot represent more than one party to a trade without the written consent of all parties it is representing in that transaction.
A customer is a person who has entered into a service agreement with a brokerage related to a real estate transaction, but who is not being represented by that brokerage as a client. This might apply to a situation in which a brokerage has entered into an agreement with a person to assist in a real estate transaction, but the brokerage or its representatives are not providing any fiduciary advice or services to the person as part of that agreement.
REALTORS® must treat customers with fairness, honesty and integrity, but do not have the obligation of protecting the customer’s best interest as they would with a client.
With respect to services provided to customers, registrants must disclose to buyers and sellers that they may act for more than one customer in a transaction. A brokerage does not require a customer’s or client’s written consent to provide services to an additional customer in a transaction.
Click here for your copy of “Working with a REALTOR®” which explains relationships and multiple representation in real estate.
Click here for another article on the differences between a “client” and a “non-represented customer” relationship
Click here for your copy of “Confirmation of Cooperation and Representation” which documents the relationship between the parties of a transaction.
Relevant sections of REBBA 2002 and the code of ethics
General regulation: Section 22
To ensure the best possible real estate experience, make sure all your questions are answered by your REALTOR®. You should read and understand every contract before you finalize it. If you have a question about the buying or selling process, please call or email me.