Real Estate Agency
Introduction
Buying or selling a property is probably one of the most important financial decisions average consumers will make in their lifetime. It is a good idea to take a moment to consider the type of relationship you might be entering into with a REALTOR®. The more you know, the more you will be satisfied with the results.
This guide is intended to help you and your REALTOR® discuss the information you need to make an informed decision about your relationship.
What Is Agency?
Agency is a relationship established when two parties agree to have one party act on behalf of the other. The example discussed in this guide will be the real estate broker acting on behalf of a buyer or a seller. When a brokerage acts on your behalf you are considered a Client. A Client relationship is an Agency relationship.
The agency relationship exists between the Client (real estate sellers or buyer) and the Agent (the brokerage, including its broker, associate brokers and associates). Buyer Representation Agreements and Seller Listing Agreements, which describe in detail the duties of each party, are the means by which buyers and sellers become fully informed about the prospective relationship with the brokerage and expressly consent to it.
If you are a seller, an agent can:
• Advise you on market conditions and the best strategy to attract buyers and get the best price for your home
- Market or advertise your home, including arranging photographs, videos and virtual tours
- Provide referrals to other professionals you’ll need, like a lawyer or home staging company
- Arrange and attend home inspections and appraisals
- Arrange showings for interested buyers
- Advise you on how to handle competing offers, sharing the content of competing offers, and other aspects of the transaction • Vet offers and potential buyers to ensure they can afford to buy your property
- Negotiate with buyers to achieve the best results, price, and terms, for you
- Guide you through paperwork and closing the transaction successfully
If you are a buyer, an agent can:
- Assist you with getting pre-approvals for financing so you know how much you can afford
- Make you aware of any tax exemptions you might be eligible for
- Gather and share information about neighbourhoods and homes that meet your requirements, and arrange to show you homes you’d like to see
- Make inquiries about zoning, permitted property use, or other aspects of the home
- Advise you on the best approach in competing offer situations and how to protect your offer information
- Negotiate with sellers to achieve the best results, price, and terms, for you
- Guide you through paperwork and closing the transaction successfully
- Provide referrals to other professionals you’ll need (for example, home inspectors, lawyers, or contractors)
As A Client of the Brokerage;
You have responsibilities as a client as well, you need to:
- be clear about what you want and don’t want and make sure you share all information that might be relevant (for example, you might want zoning that permits your intended use, maybe a home office or another specific use, or you might not want a property where there has been a violent crime);
- respond to your agent’s questions quickly;
- understand the terms of your agreement with the brokerage; and,
- pay the fees you have agreed on, even if an agreement to buy or sell later falls through because of your default or neglect. Conditions do apply.
It is important to note that an agency relationship can be created "implied" if either party acts in a manner that implies that such a relationship exists. For example, an unintentional agency relationship may be created if the buyer or seller provides confidential information to the REALTOR®, or asks the REALTOR® for advice about a possible purchase or sale.
Home Buyers and sellers should be careful not to form this relationship until they have made a conscious decision to have the brokerage act on their behalf and have consented to the agency relationship in writing.
Agency Duties to a Client
Once aThe essence of the agency relationship is that the Agent has authority to represent the Client in a real estate transaction. The complex and important nature of a real estate transaction requires the Agent to exercise discretion and judgment when carrying out duties on behalf of the Client, which means that in common law the Agent is also a fiduciary.
Fiduciaries are obligated to protect and promote the interests of their clients as they would their own. Specifically, the Agent has the following fiduciary obligations:
Undivided Loyalty
The Agent must act solely in the best interests of the Client, must always put the interests of the Client above the Agent's own interests and above the interests of other parties. Among other things, this means avoiding conflicts of interest and protecting the Client's negotiating position at all times.
Confidentiality
The Agent has a duty to keep the confidences of the Client. Confidential information includes any information concerning the Client, the property or the transaction that is not required by law to be disclosed, but which, if disclosed, could be used by another party to the disadvantage of the Client. It is important to note that the duty of confidentiality continues even after the agency relationship ends.
Full disclosure
The Agent must inform the Client of all facts known to the Agent that might affect their relationship or influence the Client's decision in a real estate transaction. This includes any conflicts of interest they might have in the course of providing services to the Client.
The Agent should not decide for the Client whether the information is important to the Client, and is therefore obligated to disclose all relevant information. The decision is always up to the client. An exception to full disclosure is confidential information learned in a previous agency relationship.
Confidential information of a previous client will not be disclosed as long as the new client agrees to this in writing. The brokerage agreements produced by the Ontario Real Estate Association contain a standard clause to assist the parties to come to this decision.
Other more general obligations in common law include:
Obedience
As long as instructions are reasonable and ordinary under the circumstances, the Agent must obey all lawful instructions of the Client. If the Client asks the Agent to do something unlawful, the Agent would be obliged to terminate the relationship and any existing service agreement.
Reasonable Care and Skill
The Agent must exercise reasonable care and skill in performing all assigned duties. The Agent is expected to meet the standard of care that a reasonable and competent person would exercise in a similar situation.
Full Accounting
The Agent must account for all money and property placed in the Agent's hands while acting for the Client.
As licensed professionals, real estate industry members are further bound by statutory obligations that are set out in the Ontario Real Estate Business Brokers Act 2002 and its Rules. These obligations reinforce the common law duties described above. All told, you are entitled to and should expect, competent service from your Agent, knowing that the brokerage and its representatives are bound by ethics and the law to be honest in every real estate transaction. This approach is reflected in the standard real estate service agreements produced by Ontario Real Estate Association.
Please feel free to ask the brokerage representative to show you the agreements appropriate to the transaction you are considering.
The Client, as well, has duties towards the Agent. You have the duty to:
- compensate the Agent for the expenses that the Agent incurs as a result of carrying out its responsibilities as requested on your behalf;
- pay any agreed-upon remuneration or compensation as outlined in the signed service agreement;
- disclose to the Agent matters that could affect a transaction, including material facts that must be passed on to the third party in the real estate transaction.
You should also consider it your responsibility to read carefully all documents and understand what you are signing. If you need specialized advice, seek other professionals such as lawyers, accountants and inspectors.
Types of Brokerages See RECO Information Guide
There are two kinds of representation agreements in Ontario:
Brokerage Representation: The brokerage and all its agents represent you and must promote and protect your best interests, but one of the brokerage’s real estate agents may be your primary contact. They may provide referrals to other professionals you’ll need (for example, home inspectors, lawyers, contractors).
Designated representation: One (or more) of the brokerage’s real estate agents is your designated representative. The agent(s) represent(s) you and must promote and protect your best interests. The brokerage and its other agents are required to treat you impartially and objectively. An important aspect of Designated Representation is that it reduces the likelihood of multiple representation.
In most real estate transactions an Agent of a brokerage represents one party to the transaction. The Agents obligations are to that Client and that Client alone. Situations do arise where an Agent may end up representing more than one client on the same transaction. This may result in multiple representation and it is very important that clients understand the implications of multiple representation.
Understanding Multiple Representation
Multiple representation means a designated representative or brokerage representative represent more than one client, with competing interests, in the same transaction. This can happen in different ways, depending on the type of representation agreement you and the other clients have with the brokerage.
For a;
Brokerage representation - Multiple representation exists when the brokerage represents both the buyer and seller in the same transaction, or two or more competing buyers interested in the same property — even when the clients are working with different real estate agents.
Designated representation Multiple representation exists when the same real estate agent is the designated representative for both the buyer and the seller in the same transaction, or for two or more competing buyers interested in the same property.
Multiple representation is not permitted unless each of the clients involved agrees.
Clients should seek independent professional advice (for example, from your real estate lawyer) before proceeding. The brokerage or your designated representative has a duty to promote and protect your best interests and avoid conflicts of interest.
If your brokerage or designated representative enters into an agreement with another client who has an interest in the same property as you, this places both clients in multiple representation. Multiple representation introduces risks you and the other client should consider. It’s important to understand the risks.
If you agree to multiple representation, the brokerage or designated representative:
- Must treat each of the clients involved in an objective and impartial manner;
- Cannot maintain undivided loyalty to you or promote and protect your interests over the interests of the other client; and,
- Cannot offer advice to you about such things as the price you should offer or accept or terms that should be included in an agreement of purchase and sale. What to expect before you agree to multiple representation The brokerage is required to provide you with a written disclosure that explains:
- how the brokerage’s duties or the designated representative’s duties to you will change;
- the differences in the services you will receive; and,
- any change to how much you pay the brokerage. Until this information is disclosed in writing to all clients in the transaction, and they all agree in writing, the brokerage or designated representative cannot take any further steps on behalf of any of the clients. Confidential information you provided to the brokerage or the designated representative when you were represented cannot be shared without your written consent.
You can refuse multiple representation If you don’t agree, the brokerage or your designated representative is not allowed to proceed. Ask the brokerage or real estate agent about alternatives to multiple representation. For example, if you are a buyer, the brokerage could refer you to another brokerage or another designated representative to help you make an offer on the property. Agreeing to multiple representation significantly reduces what the brokerage and its agents can do for you, which could have consequences and costs.
There is no in-between in organized real estate in Ontario. You are either a Client under the rules of Agency or you are a Self-Represented Party.
While self represented parties do not fall under the agency rules it is important for buyers and sellers to understand what it means to be self represented in a real estate transaction.
Know the Risks of Representing Yourself
If you are involved in a real estate transaction and are not a client of a real estate brokerage, you are considered a self-represented party. This means that you have chosen to represent yourself, which has different rights and responsibilities.
Very few buyers or sellers make this choice. There are significant risks to representing yourself in a real estate transaction if you do not have the knowledge and expertise required to navigate the transaction on your own. You will be dealing with a seller or buyer who is benefitting from the services, opinions, and advice of an experienced real estate agent.
The Real Estate Council of Ontario, RECO recommends that you seek independent professional advice before you proceed as a self-represented party. If you choose not to work with a real estate agent, it will be your responsibility to look after your own best interests and protect yourself.
This may include things like:
- making inquiries about zoning, permitted property use, or any other aspect of the property;
- determining what you believe to be the value of the property you are buying or selling;
- determining how much you are willing to offer or accept;
- navigating competing offer situations;
- deciding what terms you want to include in an offer or agreement of purchase and sale; and,
- preparing all documents.
The real estate agent is working for another party in the transaction. It is important to be aware that the agent has a legal obligation to act in the best interest of the person on the other side of the transaction.
If you are a buyer or even just inquiring about the property, for example, and the agent is working for the seller — the agent has a duty to do what’s best for their seller client. Be aware that the agent is obligated to share anything you tell them with their client, which might not be in your best interests to tell them, including:
- your motivation for buying or selling the property; the minimum or maximum price you are willing to offer or accept; and your preferred terms or conditions for an agreement of purchase and sale.
- The agent cannot: provide you with any services, opinions, or advice; do anything that would encourage you to rely on their knowledge, skill, or judgement; or, encourage you to represent yourself or discourage you from working with another real estate agent or brokerage. Any assistance the agent offers you: is a service to their client, not you; is in the best interests of their client, not you; and, is to help their client sell or buy a property.