Working with a real estate agency
What is a real estate agency?
Agency is a relationship established when two parties agree to have one party represent the party or provide services on behalf of that party.
When a buyer or seller first contacts a real estate broker, there is no agency relationship with the broker. If a consumer wishes to be in an agency relationship with a real estate broker, the broker may ask the consumer to sign a written service agreement that confirms the consumer’s decision. Consumers are free to decline a written service agreement, but written service agreements offer valuable protection to real estate brokers and consumers, as they provide clarity and transparency regarding the nature of the agency relationship and explain the duties and obligations of the agent (real estate broker) and the client.
Responsibilities of the Real Estate Agent
The essence of the agency relationship is that the agent has authority to represent the client in a real estate transaction.
Under agency, agents are obligated to protect and promote the interests of their clients. Specifically, an agent owes his or her clients the following duties:
- Undivided Loyalty: the agent must act solely in the client’s best interests, must always put the client’s interests above the agent’s own interests and above the interests of other parties. 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 client’s confidences. Confidential information includes any information about the client, the property, or the transaction that is not required by law to be disclosed, but if disclosed could be used by another party to the disadvantage of the client. 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 the relationship with the client or influence the client’s decision in the transaction. This includes any conflicts of interest the agent might have in providing services to the client. The agent should not decide if information is important to the client, rather, the agent is obligated to disclose all relevant information to the client. However, any confidential information from a previous agency relationship will not be disclosed to the client unless the previous client agrees in writing.
- Obedience: The agent must obey all of the client’s lawful instructions, as long as instructions are reasonable and ordinary under the circumstances. If the client insists the agent do something unlawful, the agent would be obliged to refuse, and consider terminating the relationship and 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 industry member 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 on the client’s behalf.
Your responsibilities as the client
In an agency relationship you have duties towards your Agent, which include the following:
- compensating the Agent for expenses incurred as a result of carrying out responsibilities on your behalf;
- paying any agreed-upon remuneration (fee) outlined in a signed service agreement; and
- disclosing to your Agent matters that could affect the transaction, including material facts that must be passed on to the third party in the real estate transaction. Note that sellers are required by law to disclose the existence of known material latent defects, which are defects that are structurally dangerous or a health hazard and cannot be detected by a visual inspection.
It’s also your responsibility to read all documents carefully and ensure you understand what you are signing. If you feel you need assistance or advice, you always have the option to consult a professional such as a lawyer, accountant or inspector.
Work with a real estate agency you can trust!
Types of agency relationships
Sole agency
Sole agency occurs when one brokerage (including its broker, associate brokers and associates) represents the seller as the seller’s Agent, and another brokerage (including its broker, associate brokers and associates) represents the buyer as the buyer’s Agent (figure 1).
Transaction brokerage
A potential conflict of interest occurs when one brokerage is representing both the buyer and the seller in a single transaction. An example would be if you wanted to make an offer on a home listed by the same brokerage representing you – or if a buyer represented by the same brokerage as you wanted to make an offer on your home. By representing both you and the other party in the transaction, the brokerage’s ability to fulfill agency duties to you (and the other client) are limited, particularly the duties of undivided loyalty, confidentiality and full disclosure.
Under these circumstances, a different relationship called transaction brokerage can be formed. The relationship applies whether one REALTOR® represents both parties (figure 2), or two different REALTORS® in the same brokerage each represent a client in the transaction (figure 3).
Transaction brokerage is only permitted with the fully informed and voluntary consent of both the buyer and the seller. The brokerage will obtain this consent through the use of a Common Law Transaction Brokerage Agreement, which must be signed by the buyer before an offer is made, and by the seller before the offer is presented. The agreement allows the brokerage (including its broker, associate brokers and associates) to act as a Transaction Facilitator to help you and the other party reach a mutually acceptable agreement.
The Transaction Facilitator will treat the interests of both the buyer and the seller in an even-handed, objective and impartial manner and will ensure that any advice or information given to one party is disclosed to the other.
However, the Transaction Facilitator cannot disclose any information received in confidence, and in particular cannot disclose:
- that the buyer may be prepared to offer a higher price or agree to terms other than those contained in the offer to purchase;
- that the seller may be prepared to accept a lower price or agree to terms other than those contained in the Seller Brokerage Agreement;
- the motivation of the buyer or the seller wishing to purchase or sell the property; and
- personal information relating to the buyer or the seller
Customer status (non-agency)
If you do not want be in an agency relationship but want to work with a brokerage, you will be asked to choose customer status. When you have customer status, the brokerage is not your Agent and does not owe agency duties to you. Duties are limited to honesty, reasonable care and skill and not negligently or knowingly providing you with false or misleading information. The brokerage will provide you with forms to help you complete a transaction, perform services needed to help you complete a transaction, but will not provide you with advice or advocate on your behalf.
The brokerage might recommend customer status when a conflict of interest will affect its ability to fulfill agency duties to you. For example, if the brokerage is representing a seller with whom it has a long-standing relationship (like a developer or a relative of a brokerage representative), you (as the buyer) should be in a customer relationship with the brokerage.
If a brokerage recommends customer status for a certain transaction but you would prefer to have an agency relationship, you should opt to work with another brokerage.
Making an informed choice
Your REALTOR® is responsible for explaining your relationship options. Be sure you understand the duties owed to you and the limitations that exist or might exist with each type of relationship. Don’t hesitate to ask your REALTOR® questions and ensure you’re satisfied with the answers before you make your decision.
Please Note: Under new federal legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), real estate agents are required to collect personal information in order to identify individuals conducting large financial transactions, such as buying or selling property.
For more information, visit the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) website.
Have questions about working with a real estate agency?
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