When working with a REALTOR® it is important to understand who the REALTOR® works for. To whom is the REALTOR® legally obligated?
What is Multiple Representation? Multiple Representation is when one agent 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 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.
The Two 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.
The REALTOR® Consumer Relationship
In Ontario, the real estate profession is governed by the Real Estate and Business Brokers Act, 2002, and Associated Regulations (REBBA 2002 or Act), administered by the Real Estate Council of Ontario (RECO). All Ontario REALTORS® are registered under the Act and governed by its provisions. REBBA 2002 is consumer protection legislation, regulating the conduct of real estate brokerages and their salespeople/brokers. The Act provides consumer protection in the form of deposit insurance and requires every salesperson/broker to carry errors & omission (E&O) insurance.
When you choose to use the services of a REALTOR®, it is important to understand that this individual works on behalf of a real estate brokerage, usually a company. The brokerage is operated by a Broker of Record, who has the ultimate responsibility for the employees registered with the brokerage. When you sign a contract, it is with the brokerage, not with the salesperson/broker employee.
The Act also requires that the brokerage (usually through its REALTORS®) explain the types of service alternatives available to consumers and the services the brokerage will be providing. The brokerage must document the relationship being created between the brokerage and the consumer, and submit it to the consumer for his/her approval and signature. The most common relationships are “client” and “customer”, but other options may be available in the marketplace.
A “client” relationship creates the highest form of obligation for a REALTOR® to a consumer. The brokerage and its salespeople/brokers have a fiduciary (legal) relationship with the client and represent the interests of the client in a real estate transaction. The REALTOR® will establish this relationship with the use of a representation agreement, called a Listing Agreement with the seller and a Buyer Representation Agreement with the buyer. The agreement contains an explanation of the services the brokerage will be providing, the fee arrangement for those services, the obligations the client will have under the agreement, and the expiry date of the agreement. Ensure that you have read and fully understand any such agreement before you sign the document.
Once a brokerage and a consumer enter into a client relationship, the brokerage must protect the interests of the client and do what is best for the client. A brokerage must strive for the benefit of the client and must not disclose a client’s confidential information to others.
Under the Act, the brokerage must also make reasonable efforts to determine any material facts relating to the transaction that would be of interest to the client and must inform the client of those facts. Although they are representing the interests of their client, they must still treat all parties to the transaction with fairness, honesty, and integrity.
A buyer or seller may not wish to be under contract as a client with the brokerage but would rather be treated as a customer. A REALTOR® is obligated to treat every person in a real estate transaction with honesty, fairness, and integrity, but unlike a client, provides a customer with a restricted level of service. Services provided to a customer may include showing the property or properties, taking customer direction to draft an offer and present the customer offer etc. Brokerages use a Customer Service Agreement to document the services they are providing to a buyer or seller customer.
Under the Act, the REALTOR® has disclosure obligations to a customer and must disclose material facts known to the brokerage that relate to the transaction.
What Happens When…
Buyer(s) and the seller(s) are sometimes under contract with the same brokerage when properties are being shown or an offer is being contemplated. There can also be instances when there is more than one offer on a property and more than one buyer and seller are under a representation agreement with the same brokerage. This situation is referred to as multiple representation.
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. REALTORS® typically use what is called a Confirmation of Co-operation and Representation form to document this situation.
Offer negotiations may become stressful, so if you have any questions when reference is made to multiple representation or multiple offers, please ask your REALTOR® for an explanation.
REALTORS® are obligated to disclose facts that may affect a buying or selling decision. It may be difficult for a REALTOR® to judge what facts are important. They also may not be in a position to know a fact. You should communicate to your REALTOR® what information and facts about a property are important to you in making a buying or selling decision, and document this information to avoid any misunderstandings and/or unpleasant surprises.
Similarly, services that are important to you and are to be performed by the brokerage, or promises that have been made to you, should be documented in your contract with the brokerage and its salesperson/broker.
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.
Please note that Federal legislation requires REALTORS® to verify the identity of sellers and buyers with whom they are working.
Click here for your copy of “Working with a REALTOR®” which explains relationships and multiple representation in real estate.
Click here for your side-by-side comparison of the duties that are owed the “Client” and “Customer”