Agency Law

Thinking of Buying?

Be sure to have a ‘Buyer Agency Agreement’ in place!

Buyers today have an opportunity to enjoy the same level of effective, confidential and professional services that historically were available only to the seller. With a ‘Buyer Agency Agreement’ in place, buyers control their own inside track.

Buyers need protection, just as sellers do! For example, if you wanted to ‘sell’ your home – you would expect to sign a Listing Agreement for a period of time with a real estate representative – right? The reason you do that is because the Listing Agreement sets out the role and nature of services to be provided, commitments and obligations, and ensures that both parties know exactly what to expect.

A ‘Buyer Agency Agreement’ does primarily the same thing. Licensed Sales Representatives must abide by a Code of Ethics established by the Real Estate Council of Ontario. Rule 4 of the code states that Real Estate Representatives “shall enter into a written representation agreement (listing agreement for sellers, buyer agency agreement for purchasers) with a client at the earliest practical opportunity, and in all cases, before any offer to purchase is submitted or presented.”

Many consumers don’t realize that there is a critical distinction between “clients” of a Real Estate Sales Representative, and buyers who are simply “customers”. Upon signing a ‘Buyer Agency Agreement’, a buyer becomes a “client”.

Real Estate Representatives owe “clients” the highest level of fiduciary duties – competence, diligence, full disclosure, obedience, loyalty, confidentiality and complete accounting. In addition, Sales Reps must endeavour to protect and promote the best interests of their client at all times.

Being a “customer” ranks well below “client” status. For “customers”, Real Estate Sales Representatives are only required to deal fairly, honestly and with integrity, and must not mislead them about a property or a transaction. When acting for “customers”, Sales Reps need only exercise reasonable care and skill, and ensure answers given or information provided is complete and accurate. That’s never enough.

Written representation agreements are mandatory if an Agent is to represent consumer as a “client”. However, if you, as a buyer, do not wish to sign a ‘Buyer Agency Agreement’, then you can expect only to be treated as a “customer”, and that means that you lose the full arsenal of fiduciary duties that could be available to you. The most important obligation which you lose is confidentiality. If you choose to be a ‘customer”, you cannot expect undivided loyalty from your Sales Representative and anything you tell him/her can be divulged to the seller (i.e., how much you are prepared to pay for a property).

If you are planning to buy a home, it is in your best interests to sign a ‘Buyer Agency Agreement’. Your Sales Representative is then obligated to make you aware (and vice versa) of any properties meeting your criteria and that includes new developments and properties that are listed privately for sale. No stone is left unturned. Further, your Real Estate Sales Representative has an obligation to negotiate on your behalf, to suggest protective clauses for the purchase agreement, to suggest financing alternatives, to strengthen your negotiating position, to share with you all information about the seller, and to attempt to solve problems to your complete satisfaction. What happens if you are not satisfied with the service you receive? No problem. You can cancel the Agreement immediately with notice in writing.

One other concern is . . . who pays the commission? 99% of the time, it is the Seller … but if, for example, you choose a home that is privately listed and the seller refuses to pay the commission, it may become your responsibility under the ‘Buyer Agency Agreement’. Discuss this possibility with your Sales Rep. in advance so you both know what to expect.

Real Estate Representatives also receive some protection from the Buyer Agency Agreement in that . . . when the home of your dreams is found, their efforts, time, experience and knowledge will be rewarded.

In summary, when it’s time to buy, you will never regret taking the time to find a Sales Representative that you feel comfortable with, someone you can trust, and who comes highly recommended.

You deserve the very best …. never settle for less!

Duties to Clients

Competence

The agent must exercise a degree of competence when representing his/her principal such as would be expected from an average person in that occupation or profession.  In all agency relationships, the law sees the agent as an extension of the principal.  Thus, the principal is liable for the agent’s actions.  Therefore, the agent will be under a duty to use superior skill and knowledge while pursuing the principal’s affairs.  An agent who claims to be a specialist must exercise competence in that specialty.

Obedience

An agent is obligated to obey the principal’s lawful and reasonable instructions, even if the agent doesn’t agree with them.  It is immaterial whether the agent uses reasonable judgment while actually ignoring the principal’s specific orders.

Good Faith and Full Disclosure

Good faith can be described as honesty of intention and abstention from taking advantage of another.  The agent must disclosure to his/her principal any information relevant to the transaction in which the agent has been engaged to assist.  This includes any facts affecting the value or desirability of the property and all known relevant and material information.

Accounting

An agent is obligated to account for all monies or property entrusted to his/her care that belongs to the principal, i.e., safeguard any money or documents relative to the principal’s transactions or affairs.

Confidentiality

An agent must not use information acquired as the principal’s agent for any purpose that is likely to cause the principal harm or to interfere with the principal’s business, now or in the future.  The duty of confidentiality should not be confused with a real estate professional’s responsibility to disclose known material facts about the property to non-principals.  The obligation to disclose such facts, including defects, is based on the professional’s duty to treat all persons fairly and honestly.  The duty of honesty does not depend on the existence of an agency relationship.

Loyalty

The most important duty an agent has toward the principal is loyalty. The agent must place the interests of the principal above all else except the law.  The duty of loyalty obligates the agent to act at all times solely in the best interests of the principal, excluding all other interests, including that of the agent.  Agents must disclose information that would reveal a conflict, actual or potential, between the interests of the agent and those of the principal.  The agent must not act for more than one principal to the transaction except with the informed, written consent of all principals after receiving full information from the agent.

Duties to customers

The duties owned to a customer are far less demanding.  When there is no agency relationship with a third party, either written, oral or implied, that party is considered to be a customer.  Legally, the brokerage and salespeople have specific duties toward customers, failing which, liability for damages can result.

• Make no misrepresentation regarding the property to a customer
• Be fair and ethical in the treatment of the customer
• Take care in answering customer’s inquiries  to ensure complete and accurate information

Customer duties involve giving information, not advice.

Agency Law, OREA Real Estate College