All Realtors® in Ontario are governed by the legal concept of “agency”.

The concept of agency is often misunderstood so let’s take a look at the different possible forms of agency relationship in real estate.

Seller Representation

A written contract, called a Listing Agreement, creates an agency relationship between the seller and the brokerage and establishes seller representation.  It also explains services the brokerage will provide, establishes a fee arrangement for the real estate agent’s services and specifies what obligations a seller may have.

A real estate agent representing a seller must do what is best for the seller.

Buyer Representation

A written contract, called a Buyer Representation Agreement, creates an agency relationship between the buyer and the brokerage, and establishes buyer representation.  It also explains services the brokerage will provide, establishes a fee arrangement for the real estate agent’s services and specifies what obligations a buyer may have.

A real estate agent representing a buyer must do what is best for the buyer.

Multiple Representation

Occasionally a brokerage will represent both the buyer and the seller.  The buyer and seller must consent to this arrangement in writing.  Under this multiple representation arrangement, the brokerage must do what is best for both the buyer and the seller.

Since the brokerage’s loyalty is divided between the buyer and the seller who have conflicting interests, it is absolutely essential that a multiple representation relationship be properly documented.  Representation agreements specifically describe the rights and duties of everyone involved and any limitations to those rights and duties.

Customer Service

It is still possible for a Realtor® to provide services to buyers and sellers without creating buyer or seller representation.  This is called “customer service”.

Under this arrangement, the brokerage can provide many valuable services in a fair and honest manner.  This relationship can be set out in a buyer or seller Customer Service Agreement.

Real estate negotiations are often complex and a brokerage may be providing representation and/or customer service to more than one seller or buyer.  The Realtor® will disclose these relationships to each buyer and seller.

Client or Customer?

Anytime you enter into a written agency arrangement whether it is Seller Representation, Buyer Representation or Multiple Representation, you become a client of the brokerage that you are entering the agreement with.  As a client (sometimes referred to as a Principal) you are owed specific Fiduciary Duties.  The fiduciary duties owed to a client are:

  • Undivided loyalty
  • Obedience
  • Accounting
  • Reasonable care and diligence
  • Full disclosure
  • Confidentiality

Customers are not owed fiduciary duties however all Realtors® do have legal obligations to customers as well.  The responsibilities to a customer are:

  • Honesty
  • Accounting
  • Reasonable skill and care
  • Agency and material fact disclosures

Next time will take a specific look at each of the fiduciary duties as well as the responsibilities owed to customers.

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