Agency
Relationships Explained
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| When working
with a RealtorŪ, it is important to understand who the
RealtorŪ works for. To whom is the RealtorŪ legally
obligated? |
| What is an agency relationship? An agency relationaship is created where one person, known as the principal, asks another person, known as the agent, to act for and on behalf of the principal. The principal will define the nature and extent of the agency relationship; in other words, what the agent is being asked to do. In real estate transactions, agency relationships are created when vendors or purchasers ask RealtorsŪ to act on their behalf in real estate transactions. |
Consequences of agency relationship As a matter of law, an agent who represents a principal owes that principal the highest duty of "utmost good faith"; the agent must represent the principal's best interests at all times. The agent owes his principal a duty of confidentiality regarding information about the principal. Agency in real estate transactions In most cases, there are two parties to a real estate transaction; a vendor who owns a property and who wants to sell it, and a purchaser who wants to buy a property. The job of RealtorsŪ is to bring together willing vendors and willing purchasers in successful real estate transactions. Toronto Real Estate Board The Toronto Real Estate Board is an association of RealtorsŪ. The Toronto Real Estate Board operates an MLS System; this System is a mechanism whereby vendors, through their agent (known as a Listing Broker), can make known the fact to other RealtorsŪ that a particular property is for sale. By placing a property on the MLS System, the Listing Broker (agent of the vendor) lets it be known to every other RealtorŪ that they can be a "Co-operating Broker". Agency relationship between vendor and listing broker As noted, a vendor usually engages a RealtorŪ to act on its behalf in the sale of a property; this RealtorŪ is known as the Listing Broker. The vendor and the Listing Broker will enter into an MLS Listing Agreement whereby the agency of the Listing Broker is confirmed, and the vendor agrees to compensate the listing Broker for its efforts. This compensation is usually called commission, and usually takes the form of a fee or payment from the vendor of the real property upon successful completion of the real estate transaction. By placing a property on the MLS System, the Listing Broker, in its offer to all other Co-operating Brokers to bring a purchaser, offers to share the commission the Listing Broker is being paid by the vendor. Thus, for a vendor, the key to the MLS System is that the vendor's agent, being the Listing Broker, has placed the vendor's property on the MLS System and so made an invitation to all Co=operating Brokers to bring a purchaser's offer acceptable to the vendor, and thereby become entitled to a portion of the commission which the vendor has agreed to pay. Purchasers and their representatives Just as with the vendor, the purchaser of real estate will often engage a RealtorŪ in connection with a real estate transaction. However, it is important to understand that by contacting a RealtorŪ, it does not necessarily mean that the purchaser has established an agency relationship with that RealtorŪ. There are several usual types of relationships which may exist between a purchaser and RealtorŪ (the "Co-operating Broker") in a real estate transaction: |
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| These are the usual forms
of agency relationships; this is not to say there may not
be others. Where a RealtorŪ is acting as sub-agent of the vendor, it is important for purchasers to realize that the RealtorŪ is technically an agent of the vendor so that duties are owed by the RealtorŪ to that vendor. However, the purchaser can expect the RealtorŪ to disclose all pertinent information about as property, not to misrepresent any facts, and to honestly answer all questions about the property. This has been a usual form of relationship for many years in the real estate industry. When a RealtorŪ acts as Buyer Broker (whether paid by the purchaser directly or through the Listing Broker), the purchaser can expect the RealtorŪ to act in the purchaser's interest alone as there is no sub-agency relationship with the vendor. In the case of buyer brokerage, the relationship is typically established by a Purchaser's Agency Agreement and the RealtorŪ is clearly only the agent of the purchaser. |
| Dual agency It may be on a particular transaction involving real estate that both the vendor and purchaser are represented by the same Firm. This is known as dual agency. In dual agency, there is effectively only one agent, or Firm, in a situation where there are two principals. In this case, duties to principals can become conflicting given that one agent is acting for more than one principal. When RealtorsŪ seek a Listing Agreement from a vendor, or RealtorsŪ seek confirmation of agency relationships from a purchaser, it will be normal for the RealtorŪ to ask the party signing the agreement to aclknowledge that dual agency may occur, and that conflicts and duty of confidentiality are waived. |
Disclosure of relationship At the earliest practical point in time, in an offer regarding real property, and from time to time if the agency relationship changes, RealtorsŪ are required to disclose to other RealtorsŪ the nature of their agency relationship. Commissions and payment of commissions As noted, by placing a property on the MLS system, the Listing Broker (agent of the vendor) lets it be known to every RealtorŪ the offer to become a Co=operating Broker, and that the Listing Broker is offering to share the commission that the vendor has agreed to pay the Listing Broker. Where a Co=operating Broker acts as a sub;agent of the vendor, the RealtorŪ will be paid through the Listing Broker and the purchaser will not have to pay anything directly to the RealtorŪ. However, where the purchaser enters into a Purchaser's Agency Agreement with a RealtorŪ as a Buyer Broker (the RealtorŪ is only agent of the purchaser), the purchaser will either compensate the RealtorŪ directly, or direct that the RealtorŪ is to be compensated through the Listing Broker. |
| Conclusion It is up to all purchasers and vendors to discuss openly and freely with RealtorsŪ agency, agency relationships, the type of agency relationship desired and the best approach to compensation for RealtorsŪ. All RealtorsŪ are dedicated to acting for vendors and purchasers, and the efficient working of organized real estate. All RealtorsŪ are ready and able at all times to answer all questions and inquiries. When you deal with a RealtorŪ, you can expect not only strict adherence to provincial laws, but also adherence to a Code of Ethics and Standards of Business Practice. The Code of Standards are very important to you, because it assures you will receive the highest level of service, honesty and integrity. One provision of the Standards requires RealtorsŪ to seek written acknowledgement from vendors and purchasers of disclosure of the agency relationship. A RealtorŪ will be pleased to discuss his or her agency relationship and responsibilities with you. If you need clarification about the types of agency relationship available, ask the Realtor to explain your alternatives. ARTICLE 3 of the Toronto Real Estate Board's Standards of Business Practice states, in part, that: "The Member shall fully disclose in writing to, and is advised to seek written acknowledgement of disclosure from, all parties to a transaction regarding the existence of a Member's agency relationship and the nature of the service the Member will be providing to the client versus the customer or other party to the transaction. The Member shall also disclose to other Members involved in the transaction whether the Member is representing the vendor, the purchaser, or some other party to the transaction". |
