Agency Relationship Explained

When you deal with a REALTOR, 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 and 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 REALTORS to seek written acknowledgment from sellers and buyers of disclosure of the agency relationship

A REALTOR 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.

What is an Agency Relationship?

An agency relationship is created where one person, known as the principal, asks another person, known as the agent, to act for and on the 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 sellers or buyers ask REALTORS 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 in a real estate transaction; a seller who owns a property and who wants to sell it, and a buyer who wants to buy a property.

The job of REALTORS is to bring together willing sellers and willing buyers in successful real estate transactions.

Toronto Real Estate Board

The Toronto Real Estate Board is an association of REALTORS.  The Toronto Real Estate Board operates an MLS System; this System is a mechanism whereby sellers, through their agent (known as a Listing Broker), can make known the fact to other REALTORS that a particular property is for sale.  By placing a property on the MLS System, the Listing Broker (agent of the seller) lets it be known to every other REALTOR that they can be a "Co-operating Broker".

Seller Representation

When a real estate brokerage represents a seller, it must do what is best for the seller of a property.

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 REALTOR’s services and specifies what obligations a seller may have.

A seller’s agent must tell the seller anything known about a buyer. For instance, if a seller’s agent knows a buyer is willing to offer more for a property, that information must be shared with the seller.

Confidences a seller shares with a seller’s agent must be kept confidential from potential buyers and others.

Although confidential information about the seller cannot be discussed, a buyer working with a seller’s agent can expect fair and honest service from the seller’s agent and disclosure pertinent information about the property.

Buyer Representation

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

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 gee arrangement for the REALTOR’s services and specifies what obligations a buyer may have.

Typically, buyers will be obliged to work exclusively with that brokerage for a period of time.

Confidences a buyer shares with the buyer’s agent must be kept confidential.

Although confidential information about the buyer cannot be disclosed, a seller working with a buyer’s agent can expect to be treated fairly and honestly.

Multiple Representation

Occasionally a real estate 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

A real estate brokerage may 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 brokerage will disclose these relationships to each buyer and seller.

Who’s working for you?

It is important that you understand who the REALTOR is working for. For example, both the seller and the buyer may have their own agent which means they each have a REALTOR who is representing them.

Or, some buyers choose to contact the seller’s agent directly. Under this arrangement the REALTOR is representing the seller, and must do what is best for the seller, but may provide many valuable customer services to the buyer.

A REALTOR working with a buyer may even be a “sub-agent” of the seller. Under sub-agency, both the listing brokerage and the co-operating brokerage must do what is best for the seller even though the sub-agent may provide many valuable customer services to the buyer.

If the brokerage represents both the seller and the buyer, this is a multiple representation.

Code of Ethics

REALTORS believe it is important that the people they work with understand their agency relationship. That’s why requirements and obligations for representation and customer service are included in a Code of Ethics which is administered by the Real Estate Council of Ontario.

The Code requires REALTORS to disclose in writing the nature of the services they are providing, and encourages REALTORS to obtain written acknowledgement of that disclosure. The Code also requires REALTORS to submit written representation and customer service agreements to the buyers and sellers.

Honesty and Integrity

Most real estate professionals in our province are members of the Ontario Real Estate Association (OREA) and only members of OREA can call themselves REALTORS.

When you work with a REALTOR, you can expect strict adherence to provincial laws, which includes a Code of Ethics. That code assures you will receive the highest level of service, honest and integrity.

Highest Professional Standards

Before receiving a real estate registration, candidates must successfully complete an extensive course of study developed by OREA on behalf of the Real Estate Council of Ontario. That is only the beginning: in the first two years of practice, registrants are required to successfully complete three additional courses as part of their articling with an experienced broker. In addition, all registrants must continue to attend courses throughout their careers in order to maintain their registration.

Want more Information?

•Visit www.orea.com

•Check out homes for sale on the Internet at www.mls.ca

Ontario Real Estate Association

99 Duncan Mills Road, Don Mills, Ontario M3B 1Z2

Telephone: (416) 445-9910

Fax: (416) 445-2644

Toronto Real Estate Board

1400 Don Mills Road, Toronto, Ontario M3B 3N1

Telephone: (416) 443-8100

Fax: (416) 443-0797