Surprisingly, this seems to be one of the most complicated and misunderstood aspects of a real estate transaction. In my own opinion, people do not always take enough time to understand the implications of who a REALTOR® is representing and later are surprised to learn what impact it may have on a transaction. When it comes to buying or selling your home, I suspect surprises are the last things you want.
REALTORS® believe it’s important for you to understand who they represent, and what services you can expect from them. The real estate profession itself lobbied for many years for the creation of the Real Estate Council of Ontario (RECO), a self-management body for the profession in Ontario. As of January 1, 2000, all licensed real estate brokers and sales people must follow certain rules designed by RECO to protect consumers.
These rules clearly establish who the REALTOR® represents in a real estate transaction — the buyer or the seller — and acknowledge that relationship in writing. Failure to have a written representation agreement is a breach of the RECO code of ethics.
The next time you are buying or selling a home, you will be asked to sign some form of representation agreement. You will be asked to sign a listing agreement if you are a seller. You will be asked to sign a buyer representation agreement if you are a buyer and have agreed that the REALTOR® is representing your interests. And, whether you are a buyer or a seller, you will be asked to sign documentation confirming that you understand for whom the REALTOR® is working.
What follows is an excerpt from the Ontario Real Estate Association’s brochure explaining "representation."
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 is working for. 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®. But often, you may assume such an obligation exists when it does not.
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.
In real estate, there are different possible forms of agency relationship:
1. 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 of pertinent information about the property.
2. 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 fee 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.
3. Dual 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 “dual 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 dual representation relationship be properly documented. Representation agreements specifically describe the rights and duties of everyone involved and any limitations to those rights and duties.
4. 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 dual 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 REALTOR® to disclose in writing the nature of the services they are providing, and encourages REALTOR® to obtain written acknowledgement of that disclosure. The Code also requires REALTOR® to submit written representation and customer service agreements to buyers and sellers.