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Client Representation Understanding Agency and Disclosure Principles


Client Representation Understanding Agency and Disclosure Principles

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Understanding Agency

When working with a REALTOR, it is important to understand who the REALTOR works for. To whom is the REALTOR legally obligated? REALTORS are governed by the legal concepts of "agency" and "representation". 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 company may be your agent - if you have clearly established an agency or representative 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 or representation relationship exists and when it does not - and understand what it means.

In real estate, there are different possible forms of representative relationships:

1. Seller's Representative:

When a real estate company is a sellers representative or agent, it must do what is best for the seller of a property. A written contract, called a listing agreement, establishes seller representation. It also explains services the company 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 or Buyer Agency:

A real estate company acting as a buyer's representative must do what is best for the buyer. A written contract, called a buyer agency agreement, establishes buyer agency. It also explains services the company 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 company 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 or Dual Agency:

Occasionally a real estate company will be the agent of both the buyer and the seller. The buyer and seller must consent to this arrangement in their listing and buyer representation agreements. Under this "dual agency" arrangement, the company must do what is best for both the buyer and the seller.

Since the company's loyalty is divided between the buyer and the seller who have conflicting interests, it is absolutely essential that a dual agency relationship be established in a written agency agreement. This agreement specifically describes the rights and duties of everyone involved and any limitations to those rights and duties.

Buyer Representation Explained
What is the role of the real estate agent?
All registered brokers and salespersons are required to adhere to a Code of Ethics. The rules of the Code of Ethics define the conduct expected of them and the principles upon which they must do business. An agent is legally obligated to look after the best interests of the person for whom he or she is working.

What is Agency Disclosure?
At the earliest practical opportunity, the real estate agent must fully disclose in writing the role and nature of the service that he or she will be providing to the buyer. The signing of the Agency Disclosure does not constitute a Buyer Agency Agreement. It is simply a written acknowledgment between the parties that everyone knows who is working for whom and what can or cannot be discussed. The Disclosure Form identifies whether the agent is representing the Buyer or the Seller.

What is Buyer Agency?
Buyer Agency is a contractual relationship with a real estate agent created by by of a Buyer Agency Agreement, in which that agent gives their fiduciary trust to represent the best interest of the buyer in a real estate transaction

How does Buyer Agency affect me?
Never disclose information about your motivation, financial capacity, time constraints, or anything else that may be used to the sellers advantage to any real estate person unless you have a signed or intend to sign a Buyer Agency Agreement with that agent to have them represent you as a Buyer Agent. The signed agreement is for your protection.

What do you mean by Customer or Client status?
Don't assume that an agent is working on your behalf when you're in the process of buying a home. The real estate agent can work for you (Client Status) or with you (Customer Status). Either way the agent owes fairness to both parties and a duty to not misrepresent the property. However, without a signed Agency Disclosure Form or a signed Buyer Agency Agreement in place, the real estate agent does not have authorization to act in your best interest and thereby must represent the Seller as their Client by way of a written contract which is the listing agreement. In such a case, the real estate agent is working with you the Customer. It makes no difference to the real estate agent to work in either case, but they must be protected by something in writing. Failure to do so is a breach of the Code of Ethics and can result in heavy fines being imposed on the agent or even having their license to practice real estate revoked. Every party to a transaction must know who is representing whom and it must be in writing.

Do I need to sign something?
No, but it is certainly in your best interest. Remember. Without a signed Agency Disclosure Form or a signed Buyer Agency Agreement, the real estate agent is obligated by the Code of Ethics to work in the best interest of the Seller. See more information side links RECO

I don't want to sign anything.
That's fine. Your agent can accept Customer or Client status from you, but you must understand that it may cost you more money to buy your home because the agent is obligated to represent the Seller. The agent must share all pertinent facts relative to the house but will not be in a position because of the Code of Ethics to share other knowledge they have that would weaken the Seller's negotiating position.

Can I save money by buying a FSBO (For Sale By Owner)?
In most cases, no. Many FSBO's are trying to sell privately because agents may have refused to take an over-priced listing, or in some cases, there are hidden defects in the home that would have to be disclosed in the listing agreement forms. If you do find a FSBO that interests you, do yourself a big favour and find a good, experienced real estate agent to represent you. They know how to write a contract that will protect you from any misrepresentation

Buyer Agent:
The Ontario Real Estate Association has developed a standard buyer agency agreement that brokers can use with clients. Any licensed real estate salesperson/broker in Canada can legally act as a buyer's agent/broker. A buyer's agent/broker performs services for you that a seller's agent can't, such as showing you reasons not to buy a particular property . A good buyer broker/agent will include contingencies in the contract that protect you, rather than the seller as in most standard contracts, and keep confidential any information that could hurt your bargaining position. The hallmarks of this relationship are good faith, full disclosure, competence, obedience, and accounting. The buyer and the brokerage will enter into a signed buyer agency agreement that details their relationship.

Buyers seeking exclusive representation usually do so through an agency agreement. This relationship is the counterpart of seller agency with the same agency principles and practices applying. Bear in mind that the seller agent ( the agent whose name is on the lawn sign) always works for the best interest of his/her seller. Brokers have to disclose all relevant information they have on property defects to sellers. But brokers must tell buyers only about material defects that render the property dangerous or unfit for habitation, not necessarily all defects in a property. That's where a buyer agent comes in handy, being free to talk about anything that can affect the buyer's interests.

When you have decided to buy or sell a home, the services of a qualified in real estate professional is of utmost importance. The ideal real estate agent will have a good working knowledge of the local real estate market conditions, can advise you about current government programs that benefit consumers, provide you with insight into market trends, current market values of similar properties/ opinions on values of specific properties, offer information about the amenities of specific neighbourhood and have the support of a reputed real estate company.

The seller usually pays all commission to the listing brokerage who, in turn, forwards the appropriate portion to the buyer's brokerage. Alternatively, the buyer's brokerage can be paid directly by the buyer and, therefore, this amount does not form part of the sale proceeds. In most transactions, the commission to the buyer's brokerage is paid via the listing brokerage from the proceeds of the sale.

Mississauga Real Estate Agency: Seller Agency
When a real estate company is a “seller's agent,” it must do what is best for the seller of a property. Seller Agency establishes a relationship in which the brokerage and its salespeople represent the interests of the seller exclusively. This agreement/contract sets out what the seller instructs the brokerage to do and what services are provided under seller agency. Further, it provides that representatives of the seller will use their professional negotiation skills to seek qualified buyers and generally promote the listed property, while keeping information concerning the seller confidential and always acting in the seller's best interests. The hallmarks of this relationship are good faith, full disclosure, competence, obedience, and accounting. The seller has traditionally paid a commission directly to the agent. The listing agency then pays any brokers or salespeople within its employ and, if applicable, any co-operating brokerages involved in the transaction. The Seller signs the listing agreement with the brokerage.

Mississauga Real Estate Agency: Dual Agency
Occasionally a real estate company will be the agent of both the buyer and the seller. The same brokerage has an agency relationship with both the buyer and the seller in a real estate transaction. Dual agency also occurs when different salespeople represent buyer and seller, and are employed by the same brokerage, including those who work in different branch offices. The brokerage or its representatives must advise the seller and the buyer of the dual aspect of representation and must be impartial when representing both parties. Both buyer and seller must give their informed consent to this form of representation.

So, what is your plan with this opportunity and what is your next step in the real estate process?



Mississauga Real Estate Market Professional

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So, if you are thinking of selling and buying a homes this year, should you buy or sell first?  I've had many clients purchase before they sell.  I just want you to have all the information so you can make the best decision for yourself and your family.  You may read more about buying or selling first here

Read about what happened in real estate last month.

I wish you much success, good health and happiness today and always! 

Mark

 

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