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Agency in a real estate transaction explained

When working with a REALTOR, it is important to understand who the REALTOR works for. To whom is the REALTOR legally obligated? 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 my 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 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 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 agency relationship be properly documented. Representation agreements specifically describes 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. 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 with a representation agreement. 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. Who’s working for you? It is important that you understand who the REALTOR is working for. For example, both the seller and they 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 working for the seller, and must do what is best for the seller, but may provide many valuable 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 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 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 not only strict adherence to provincial laws, but also adherence to a Code of Ethics. And that code is very important to you because it assures you will receive the highest level of service, honesty 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. The information on this page has been provided by the Ontario Real Estate Association.

This series of articles is brought to you by A. Mark Argentino and other real estate related resources, including Canadian Real Estate Association CREA and the Ontario Real Estate Association OREA. Back to list of Real Estate Helpful Articles

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