Buying or selling a property can be one of the most significant financial decisions you make in your lifetime and your REALTOR® will play a key role in assisting you. That’s why it’s important to consider how you will work with your REALTOR® to ensure you get the most value from your relationship.
In law, agency is a specific relationship between two or more parties. One party must authorize the other party to act on his/her behalf, and the other party must consent to do so. In the instance of real estate, when you authorize a REALTOR to work for you in buying or selling a property and the REALTOR® agrees, you and the REALTOR® are in an agency relationship. As a member of the general public, you are possibly familiar with working with individual REALTORS. However, the agency relationship is actually between you and the REALTOR’s brokerage. The brokerage is the real estate company with which the REALTOR® is licensed with. Therefore, when you hire your agent, the law of agency says that you hire the entire brokerage. In Alberta, REALTORS practice three different forms of agency. A brief description of each follows.
Please read this guide in detail and ask your REALTOR® questions until you are satisfied and you fully understand your responsibilities, those of your REALTOR® and the different types of relationships you can form.
Please note: Under new federal legislation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), REALTOR® are now required to collectpersonal information in order to identify individualsconducting large financial transactions, such as buyingor selling property. Before entering into an agency relationship your REALTOR® will need to collect personal information and identification. For more information, visit the Financial Transactionsand Reports Analysis Centre of Canada (FINTRAC)website www.fintrac.gc.ca.
What Is Agency?
Agency is a relationship established when two parties agree to have one party act on behalf of the other. If you decide to have a REALTOR® act on your behalf, the agency relationship exists between you (the client) and the Agent (the brokerage and its REALTORS®, including the broker, associate brokers and associates).
When you first contact a REALTOR®, you are not in an agency relationship with the brokerage. You should be careful to make a conscious decision whether or not you wish to have the brokerage work on your behalf before you take any action that would imply the brokerage works for you.
Responsibilities Of Your Realtor
The complex and important nature of a real estate transaction requires the Agent to exercise discretion and judgment when carrying out duties on your behalf. Agents are obligated to protect and promote the interests of their clients as they would their own. Specifically, your Agent owes you the following duties:
• Undivided loyalty
The Agent must act solely in your best interests, always putting your interests above their own interests and above the interests of other parties.
The Agent must keep your confidences. Confidential information includes any information concerning you, the property or the transaction that is not required by law to be disclosed, but which, if disclosed, could be used by another party to your disadvantage. The duty of confidentiality continues after your agency relationship ends.
• Full disclosure
The Agent must inform you of all facts known to the Agent that might affect your relationship or influence your decision in a real estate transaction. This includes any conflicts of interest the Agent might have in the course of providing services to you.
(An exception to full disclosure to you is confidential information your Agent received in a previous agency relationship. The confidential information of a previous client will not be disclosed to you unless the previous client agrees to this in writing.)
As long as instructions are reasonable and ordinary under the circumstances, the Agent must obey all of your lawful instructions. You cannot ask your REALTOR® to deceive or conduct unlawful actions towards another party.
• Reasonable care and skill
The Agent must exercise reasonable care and skill in performing all assigned duties.
• Full accounting
The Agent must account for all money and property placed in their hands while acting for you.
Your Responsibilities As A Client
In an agency relationship you have duties towards your Agent, which include the following:
1) Compensating the Agent for expenses incurred as a result of carrying out responsibilities on your behalf;
2) Paying any agreed-upon remuneration (fee) outlined in a signed service agreement; and
3) Disclose to your REALTOR® matters that could affect the transaction, including material facts that must be passed on to the third party in the real estate transaction. Note that sellers are required by law to disclose the existence of known material latent defects, which are defects that are structurally dangerous or a health hazard and cannot be detected by a visual inspection
After your REALTOR® has explained the transaction it is your responsibility to read all documents carefully and ensure you understand what you are signing. If after your REALTOR® explains the situation and you are still unclear and feel you need additional assistance or advice, you always have the option to consult a professional such as a lawyer, accountant or inspector.
Types Of Relationships
Sole agency occurs when one brokerage (including its broker, associate brokers and associates) represents the seller as the seller’s Agent, and another brokerage (including its broker, associate brokers and associates) represents the buyer as the buyer’s Agent. Sole agency can be broken into two parts which are Seller’s Agency and Buyer’s Agency.
In Seller’s Agency, a real estate company represents only the interests of the Seller. Sellers typically hire a real estate company to sell their property by signing a “listing” agreement (now called EXCLUSIVE SELLER BROKERAGE AGREEMENT). This is the contract that establishes the formal agency relationship between the Seller and the real estate brokerage.
The EXCLUSIVE SELLER BROKERAGE AGREEMENT will explain exactly what the Seller instructs the Seller’s Brokerage to do, what services the Seller’s Brokerage will provide to the Seller, who will pay for those services and what obligations the Seller will have.
A Seller’s Brokerage is expected to:
1) Obey the Seller’s instructions on the Real Estate Listing Contract.
2) Represent the Seller’s best interests.
3) Fully disclose known facts which might influence the Seller’s decisions.
4) Maintain the confidentiality of personal and financial information discussed with the Seller even after the Exclusive Seller’s Brokerage Contract expires.
5) Obey all lawful instructions of the Seller.
6) Exercise reasonable care and diligence.
In Buyer’s Agency, a real estate company represents only the interests of the Buyer. Buyer’s Agency can be established by working with a REALTOR or by a written contract between the Buyer and the Brokerage called an EXCLUSIVE BUYER BROKERAGE AGREEMENT.
The EXCLUSIVE BUYER BROKERAGE AGREEMENT will explain exactly what the Buyer instructs the Buyer’s Brokerage to do, what services the Buyer’s Brokerage will provide to the Buyer, who will pay for those services and what obligations the Buyer will have.
In Buyer’s Agency, it is the Buyer that can expect the REALTOR to:
1) Obey the instructions on the EXCLUSIVE BUYER BROKERAGE AGREEMENT.
2) Represent the Buyer’s best interests.
3) Fully disclose known facts which might influence the Buyer’s decisions.
4) Maintain the confidentiality of personal and financial information discussed with the Buyer even after the EXCLUSIVE BUYER BROKERAGE AGREEMENT expires.
5) Obey all lawful instructions of the Buyer.
6) Exercise reasonable care and diligence.
A potential conflict of interest occurs when one brokerage is representing both the buyer and the seller in a single transaction. An example would be if you wanted to make an offer on a home listed by the same brokerage representing you – or if a buyer represented by the same brokerage as you wanted to make an offer on your home. By representing both you and the other party in the transaction, the brokerage’s ability to fulfill agency duties to you (and the other client) are limited, particularly the duties of undivided loyalty, confidentiality and full disclosure.
Under these circumstances, a different relationship called transaction brokerage can be formed. The relationship applies whether one REALTOR® represents both parties, or two different REALTORS® in the same brokerage each represent a client in the transaction.
Transaction brokerage is only permitted with the fully informed and voluntary consent of both the buyer and the seller. The brokerage will obtain this consent through the use of a Common Law Transaction Brokerage Agreement, which must be signed by the buyer before an offer is made, and by the seller before the offer is presented. The agreement allows the brokerage (including its broker, associate brokers and associates) to act as a Transaction Facilitator to help you and the other party reach a mutually acceptable agreement.
The Transaction Facilitator will treat the interests of both the buyer and the seller in an even-handed, objective and impartial manner and will ensure that any advice or information given to one party is disclosed to the other.
However, the Transaction Facilitator cannot disclose any information received in confidence, and in particular cannot disclose:
1) that the buyer may be prepared to offer a higher price or agree to terms other than those contained in the offer to purchase;
2) that the seller may be prepared to accept a lower price or agree to terms other than those contained in the Seller Brokerage Agreement;
3) the motivation of the buyer or the seller wishing to purchase or sell the property; and
4) personal information relating to the buyer or the seller.
Customer Status (Non Agency Relationships)
If you do not want be in an agency relationship but want to work with a brokerage, you will be asked to choose customer status. When you have customer status, the brokerage is not your Agent and does not owe agency duties to you. Duties are limited to honesty, reasonable care and skill and not negligently or knowingly providing you with false or misleading information. The brokerage will provide you with forms to help you complete a transaction, perform services needed to help you complete a transaction, but will not provide you with advice or advocate on your behalf.
The brokerage might recommend customer status when a conflict of interest will affect its ability to fulfill agency duties to you. For example, if the brokerage is representing a seller with whom it has a long-standing relationship (like a developer or a relative of a brokerage representative), you (as the buyer) should be in a customer relationship with the brokerage.
If a brokerage recommends customer status for a certain transaction but you would prefer to have an agency relationship, you should opt to work with another brokerage.
Making An Informed Choice
Your REALTOR® is responsible for explaining your relationship options. Be sure you understand the duties owed to you and the limitations that exist or might exist with each type of relationship. Don’t hesitate to ask your REALTOR® questions and ensure you’re satisfied with the answers before you make your decision.