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Step 1 - Buyers Agency Agreement - Understanding the agency agreement |
Until January 1, 1995 all real estate agents usually represented the seller. This means that the agents' legal and fiduciary obligation was given to the seller and the seller was usually the only party to actually hire a real estate agent under contract. When buyers made an offer to purchase a home, the agent would disclose in the offer that they were working for the seller. For the purchaser, this did not seem fair, purchasers wanted to know that their agent was acting in their best interests, and for this reason Purchaser's Agency became commonplace. Today, buyers can hire a real estate agent to represent them in their home purchase, and the great thing is, they can do so at no additional cost!
Under the "Purchaser's Agency Agreement" the agent agrees to:
Represent you and your interests
Bring all relevant properties to your attention
Disclose anything to you that may influence your desire to purchase or your ability to negotiate fairly
Represent you and your interests right up to the day of closing
As a buyer, you agree to:
Work exclusively with the agent you hire
Bring any homes you are interested in to the attention of your agent
Disclose anything that may influence your ability to close a transaction
A prime example:
Prior to 1995, sub-agency (where both agents represented the seller) was denounced in several Canadian judicial rulings. Not only did this open the door to buyer agency (agents representing buyers only), but also, agents became obligated to disclose to all the involved parties exactly who they're working for.
These new agent responsibilities are now embodied in the Code of Ethics governing all real estate agents in Ontario. Disclosure must be made, ``at the earliest practical opportunity", but not beyond the point where the agent acts professionally on behalf of another party. Rule 4 of the code says that agents ``shall enter into a written representation agreement (listing agreement for sellers, agency agreement for purchasers) with a client at the earliest practical opportunity, and in all cases before any offer to purchase is submitted or presented''. A prudent agent will make sure these agreements are signed in advance to ensure that clients are properly represented.
What happens if a purchaser will not sign a buyer agency agreement? Can an agent still represent the buyer? And do consumers benefit by signing that document?
Allan Johnston, manager of Complaints, Compliance and Discipline at the Real Estate Council of Ontario, addressed these very questions. Mr. Johnston's mandate is to enforce the Code of Ethics, and his answers were as follows:
Johnston drew a critical distinction between buyers who are clients of an agent, and buyers who are simply customers: ``Agents owe clients the highest level of fiduciary duties - competence, diligence, full disclosure, obedience, loyalty, confidentiality and complete accounting. Agents shall endeavour to protect and promote the best interests of a client''. Being a customer ranks well below the status of a client. Agents are required to deal fairly, honestly and with integrity with customers, and not to mislead them about a property or a transaction. And when acting for customers, agents should exercise reasonable care and skill to ensure that answers given, or information provided, is complete and accurate. But generally speaking, the agent's responsibility to the customer stops here.
``Written representation agreements are mandatory if an agent is to represent a consumer as a client. If buyers won't sign agency agreements, they can only be treated as customers, not clients'', Johnston explained.
Buyers then lose the full arsenal of fiduciary duties available to clients. So when no buyer agency agreement is signed, "confidentiality" is out the window.
``Anything the buyer tells his or her agent can and must be divulged to the vendor (i.e. how much the buyer is prepared to pay for a property), as the agent is not working under a buyer agency agreement''.
Nor should the unrepresented buyer expect undivided loyalty from his or her agent. Their status as a customer means that they fall under the auspices of sub-agency.
``Clearly'', Johnston emphasized, ``it is in a buyer's best interest to sign a representation agreement. It allows them to benefit as a client from the full set of fiduciary duties. However, what creates concern for consumers are the terms and conditions of that contract.'' What should a buyer agency agreement contain? According to Johnston:
- The role and nature of services to be provided (and whether or not dual agency is allowed)
- An obligation by the agent to make the buyer aware (and vice versa) of any properties meeting the buyer's criteria.
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The term of the agreement (generally not to exceed six months).
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The commission arrangement (including promises to rebate or reduce commission).
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Any other expectations of the client or obligations of the agent. Elspeth and Pat ensure that they will work conscientiously for their clients until their perfect house is found and purchased. Their clients loyalty is rewarded by Pat and Elspeth's diligent efforts.
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