Understanding agency relationships

“The salesperson works for me, right!?”

The answer is “Not always”. In previous years, the seller’s agent (the listing agent) and the co-operating agent bringing an offer from a buyer (the selling agent or sub-agent) were both legally considered to represent just the seller and owed their loyalty, best efforts and other “fiduciary duties” only to the seller and not to the buyer. Many buyers did not know this.

Confusion would set in when a buyer, after working with an individual salesperson, felt that they had that salesperson’s full allegiance only to find out during negotiations “their” supposed agent was ethically and legally bound to work on the behalf of the seller. The agent was legally required to get the buyer to pay the most under the best possible terms for the owner.

Disclosure became mandatory

Since January, 1995, the Canadian Real Estate Association’s disclosure requirements have been in effect. Co-operating Agents are required to explain or “disclose” to buyers, sellers and to other agents, exactly who they are representing in a transaction and to get written acknowledgment that this disclosure has been made. A commonly used vehicle to accomplish this is a handy little brochure entitled “Working with a Realtor, The Agency Relationship” from the Toronto Real Estate Board. Disclosure now brings to light exactly who the Listing and Co-operating agents are representing.

Buyers demand their own representation

Buyers now have a choice. The salesperson showing them houses can work for them (buyer brokerage) or can work for the Seller (sub-agency). “Buyer Brokerage” (real estate agents whose sole allegiance is to the buyer, not the seller) has become a very attractive alternative for buyers. Almost every single buyer now opts for this type of representation. To further enhance your understanding of the differences between agency functions please review our “Sub-Agency vs Buyer-Agency” form.

Is all this paperwork really necessary?

Every licensed salesperson in the province of Ontario is required by law and/or Code of Ethics to submit this agency disclosure paperwork together with either a direction for sub-agency, or a “Buyer Agency Agreement”, with any Agreement of Purchase and Sale.

Who pays the salesperson?

In the case of Buyer Brokerage the Selling Agent can either be compensated directly by the buyer or be compensated through the Listing Broker from the proceeds of the sale. The latter form of compensation is most common in Toronto. Buyers are usually only responsible to directly compensate the Selling Agent if they purchase a property which has not been listed for sale. Buyer brokerage agreements clearly detail any responsibility for payment of commissions. It is up to buyers to discuss openly and freely with Realtors agency relationships, the type of agency relationship they desire to have, and the best approach to compensation for their Realtor. Please read, review, and ask questions of your salesperson until you completely understand.

In most purchases the selling brokers get their compensation from the Seller, through the listing brokerage office. The total commission amount is negotiated at the time a listing is taken and it covers both commissions paid to the Listing and to the Co-operating Brokerage. Although in these cases it does not cost you anything at all to use an Agent, it is important to know that Buyer Agents are hired by you to work for your best interests, i.e. the lowest price and at the best terms and conditions possible for you.

What is Multiple Representation?

If you were to sign a Buyer Brokerage Agreement with Sutton Bayview and you were to purchase a property also listed for sale with Sutton Bayview then the rules of multiple representation would apply as Sutton Bayview would be acting for dual clients (the Buyer and the Seller) on the sale of a single property. An appropriate buyer’s response to the conflict of interest position that Sutton Bayview is placed in multiple representation sales is for the buyer to keep confidential from their salesperson the top price they are prepared to pay for the property.

In Multiple Representation Your Price Intentions No Longer Remain Confidential
The most relevant impact Multiple representation has on buyers is the requirement for the selling agent to disclose any known price intentions of the buyer. Therefore, in multiple representation, do not tell your selling agent how high you are willing to go for that particular house because by law they cannot keep that information confidential from the seller. Similarly, the seller will not tell their listing representative what the lowest amount is that they are willing to accept because that information cannot be kept confidential from you.

In Multiple Representation Other Information Remains Confidential To Clients
Other information that would remain confidential to the Seller includes:

  1. Seller’s urgency or motivation to sell
  2. The number of offers they have already seen and their terms, price, etc.
  3. Seller’s negotiation strategies.

Information in multiple representation that would continue to remain confidential to the Buyer includes:

  1. Buyer’s urgency to buy
  2. Details about offers you may have made
  3. Other facts regarding buyer’s negotiating strategies.

“What is the Bottom Line About How Multiple Representation Affects Me?”

Salespeople must adhere to lawful multiple representation requirements but with the exception of not disclosing how much you are ultimately willing to pay for the property any impact on negotiation strategies will be minimal.

Where Do I Go From Here?

After reviewing and understanding the forms it will be necessary for you to choose and authorize the appropriate representation. This is to be done before you can look at homes.

Sub Agency vs. Buyer Agency

Sub Agency

Prior to the mid-90’s when buyers worked with an agent to find a home the salesperson was, in fact, employed by the owner of the house and not by the buyer. Even though the buyer may have established a close working relationship with the salesperson, the salesperson’s legal responsibility (fiduciary duty) was to their client, the seller of the house. The buyer was simply the agent’s customer. The agent worked for the home’s owner and not for the buyer. Very few buyers understood this. Times have changed!

Buyer Agency

Over the past few years buyers started employing salespeople themselves by establishing an agency function directly with agents wherein the buyer became the agent’s client and the agent owed them their fiduciary duty. Even though in most cases the seller is still paying both the listing and the Co-operating bokerages’ commission, the selling salesperson is now exclusively working to represent and protect their buyer’s best interests. Co-operating Brokerages no longer owe their allegiance to the seller, they can now fight for their buyer. The seller’s interests are protected by the listing agent of the property.

Description of the Services,
Duties and Allegiances I Would Provide
If I were to Represent you as a Sub Agent(i.e. you were my customer) If I were to Represent you as a Buyer Agent
(i.e. you were my client)
My loyalty and allegiance would go to the Seller

My loyalty and allegiance would go to the BUYER

I WOULD: Arrange property showings

Assist with financing

Explain forms and agreements

Provide property value data

Provide current property data

Research historic property info. (original purchase price, etc)

Point out reasons not to buy a particular property

Offer advice to protect and promote your best interests

Reveal to you all known facts about the seller’s motivation

Suggest a starting offering price most beneficial to
your position

Advise you on all other aspects of offers

If known, disclose the lowest price the seller will take

Keep your motivation and bargaining position confidential

Put your interests first during the entire process

Give you full disclosure about everything

Further enhance your position by getting you the
best possible deal

How can you make certain that I will work for you and not the owner of the house? Hire me. You become my client when you sign a Buyer Agency Agreement with Sage Real Estate Limited Brokerage.