January 31, 2008
Exclusive Buyer Agency
The introduction of Buyer agency establishes a more natural and balanced relationship between the agents, buyers and sellers in the face of traditional Seller agency practices.
Buying real estate has evolved over the years into a complex and stressful process. Gone are the days of one-page contracts or deals made with a hand shake. But along the way have come some welcome improvements. Today’s real estate professional is highly skilled and knowledgeable in many aspects of real estate practice. The introduction of buyer agency representation has given an element of fairness and balance to the buyers interests and position. Ontario law and regulation requires that real estate agents explain the nature of their agency relationship to all parties with whom they engage in real estate transactions.
Three definitions central to this explanation are:
- The Agent is the Real Estate Company or brokerage and includes its branch offices and all of its Realtors.
- The Client is the party who contracts for an Agent to act on behalf of that party to assist with either purchase or sale of real estate.
- The Customer is a person who receives services from another person’s Agent.
Under a Listing Agreement, the Listing Company and all its Realtors act as the Agent for the Seller, not the Buyer. A Co-operating Company and all of its Realtors also owe loyalty and other duties to the Seller as Sub-Agents of the Listing Company.
Generally, the Listing and Co-operating Companies are the Agents and Sub-Agents for the Seller. Their fiduciary duties of loyalty and faithfulness are owed to their Client, the Seller. While neither Company is the Buyer’s Agent, they’re able to provide Buyers with a variety of market information and assistance in decision-making.
For example, a Real Estate Company representing the Seller can: Provide a Buyer with information about available properties and sources of financing; show available properties and describe their attributes and amenities to Buyers; assist Buyers in submitting an Offer to Purchase. Both the Listing Company and the Co-operating Company are obligated by law to treat both Buyer and Seller fairly. They must present all offers to the Seller and respond honestly and accurately to questions concerning the property.
Under a Buyer Agency Agreement with the Buyer, the Realtor and his or her Real Estate Company act as the Agent for the Buyer. Under a Buyer Representation Agreement the Real Estate Company and all of its Realtors owe their loyalty and fiduciary duties to the Buyer, not the Seller, and are not Sub-Agents of the Listing Company. The Listing Company and its Realtors continue to act as the Agent for the Seller according to their Listing Agreement.
If you choose to have a Real Estate Company represent you as your Agent, you should: Enter into a written contract with the Real Estate Company which clearly establishes the obligations between Realtor and Buyer. That is to say where the Realtor will act on behalf of you, as his Client, in locating property which is suitable to the you and to negotiate an acceptable agreement to purchase the property.
By entering into a Buyer Agency Contract with your selected Realtor, you are assured of full representation during the buying process. After you have moved in to your new home and look back on your real estate experience; the decision to contract a Realtor to work solely on your behalf will have been a sound and valued one. Buyer Agency gives you peace of mind that every opportunity was maximized during the selection and negotiation process.
January 31, 2008
Avoid the Dual Agent
Dual agency or ‘multiple representation’ refers to the situation where a real estate broker represents both the buyer and the seller in a real estate transaction. Even though two real estate agents are involved, if they both work for the same brokerage firm, dual agency is present. Real estate agents are required to advise you when this is the case.
In general, never get yourself involved in a real estate transaction where the real estate agent is representing both the buyer and the seller. Even though by law dual agents are required to be fair to both parties, ultimately the real estate agent will tend to favor the seller when they are representing both sides because the seller pays their commission. Also, the seller is only one person while many buyers may come and go. Thus, the dual agent will get to know the seller better and tend to feel more sympathetic towards the seller. Insist on a separate agent to represent you if you are the buyer. It costs you nothing and you will probably get a better deal.
January 29, 2008
Perspectives on Representation
When you call an agent from an ad or a sign, you have to remember that they are always working for the seller — not you. You are talking to the listing agent who was hired by the sellers to list and sell their home. His or her job — and obligation — is to get as much money as possible for the seller. This ties in with the fact that the agent has an incentive to get more. The higher the sales price, the more money the agent will make. It may be hard to keep this in mind as you spend time with the agent and feel you know and feel comfortable with them. Even though you begin to trust that agent, never to reveal the highest price you are willing to pay, or other concessions you know you would be willing to make. Because that person represents the seller, and must relay this type of information to the seller.
The flip side of this is also true. Again because the agent is representing the seller, he or she is not allowed to divulge anything that would tip the scales in your favour; — like why the seller is selling or how low the seller will probably go regarding the selling price. Remember, the agent is bound by contract to work to get the best possible deal for the seller.
But you have another option. When you begin your search, you can start by using a buyer’s agency who is working with your best interests (and wallet) in mind. A buyer’s agent will work to negotiate the best price, ensure the property is inspected, and make sure you have all the assistance and guidance you need. Things you tell a buyer’s agent remain confidential. Using a buyer’s agent also means that you can be shown homes that are offered by new home builders or directly by owners. It might seem like using a buyer’s agency means you are going to pay more — but that’s not usually the case. Although there are situations where agents charge an hourly fee or a flat fee for the service, in most situations they are simply working for the same commission that is paid by the seller through their listing agent. While there is still some argument that this method leaves the incentive for a higher sales price, buyer’s agencies counter by pointing out that a $10,000 savings for the buyer only amounts to a $250 difference in commission for the buyer agent. The benefit of your satisfaction with their service and the word of mouth promotion they will greatly outweigh the small loss of money.
The type of agreement you sign with a buyer’s agent will dictate how the arrangement works. A representation agreement will stipulate, specifically how the agent will be paid. You can negotiate the terms and obligations for both parties up front so both you and the agent know what to expect and are comfortable with the relationship.
If you decide to use a buyer’s agent be on the lookout for dual agency. Usually referred as ‘multiple representation’ it describes the situation where an agent or agents are working on both sides of the fence. For example, an agent with XYZ Realty may represent the seller, while another agent (or the same agent) also with XYZ Realty represents the buyer. There are obviously arguments against this arrangement because of conflicts of interest, but nonetheless, it is still a common practice. In the dual agency situation, both the buyer (you) and the seller must be made aware of the arrangement and privileged information can’t be shared unless you agree to it. Dual agency is a situation that should be avoided if at all possible.
January 28, 2008
Real Estate’s double agents
You’ve been searching for a new house, maybe buying for the first time or perhaps looking for something new. With all the paperwork and endless details, you’ve decided to hire a real estate agent, someone to represent and protect your interests as a buyer.
After weeks of hunting, you find the perfect house; it has everything you’re looking for, and you’re ready to make an offer. But your guide in this journey now has one more piece of paper for you to sign: disclosing a term you’ve never heard, “multiple representation”.
It seems that your dream house is listed by your agent’s brokerage office, which represents the seller. One company is now working both sides of the same deal. This situation is called dual agency or multiple representation, and experts say it can leave clients feeling mistrustful and agents facing sticky ethical dilemmas. But others say the practice can be regulated to avoid conflicts.
Obviously the legal community would tell you there’s a problem with dual agency because you can’t work for two masters. It’s pretty tough to make an argument that you can be on both sides.
Dual agency can occur when two agents working for the same broker each represent a buyer and seller. Less frequently, one agent may represent both parties. But both arrangements can result in crucial conflicts of interest.
The practice has become more widespread in recent years as the idea of buyer-representation taken hold. Traditionally, an agent or broker worked for the seller. In the last two decades, however, buyers have begun retaining real estate agents on their own. The increasing number of agents representing buyers has led to more instances of dual agency. A buyer might retain an agent to help find the perfect house, only to discover that it’s listed by same brokerage firm.
Although dual agency, or as officially called “multiple representation”, is allowed in Ontario. But a disclosure form is required that cautions buyers and sellers about the limits of a dual representation. The statement reinforces that the agent will not be able to provide the full range of fiduciary duties to the buyer and seller. As the law and regulations recognize the issues and perils of dual representation, it’s not something to be entered into unknowingly.
The conflicts of interest that expert say can arise from dual agency go straight to the core of the real estate transaction. For example, if a buyer tells his or her agent what his or her maximum price is, the agent now possesses information of value to the seller. On the other side of the deal, a seller’s agent might know that behind that new wallpaper lurks a big mold problem which the buyer isn’t aware of.
In summary, buyers should read and understand the fine print on every document associated with the purchase of a home. They should ask their agent explains what his or her other obligations in a transaction are and consult a real estate lawyer if they have any questions or concerns.
January 28, 2008
Who’s the elephant?
No matter how it’s presented or dressed up, there is an inherent conflict of interest when a REALTOR® is expected to act as a fiduciary agent providing objective, unbiased counsel to buyers, while at the same time working for and being paid by the seller. This unspoken reality, combined with a lack of choices in the real estate services offered and how they can be paid for, is the elephant in the room. The real estate industry knows it’s there because the consumer keeps pointing to it, but no one wants to acknowledge it and certainly no one wants to talk about it.
Until now.