Working with a Realtor Explained
Tuesday Jul 20th, 2021
TRESA is a consumer protection legislation, regulating the conduct of real estate brokerages, their salespeople, and brokers. The Act provides consumer protection in the form of deposit insurance and requires all registered real estate professionals to carry errors and omissions insurance.
When you choose to use the services of a Realtor, it is important to understand that this individual works on behalf of a brokerage. The brokerage carries ultimate responsibility for all its registered salespeople and brokers. When you sign a contract, it is with the brokerage, not your salesperson or broker.
The Act requires the brokerage to explain the types of service available and the services the brokerage will be providing. The brokerage is required to document the relationship being created between the brokerage and the consumer and submit it to the consumer for approval and signature.
The most common relationships are “client” and “customer”. Buyers, sellers, tenants, and landlords may enter into one of two types of agreements with a brokerage: a representation agreement or a customer service agreement. Both are considered legally binding agreements.
Here’s a more detailed look at the two most common forms of relationships:
- The highest form of obligation for a Realtor to a consumer
- The brokerage and its representing salesperson or broker have a legal relationship with you called fiduciary duty, which means the brokerage and its salesperson or broker must promote and protect your best interests in a real estate transaction
- The Realtor establishes a relationship with the consumer by way of a representation agreement: a Listing Agreement for a seller or landlord; a Buyer Representation Agreement for a buyer or a tenant
The Agreement contains:
- an explanation of the services the brokerage will be providing
- the fee arrangement for those services
- the obligations the client will have under the agreement
- the expiry date of the agreement
Once an agreement is entered into by a Realtor and a consumer, the brokerage must protect the interests of the client and what is best for the client. The brokerage must:
- strive for the benefit of the client and not disclose a client’s confidential information
- under a legislated Code of Ethics, the salesperson or broker must take reasonable steps to determine, and then disclose to you, all material facts about the property
Although the brokerage is representing the interests of its clients, the brokerage and its representatives must still treat all parties to the transaction with fairness, honesty, and integrity.
A consumer may not wish to be under contract with the brokerage as a client but would rather be treated as a customer. Under a customer service agreement, a brokerage is not obligated to provide fiduciary duty, however; the brokerage is obligated to treat every person in a real estate transaction with fairness, honesty, and integrity, and to provide conscientious and competent service.
Services provided to the customer may include showing properties, drafting and presenting offers for buyers or tenants. For sellers or landlords, a customer service arrangement may include a mere listing. Brokerages use a Customer Service Agreement to document the services they are providing to the seller, buyer, tenant or landlord customer.
Under the Act, Realtors must disclose material facts known or ought to be known to their customer, but they are not required to take any further steps.
In summary, the two main differences in brokerage obligations to a client versus a customer are:
- Fiduciary duty must be provided to a client. As one of many examples, a new listing hits the market that Realtor Rhonda knows fits the criteria of both her buyer client and her buyer customer. Rhonda’s obligation lays first with her buyer client. She will present this property to her client first, as it is her duty to promote and protect the best interests of her buyer client, and one way she will do this is by ensuring she presents every suitable property that meets her buyer client's criteria.
- Material facts. A Realtor contracted to a client must make best efforts to determine and disclose material facts that may influence their client’s purchasing decision. In the case of a customer, the Realtor’s obligation is to convey any known or ought to be known material facts, but the Realtor is not required to investigate or determine if any material defects exist at the time of purchasing the property.
MULTIPLE REPRESENTATION (the third type of representation):
Buyers and sellers are sometimes under contract as clients with the same brokerage. This situation arises if the listing agent (who is representing the seller) represents the buyer in the same transaction. Another example is if two salespeople/brokers from the same brokerage present an offer for their respective buyer clients on the same property.
Under the Act, the brokerage must ensure all parties to the transaction confirm in writing that they acknowledge, understand and consent to multiple representation before the offer is made. Realtors typically use a form called “Confirmation of Co-operation and Representation” to document this situation.
Under Multiple Representation, all parties acknowledge that the brokerage must be impartial when representing both the buyer client and seller client and equally protect their interests. Further, the brokerage has a duty of full disclosure to all parties in the transaction, including a requirement to disclose all factual information about the property known to the brokerage to assist the buyer or seller in reaching their own conclusions.
The brokerage shall not disclose:
- That the seller may or will accept less than the listed price, unless the seller gives authority to do so in writing
- That the buyer may or will pay more than the offered price, unless otherwise instructed by the buyer in writing
- The motivation of or personal information about the buyer or seller, unless otherwise instructed in writing by the party to which such information applies or unless failure to disclose would cause fraudulent, unlawful, or unethical practice
- The price the buyer should offer or the price the seller should accept
- The terms of any other offer on the same property
When considering whether the client or customer relationship is best for you, ask yourself what your needs are, and which relationship best meets those needs. If you have real estate knowledge and a comfort level with buying and selling real estate, then perhaps the customer relationship is sufficient for your needs. If your knowledge and experience are limited, then the client relationship is likely your better option.
As always, do your homework in advance. Before you sign an agreement with a brokerage, make sure you know what you want and the services you expect to receive. For sellers, this could include staging, open houses, advertising, and a marketing plan. Make sure your agreement clearly indicates who will be paying for these additional services. For buyers, this could include must-have features, potential deal breakers, amenities, and geographic considerations.
To ensure the best possible real estate experience, make sure all your questions are answered by your Realtor, and thoroughly read and understand every contract before you finalize it.
A commonly asked question: Who pays the brokerage’s commission?
Generally, real estate fees are paid by the seller or the landlord. It is up to you and your Realtor to discuss and document the fee that the brokerage will take upon successful sale or lease of your home.
If you are a buyer or tenant and have entered into a buyer representation agreement or buyer customer service agreement (agreements with tenants are also referred to as buyer agreements), typically you are not responsible to pay the brokerage’s commission. However, the buyer representation agreement or buyer customer service agreement states that the buyer or tenant shall be responsible to pay the real estate commission owed to the buyer’s representing brokerage in any of the following scenarios:
- When there is a deficiency between the commission amount offered by the listing brokerage or seller and the commission amount stated in your buyer representation agreement (BRA)
- When the seller is unrepresented and unwilling to pay commission to a buyer’s agent (for sale by owner/private sale)
- If you purchase or lease a property without your Realtor during the holdover period
- The holdover period is a defined amount of time following the expiry date of your BRA (usually 60 to 90 days for residential properties) during which the buyer’s brokerage is still entitled to a commission
- If you have an expired BRA and you purchase or lease property within the holdover period, you are liable for the brokerage commission regardless of how you were introduced to the property
- If during the holdover period, the buyer enters into a new BRA with a different brokerage and purchases or leases a property, the buyer’s liability to pay commission to the initial brokerage is reduced by the amount paid to the new brokerage under the new agreement
- When an Agreement of Purchase and Sale or an Agreement to Lease is accepted by the buyer or tenant but not completed (meaning you do not close), the buyer or tenant is on the hook for the brokerage’s commission, only if non-completion is attributable to the buyer’s default or neglect.
The above scenarios do happen but are rare. If you have a good relationship with your Realtor, act in good faith, and fulfill your responsibilities, the above situations should not arise. Almost all properties listed on MLS, as well as exclusive listings, offer the current market rate of commission, therefore the buyer’s brokerage will be paid directly by the seller from the proceeds of the sale.
Remember, a good Realtor is in your corner, and a good relationship is a two-way street.
Find the right Realtor, and commit to them, as they will commit to you.