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Agency |
| An agency relationship arises in a real
estate transaction when a person, wishing to
sell his/her home, seeks the assistance of a
real estate brokerage through discussions
with a real estate broker or salesperson
employed by that brokerage. The principal is
the seller of the property and the brokerage
is the agent. Alternatively, the brokerage
may be engaged by a buyer to assist in the
purchase of a property. In this situation,
the buyer is the principal and the brokerage
is the agent. The agency relationship, in
either case, exists between the brokerage
and the buyer or seller despite the fact
that a broker or salesperson actually
secures the agency agreement/contract. |
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| Agency has grown into a complex topic
beyond traditional seller agency because of
the evolution of client/customer
relationships. To complicate matters, agency
practices and associated disclosure
procedures currently vary by province as
well as within brokerages and real estate
boards across Canada. Further, terminologies
differ based on individual provincial
registration requirements. |
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| Many situations involve agency
relationships, e.g., executors acting as
agents for estates, guardians acting as
agents for minors, union representatives
acting as agents for worker members, and
salespeople, brokers (agents), and
brokerages acting as agents for buyers and
sellers. |
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Agency Creation |
| The relationship between principal and
agent, wherein an agent is authorized by the
principal to act on the principal’s behalf
in business transactions with a third party.
The agency relationship results from mutual
consent between the principal and agent.
Formalities, such as compensation or a
written agreement are not necessary to
create agency; nor does agency have to be
intended, it can be created accidentally. |
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| Agency can be established through
various methods. |
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| By Express Agreement |
| The most common method of creating an
agency relationship. An express agreement
should set out the definite understanding of
client and brokerage (principal and agent),
regarding the relationship. Common law does
not require the agency relationship to be
expressed in writing; however, it is
obviously better for both principal and
agent that a written agreement/contract
exists. In the real estate profession the
practice of written authority is commonplace
through the use of listing and buyer agency
forms. |
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| By Ratification |
| Agency is created by ratification if the
principal accepts the benefits of an agent’s
previously unauthorized act. For example,
Seller Smith, adopts the actions of ABC
Realty Inc., although the actions of ABC
Realty Inc. were carried out without the
express authority of Smith. |
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| Ratification can occur when a
salesperson is attempting to obtain listings
and the homeowner will not sign an
agreement/contract but advises the
salesperson that if he/she has interested
buyers to bring them over. When the
salesperson does introduce a buyer and
secures a sale, the seller has accepted the
benefits and liabilities of that sale and
thereby becomes the principal. When the
agent expects to create agency
retroactively, the agent must act on behalf
of the principal even before agency has been
ratified. |
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| By Estoppels or Conduct |
| Occurs when a principal gives the
impression to a third person that another
person is acting on his/her behalf as an
agent. For example, Smith, by deeds or
conduct authorizes Jones, to act as his/her
agent. Smith is then prevented from denying
the existence of Jones’ agency to a third
party who dealt with Jones on the basis of
Smith’s words and conduct. In real estate,
if a seller indicates to prospective buyers
that they should contact a specific
salesperson about the purchase of the
seller’s home, the seller may be legally
barred from denying that the agency existed,
even though a listing was not signed. |
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| Agency may also be created when an agent
gives the impression to a third party that
the agent is protecting and promoting the
interests of the third party. |
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| By Operation of Law (By
Necessity) |
| Occurs when an emergency situation
exists whereby the agent has the authority
to bind his/her principal, although under
normal circumstances this right would not
exist. For example, an agent might be
required to save goods of a client in
his/her absence when unable to reach the
principal for a decision given the need for
immediate action. This type of circumstance
could occur to the master of a ship or
carrier of perishable produce, but is
unlikely to happen in matters surrounding
real estate transactions. |
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| By Implied Authority |
| The authority to act on behalf of
another may be implied, under certain
circumstances. For example, if Smith had
given ABC Realty Inc. express authority to
do something, the courts would imply (in the
absence of evidence to the contrary), that
Smith has also given ABC Realty Inc. the
authority to do those things necessary to
carry out the express authority. |
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Agency
Termination |
| The act of terminating a relationship
between principal and agent will not affect
any rights of either party that arose during
the agency relationship. Several methods can
be used to terminate an agency relationship. |
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| Mutual Consent |
| Since the agency relationship is created
by an agreement/contract between parties, it
is clear that the relationship can be
terminated by the parties if they agree to
do so. |
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| Revocation |
| Generally, a principal has the absolute
right to revoke any authority given to an
agent at any time. However, in the majority
of real estate scenarios, the principal has
agreed to certain obligations until a
specific date. The principal is not required
to contract with anyone as a consequence of
the agency agreement/contract and may remove
the property from the market by refusing to
enter into any agreement. However, the
principal may be liable for damages for
breach of the agency, if the terms of that
agency agreement are satisfied. Similarly,
an agent may terminate the agency agreement,
but may remain liable for damages for breach
of the agreement if there was a fixed expiry
date. |
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| Expiry |
| The agency relationship will terminate
at the date agreed to by the parties, i.e.,
the expiry date set out in the listing or
buyer agency agreement/contract. This may be
replaced by either a new or renewal
agreement and a true copy of this agreement
must be given to the seller. The agreement
may continue for purposes of commission
resulting from a sale in a holdover period
as provided in the listing agreement or
buyer agency agreement. |
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| Completion/Performance |
| When the agent completes what was
agreed to and the ultimate purpose is
achieved, the relationship will terminate.
The parties hope that the relationship will
end with the successful completion of an
agreement/contract, e.g., the sale of the
principal’s property or the acquisition of
property by the buyer. |
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| Impossibility |
| Termination will occur if the
agreement/contract involves material that no
longer exists, e.g. a building destroyed by
fire. A listing agreement may provide for a
continuation to permit the sale of the
vacant land. An agency agreement concerning
the sale of property may also be disrupted
if the property is expropriated or
foreclosed and neither commission nor
damages may be payable, depending on the
terms of the agency arrangement. |
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| Death, Mental Incapacity, or
Bankruptcy |
| The agency agreement/contract will be
terminated in the event of the death,
bankruptcy, or mental incapacity of either
the agent or the principal. Limited
circumstances may exist where the agency
agreement will continue despite the
principal’s death. For that reason,
agreements may provide for an irrevocable
provision and the requirement that such
agreements be binding on the estate of the
principal. |
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Agency Duties |
| The agent is considered in law to
represent the principal and to bring the
principal into legal relationships with
other parties. The needs of individuals are
so complex that, to a large extent, such
needs are fulfilled not by their own efforts
but by the efforts of others on their
behalf. If someone acts on behalf of
another, he/she is considered in law to be
an extension of that person. The law
governing relations between these
individuals and other persons is referred to
as the law of agency. |
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| Agents owe principals (e.g., clients)
their primary allegiance, including such
duties as good faith and full disclosure,
competence, obedience, and accounting.
Classifications and terminology regarding
these duties, generally fall under the term
fiduciary responsibilities and vary somewhat
in printed materials. Fiduciary duties are
best explained using the following six
categories. |
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| Disclosure |
| The agent must disclose to his/her
principal any information relevant to the
transaction in which the agent has been
engaged to assist. This includes any facts
affecting the value or desirability of the
property and all known relevant and material
information. |
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| Competence |
| The agent must exercise a degree of
competence when representing his/her
principal such as would be expected from an
average person in that occupation or
profession. In all agency relationships, the
law sees the agent as an extension of the
principal. Thus, the principal is liable for
the agent’s actions. Therefore, the agent
will be under a duty to use superior skill
and knowledge while pursuing the principal’s
affairs. An agent who claims to be a
specialist must exercise competence in that
specialty. |
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| Obedience |
| An agent is obligated to obey the
principal’s lawful and reasonable
instructions, even if the agent doesn’t
agree with them. |
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| Accountability |
| An agent is obligated to account for all
monies or property entrusted to his/her care
that belongs to the principal, i.e.,
safeguard any money or documents relative to
the principal’s transactions or affairs. |
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| Confidentiality |
| An agent must not use information
acquired as the principal’s agent for any
purpose that is likely to cause the
principal harm or to interfere with the
principal’s business, now or in the future.
The duty of confidentiality should not be
confused with a real estate professional’s
responsibility to disclose known material
facts about the property to non-principals.
The obligation to disclose such facts,
including defects, is based on the
professional’s duty to treat all persons
fairly and honestly. |
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| Loyalty |
| The most important duty an agent has
toward the principal is loyalty. The agent
must place the interests of the principal
above all else except the law in carrying
out his/her functions as an agent. |
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| Agents owe third parties (e.g.,
customers) the ethical duty to be honest,
the legal duty not to misrepresent, and the
responsibility to exercise due care when
answering inquiries or giving information.
In real estate, the agency relationship can
be established between the agent and either
the buyer or the seller. The relationship
can arise out of an agreement either
expressed or implied, or written or oral.
Agency relationships should be in writing
and real estate brokerages should ensure
that all activities fall within the limits
of that authority. Agency will be implied
when agents treat customers as principals
(clients), even though no written
agreement/contract exists. |
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Agency
Disclosure |
| Agency disclosure has become complex
with the advent of various agency
relationships. While agents owe principals
the duty of good faith and full disclosure,
more precise guidelines were required in
addition to common law requirements.
Consequently, codes of ethics and provincial
regulatory procedures and controls have been
developed requiring specific disclosure
procedures concerning the role and nature of
agency services. |
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| Most disclosure requirements, above
those dictated by common law, concentrate on
the timing and completeness of disclosure
along with the informed consent of the
client. Disclosure requirements are detailed
in the national code established by
organized real estate and in codes for
individual provincial jurisdictions. |
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| The AGENT shall fully
disclose in writing to, and is advised to
seek written acknowledgement of disclosure
from, all parties to a transaction regarding
the role and nature of service the AGENT
will be providing to the client versus the
customer or other party to the transaction.
The AGENT shall also disclose his or her
role to other AGENTS involved in the
transaction. |
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| Agent |
| One who is authorized by a principal to
represent that principal in business
transactions with another party. An agent
acts on behalf of a principal as an
extension of that person, and can bring the
principal into legal relationships with
others. |
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Agents Role |
| The agent must obey the principal’s
lawful instructions, although not
necessarily subject to detailed and direct
control or supervision as to how work is to
be done. In many cases, an agent is
authorized to bring the principal into
contractual relations with other persons
referred to as third parties. A typical
example is the relationship between an owner
of real estate and the real estate broker
engaged to sell the property. |
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| An agent in a real estate transaction is
a special class of agent who may negotiate
contracts for the principal, while not
entrusted with the possession of the title
documents or the sale article. To assist in
understanding the role of an agent, the
relationship may be compared with two
variations, namely that of master and
servant, and of employer and independent
contractor. All three relationships are
easier to define in theory than to identify
in practice. In modern business, each may
assume complicated and overlapping forms. |
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| Real estate agency is somewhat different
from the traditional agent/principal
relationship. For example, the seller
exercises much less control over the agent
than might be the case in other agency
arrangements. In fact, the brokerage has
various principals (buyers and sellers) to
which it owes fiduciary duties at the same
time. Further, the brokerage is not
entrusted with the property, but rather only
the marketing of the home. As a result,
brokerage agency is often viewed as a
special class of agent given the uniqueness
associated with buying and selling real
estate. |
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Agents
Duties to the Principal |
| A real estate agent under the law has
numerous responsibilities to the principal
including general duties at common law and
specific provisions of provincial statutes.
The fundamental duties of an agent to a
principal are: |
- Good faith and full disclosure;
- Competence;
- Obedience;
- Accountability;
- Confidentiality; and
- Loyalty
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| The agent has an obligation to perform
all duties personally unless otherwise
authorized by express consent, by
implication, or by statute. If an agent does
not carry out his/her duties, the principal
has remedies that include dismissal,
damages, action to recover property, action
for an accounting, action to resist payment,
prosecution, and indemnity. |
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Agents Duties to Third Parties |
| When the agent represents a client, that
principal is owed complete loyalty. However,
where do the brokerage and its salespeople
stand in relation to the third party when
there is no client relationship with that
individual? |
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| Legally, the brokerage and salespeople
have specific duties failing which liability
for damages can result. |
- Make no misrepresentation regarding
the property to the third
party
- Be fair and ethical
- Take care in answering third party
inquiries to ensure complete and
accurate information
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| Example
of
Agent
Duties to Third
Parties |
| Buyer Jones advised Salesperson Martin
that she could afford a monthly mortgage
payment of $1,000. Martin knew that Jones
was relying on her expertise and advice. The
MLS listing showed a mortgage at 7% with
monthly payments of $1,032.34, amortized
over 25 years, but due in one year. Martin
did not explain to Jones that the interest
rate might change the following year and in
fact stated that the rate would apply for
the full term of the mortgage. The buyer
assumed that the term was 25 years and
Martin said nothing to correct this
assumption. |
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| At renewal date, nine months following
closing, the rate increased to 8.5%. Jones
sued Martin and the judge held that Martin
and the brokerage were negligent for failing
to confirm and fully explain the listing
information relating to the mortgage. The
judge stated that an agent is under a duty
to avoid negligent misrepresentations. |
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Agent:
Delegation of Duties |
| As a rule of law, agents are expected to
carry out their duties personally, since the
principal expects them to accomplish
allotted tasks for which they were engaged.
However, exceptions to the rule apply to
real estate brokerage. |
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| Express Authority |
| The most common form of delegation is
granted in a typical multiple listing
agreement/contract, where the principal
authorizes the listing broker to co-operate
with other brokers in marketing the
property. If a co-operating broker acts as a
sub-agent, the duties of the agent to the
principal are delegated to the sub-agent. |
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| Implied Consent |
| The second form of delegation is by way
of implication. If an agent is involved in a
profession in which it is common public
knowledge that delegation of duties is
necessary and standard practice, then it may
be argued that the principal has given
implied consent to delegate, e.g., the
listing of a property. |
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| Traditionally, the listing brokerage was
the agent and a co-operating brokerage was
the sub-agent owing the same duties to the
seller as the listing brokerage. Recently,
the co-operating brokerage has taken on the
role of a buyer agent in which allegiance is
owed to the buyer while allegiance of the
listing brokerage is owed to the seller.
Consequently, the above example has limited
applicability in the current marketplace. |
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| Statutory |
| The final form of delegation whereby
real estate brokerages are permitted to
delegate duties to licensed/registered
salespeople under the applicable provincial
legislation. Therefore, if ABC Realty Inc.
hires a salesperson who is registered under
the Act, then that salesperson can work on
behalf of the brokerage to secure listings
and sell property for the brokerage. |
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| The typical real estate transaction in
most provinces involves a listing brokerage
that is the agent for the seller and any
co-operating brokerages are assumed to be
agents for the buyer unless otherwise agreed
to. Thus, the co-operating brokerage’s
allegiance is toward the buyer and the
listing brokerage’s allegiance is toward the
seller with both commissions being paid from
the proceeds of the sale. |
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| Types
of Agency |
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Buyer Agency |
| A real estate brokerage representing the
interests of the buyer. Buyer agency can be
established by implication, as well as a
written agreement/contract. Buyers seeking
exclusive representation usually do so
through an agency agreement. This
relationship is the counterpart of seller
agency with the same agency principles and
practices applying. |
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| A representative of the buyer must use
professional negotiation skills, seek
appropriate properties that meet the buyer’s
needs, describe the merits and defects of
any selected property, keep information
confidential concerning the buyer, and
generally act in the buyer’s best interests.
The hallmarks of this relationship are good
faith, full disclosure, competence,
obedience, and accounting. The buyer and the
brokerage will enter into a signed buyer
agency agreement that details their
relationship. The exact title of the buyer
agency agreement will vary by provincial
jurisdiction, e.g., Buyer Agency Agreement
and Exclusive Buyer’s Brokerage Contract. |
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| The seller usually pays all commission
to the listing brokerage who, in turn,
forwards the appropriate portion to the
buyer’s brokerage. Alternatively, the
buyer’s brokerage can be paid directly by
the buyer and, therefore, this amount does
not form part of the sale proceeds. In most
transactions, the commission to the buyer’s
brokerage is paid via the listing brokerage
from the proceeds of the sale. Payment
procedures for the payment of commission
will vary by provincial jurisdiction. |
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Dual Agency |
| The same brokerage has an agency
relationship with both the buyer and the
seller in a real estate transaction. Dual
agency also occurs when different
salespeople represent buyer and seller, and
are employed by the same brokerage,
including those who work in different branch
offices. The brokerage or its
representatives must advise the seller and
the buyer of the dual aspect of
representation and must be impartial when
representing both parties. Both buyer and
seller must give their informed consent to
this form of representation. |
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Implied
(Unintended) Dual Agency |
| The real danger with dual agency lies
not so much with expressed agency, which can
be largely remedied through proper
procedures, but rather with implied dual
agent relationships. In an expressed, fully
disclosed relationship, the brokerage and
its representatives can, in fact, represent
both buyer and seller if the terms and
responsibilities are clearly understood and
agreed to by both parties in advance,
through informed consent. With unintended
dual agency, no formal document exists. Such
duality arises when a brokerage or
salesperson inadvertently represents two
parties or unwittingly works on both sides
of the transaction. |
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Limited Dual Agency |
Procedures, including variations found
in provincial jurisdictions and individual
brokerages, have generated considerable
discussion. Most concerns centre on the
issue of confidentiality and loyalty owed to
the seller that conflicts with the same
duties owed to the buyer. In some
jurisdictions, rules and procedures have
been imposed by legislation and/or the
appropriate regulatory body limiting duties
owed to both buyer and seller under such
circumstances. Generally, limited dual
agency sets out procedures regarding:
- Non-disclosure of the price that
either party is prepared to pay the
other.
- Non-disclosure of the motivation of
either buyer or seller.
- Non-disclosure of the terms of
competing offers.
- Not disclose personal or financial
information unless authorized.
- Not represent the interest of the
buyer over the seller (or vice versa).
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Undisclosed Dual Agency |
| This situation arises when a
professional is found to be acting in an
agency role for conflicting interests
without prior approval, understanding, and
agreement of the parties. The results may
have serious consequences including
forfeiture of commission, discipline by a
local board or regulatory body, punitive or
exemplary damages, and possibly the loss of
salesperson or broker license/registration.
The broker and/or manager who is responsible
for the activities of the sales force may
also be at risk. |
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Seller
Agency |
| Establishes a relationship in which the
brokerage and its salespeople represent the
interests of the seller exclusively. |
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| Sellers typically give authority to a
brokerage to sell their property by signing
a listing agreement/contract that
establishes a formal agency relationship
between the seller and the real estate
brokerage. This agreement/contract sets out
what the seller instructs the brokerage to
do and what services are provided under
seller agency. Further, it provides that
representatives of the seller will use their
professional negotiation skills to seek
qualified buyers and generally promote the
listed property, while keeping information
concerning the seller confidential and
always acting in the seller’s best
interests. The hallmarks of this
relationship are good faith, full
disclosure, competence, obedience, and
accounting. The seller has traditionally
paid a commission directly to the agent. The
listing agency then pays any brokers or
salespeople within its employ and, if
applicable, any co-operating brokerages
involved in the transaction. |
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Single
Agency |
| A relationship between a seller or buyer
and an agent wherein the agent is considered
in law to represent only the principal. |
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| Agents owe principals their primary
allegiance, including good faith and full
disclosure, competence, obedience, and
accounting. Single agency is to be
differentiated from dual agency in which the
same agent has an agency relationship with
both the seller and the buyer in the same
real estate transaction. With the rise of
buyer agency, the term single agency is
sometimes used to refer to brokerages that
only work with either buyers or sellers. For
example, a brokerage dealing only with
buyers and not offering agency services to
sellers is referenced in certain
jurisdictions as being a single buyer
brokerage. |
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Sub-Agency |
| An agency relationship whereby an
individual is empowered by an agent to act
on behalf of a principal of that agent. |
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| The sub-agency concept extends to the
authorization of co-operating brokerages to
work on behalf of the seller. Traditionally,
Multiple Listing Services were based on the
automatic offering of sub-agency by the
listing broker to all other members of the
real estate board. The use of subagency has
gradually diminished given the growing
popularity of buyer agency. |
