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Agency matters ... really.
Most people, when they want to buy a home, are entirely focused on finding the right property in the right location and buying it for the right price. They give very little thought to esoteric concepts like agency, representation and fiduciary duties.
A buyer once told me respecting agency, "I don't really care how many fairies can dance on the head of a pin". But agency does matter. And it will matter to you too if there are outcomes from your buying experience that negatively affects your finances or personal well-being.
Here is a primer on agency representation to consider before entering into the real estate market.
Buyer Agency
The Ontario Real Estate Association has developed a standard buyer agency agreement that brokers can use with clients. Any registered (licensed) real estate salesperson or broker in Ontario can legally act as a buyer's agent/broker. A buyer's agent/broker performs services for you that a seller's agent can't, such as showing you reasons not to buy a particular property.
A good buyer salesperson or broker will include contingencies in the contract that protect you, rather than the seller as in most standard contracts, and keep confidential any information that could hurt your bargaining position. 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 Representation Agreement which details their relationship.
Bear in mind that the seller agent (e.g. the agent whose name is on the lawn sign) always works for the best interest of his or her seller. Agents have to tell buyers about material defects that render the property dangerous or unfit for habitation, but not necessarily all defects in a property. That's where a buyer agent comes in, being free to talk about anything that can affect the buyer's interests.
When you have decided to buy, the services of a qualified real estate professional, who will act as your buyer agent/broker, is of utmost importance. The ideal buyer's agent will have a good working knowledge of the local real estate market conditions, can advise you about current government programs that benefit consumers, provide you with insight into market trends, current market values of similar properties, add conditions and clauses in Agreement of Purchase and Sale to protect your interests, offer information about the amenities of specific neighbourhoods.
The seller usually pays a commission to the listing brokerage who then pays 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 company from the proceeds of the sale.
Seller Agency
When a real estate company is a listing agent or seller's agent, it must do what is best for the seller of a property. Seller agency establishes a relationship in which the brokerage and its salespeople represent the interests of the seller exclusively. This agreement 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 to the seller.
The seller has traditionally paid a commission directly to the brokerage. The listing brokerage then pays any brokers or salespeople within its employ and, if applicable, any co-operating brokerage involved in the transaction. The Seller signs a listing agreement with the brokerage.
Multiple Representation
Occasionally a real estate company will be the agent of both the buyer and the seller. When the same brokerage has an agency relationship with both the buyer and the seller in a real estate transaction this becomes Dual Agency, as contemplated in Common Law. Multiple representation 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 in dealing with both parties. Both buyer and seller must give their informed consent to this form of representation.
Exclusive Buyer Agency
One way around the lack of stewardship that multiple representation or dual agency implies is to use an exclusive buyer agent. Unlike traditional agents, exclusive buyer agents don’t work for listing agencies, so they avoid the risks of dual representation. Exclusive buyer agents are still paid by the seller, but they can promise to represent the buyers interests exclusively throughout the transaction.
Exclusive buyer agents are definitely in a minority ... rather rare in fact. I am not aware of any currently operating in the Greater Toronto Area. But no matter, just be sure to insist on a representation agreement that makes your agent legally bound to protect your interests. If you’re dealing with a traditional real estate firm, check the contract to see how the terms change if you choose to buy one of that company's listings.
January 17, 2008 in Agency Matters | Permalink
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