« Sugar Beach | Main | Toronto welcomes the world »

Real Estate Agency ... "eh?" to "zed"

Ever wondered what the term real estate "agent" really means?

That single word - "agent" - has great significance, and does far more than just designate an individual who holds a real estate license.  The real estate brokerage business is governed by a body of law called "the law of agency". The word "agency" refers to the relationship which exists "when one person is employed to act for another".

In real estate, the most common form of agency is established when homeowners employ a real estate brokerage to act on their behalf to secure a buyer for their property. The term "act on their behalf" is important in that it refers to the brokerage's responsibility to look after the best interests of the owners. 

Once homeowners have listed their home for sale with a brokerage firm, the brokerage becomes their agent. The owners become the brokerage's client (or principal). 

The duties of the real estate agent to the sellers include:

1) loyalty 
2) obedience 
3) skill, care & diligence 
4) disclosure of information 
5) and accounting. 

These duties are said to be fiduciary in nature, meaning that there exists a trust relationship between the client (usually the sellers) and the agent (the brokerage company).

The brokerage, acting as agent, is obligated to be loyal to the best interests of the sellers, and obedient to their objectives, i.e. to perform brokerage services faithfully to the sellers' objectives. The brokerage is also required to use the highest levels of skill, and to carefully and diligently protect the sellers' real estate interests. 

The broker's duty of disclosure relates to keeping the client informed. Because the brokerage's loyalty is to the client, all brokerage representives are obligated to disclose any knowledge in his or her possession about potential buyers, their intentions, their abilities to make a purchase, and changes in the real estate market in general. They are also required to provide a complete accounting of their activities, and of the final transaction itself.

A Buyer's Agent

But change has raced through the real estate industry in the past several years including the growth of buyer’s agency. Many consumers initially resist when presented with the option of retaining a buyer’s agent and signing yet another contract. This resistance has more to do with a lack of understanding of the role of a buyer’s agent than it does with an actual dislike of the buyer’s agent concept.

Before the advent of buyer’s agency, all real estate agents owed their fiduciary responsibilities to the seller. The agent was responsible to the seller since the seller paid the commission and had signed a listing contract designating an agent to represent them in exchange for the commission. As a result of this logic, real estate agents involved in a transaction could only be devoted to the one side of the transaction – the seller’s side! This was true even when an agent had only been working with the buyer, and was responsible for writing and presenting the offer to purchase!

What did that mean to the buyer? It meant that if their agent knew proprietary information about the seller that could help the buyer in formulating their offer, the agent was not allowed to share it with the buyer. For example, let’s assume that the agent who brings the buyer knows that the seller is under great pressure to sell due to 1) a relocation, or 2) a difficult divorce or, 3) financial pressures. Although this information could be useful to the buyer in deciding what to offer, none of this information can be shared under the traditional definition of agency. Likewise, if the buyer has confided with his agent a willingness to go higher than his original offer then in the traditional agency situation the real estate agent would be obligated to share this information with his actual client, the seller.

It wasn’t until real estate buyers began to demand fair and equal representation of their interests that the concept of buyer’s agency took hold. Today you will find real estate agents who specialize in representing buyers in most major metropolitan markets and in the outlying areas as well.

Hiring a buyer’s agent does require that you sign a contract. The contract is signed prior to services being rendered. It usually identifies a time period during which the agent will work with you to find a property.

Services a buyers agent should provide:

The contract will also spell out how the buyer’s agent will be paid commission and/or fee. Some agents will require that a small retainer be paid up front with the balance of the fee being paid as a commission upon the close of the sale. This formalizes your business relationship with the agent and also commits the agent to servicing your real estate needs. Other buyer’s agents will request they be paid a commission out of the proceeds of the sale. The commission usually amounts to half of the total fee that the seller has agreed to pay their listing agent upon the close of the transaction.

Skills a buyer’s agent should possess include:

How can you locate an established buyers agent?

You can start by looking here, on the internet. Many buyers’ agents now advertise their specialty as part of their promotional efforts. The highest degree of buyer’s agency is provided by Exclusive Buyers Agents, who specialize in representing only buyers interests and thus ensure that you never become involved in a dual agency situation (where one agent is representing both buyer and seller in a transaction).

February 2, 2008 in Agency Matters | Permalink


TrackBack URL for this entry:

Listed below are links to weblogs that reference Real Estate Agency ... "eh?" to "zed" :


Thanks for sharing.

Posted by: Marilyn Monroe Condos | Aug 15, 2012 10:48:54 AM

brampton real estate

One of the greatest and most obvious reasons to consider buying a home is the interest rates. Interest rates today, are some of the lowest rates that we have seen in years. It is possible that they will go even lower. You may think that getting a home loan in order to take advantage of these rates is impossible. Although credit standards and loan approval may be higher than before, obtaining a loan is well within the reach of homebuyers with a good credit rating and a steady income that can support the monthly mortgage payments.

Posted by: torontohomeandhouse123 | Jun 11, 2010 4:58:27 AM

Smart observations! In the states there was also a duty or fiducuary to our clients. The clients needs and wants are then foremost in all objectives.

Posted by: Prince William Homes | Mar 1, 2009 8:32:20 PM

That's a great article! I am even a little bit envious, because my website gives much less detailed information on real estate agents... Anyway, I can agree with most of the points you have made here. Especially with the mention of familiarity with the local marketplace. I think it is of a crucial importance.

Posted by: West Toronto realtor | Feb 6, 2008 5:27:24 AM

The comments to this entry are closed.


Thank you for visiting!