Flaw in the Law – that must change – Buyers Beware
By Amir S. Ali
Owning real estate is humans’ single biggest investment. People put their maximum savings towards a down payment for a home of their dream. Government think that Buyers are protected through Real Estate and Business Brokers Act (REBBA) but that is not true. Buyers are not fully protected in cases where one Realtor is working for both Seller and Buyer. Here is what happens when you are buying.
According to the Real Estate Corporation of Ontario (RECO) that issues licenses to Real Estate Representatives and Brokers (Realtors), you can be a “client” or a “customer”. Client implies that you have signed a “Buyer Representation Agreement” with a Realtor. If you have not signed with anyone and are looking at houses on your own by calling Listing Agents or visiting open houses then you may revise the action plan. Most Buyers do not sign “Buyer Representation Agreement” hoping to save the money but that does not work. If you happened to be in an open house, you really liked the house and you asked the listing agent to prepare an offer for you means you are technically in contract and become his/her “Customer”. “Representation Agreements can be written, oral or implied” (RECO).
It is pertinent to remember that the Agent is representing the “Seller” and the Agent’s main objective is to sell the property at its highest possible price. But the Agent takes the commission off your side without giving you a service you deserve, especially “negotiation” part. The Agent through brokerage enjoys both sides of the commission, committed to the Listing Brokerage (see Multiple Representation below). If there is an Agent with the Buyer the Buyer side commission goes to the Agent’s brokerage and agent Agent does discharge duties a client deserves. Here is the difference.
Duties & Services CUSTOMER CLIENT
Exercise Care and Skills Yes Yes
Ensure Honesty Yes Yes
Perform Mandate Yes
Obey Instructions Yes
Act in Person Yes
Maintain Confidentiality Yes
Disclose Information Yes
Not Misuse Confidential Information Yes
Not Make Secret Profit Yes
Maintain Utmost Loyalty Yes
Avoid Conflict of Interest Yes
Disclose Conflicts Yes
Now it is clear what Client means. Therefore, if you are buying a home keep your own representative with you to negotiate for you, give you statistical data, price comparison plus hundreds of choices, loyalty and all that you deserve. There is no commission saving because as soon as a Buyer asks an Agent to put an offer the Buyer side commission is consumed. Is this not a flaw in the Real Estate Law? Here are the listing terms and other clauses to protect ‘Double Enders’ (Agents who wants to enjoy both commissions from a single property).
COMMISSION: In consideration of the Listing Brokerage listing the Property, the Seller agrees to pay the Listing Brokerage a commission of……………………….% of the sale price of the Property or………………… for any valid offer to purchase the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this Agreement OR such other terms and conditions as the Seller may accept. (Total Commission is Committed).
This applies when the two agents in a company have two different ‘clients.’
MULTIPLE REPRESENTATION: The Seller hereby acknowledges that the Listing Brokerage may be entering into buyer representation agreements with buyers who may be interested in purchasing the Seller’s Property. In the event that the Listing Brokerage has entered into or enters into a buyer representation agreement with a prospective buyer for the Seller’s Property, the Listing Brokerage will obtain the Seller’s written consent to represent both the Seller and the buyer for the transaction at the earliest practicable opportunity and in all cases prior to any offer to purchase being submitted or presented.
The Seller understands and acknowledges that the Listing Brokerage must be impartial when representing both the Seller and the buyer and equally protect the interests of the Seller and buyer. The Seller understands and acknowledges that when representing both the Seller and the buyer, the Listing
Brokerage shall have a duty of full disclosure to both the Seller and the buyer, including a requirement to disclose all factual information about the Property known to the Listing Brokerage.
However, it is understood that factual market information about comparable properties and information known to the Listing Brokerage concerning potential uses for the Property will be disclosed to both Seller and buyer to assist them to come to their own conclusions.
Here is the cover.
MULTIPLE REPRESENTATION AND CUSTOMER SERVICE: The Seller understands and agrees that the Listing Brokerage also provides representation and customer service to other sellers and buyers. If the Listing Brokerage represents or provides customer service to more than one seller or buyer for the same trade, the Listing Brokerage shall, in writing, at the earliest practicable opportunity and before any offer is made, inform all sellers and buyers of the nature of the Listing Brokerage’s relationship to each seller and buyer.
Here is how the commission is disbursed to Buyer Side.
The Seller authorizes the Listing Brokerage to co-operate with any other registered real estate brokerage (co-operating brokerage), and to offer to pay the co-operating brokerage a commission of………………….% of the sale price of the Property or……………………………………………….. out of the commission the Seller pays the Listing Brokerage. The Seller understands that unless the Seller is otherwise informed, the co-operating brokerage is representing the interests of the buyer in the transaction. (if there is no outside agent and listing agent acts both sides the commission vanishes).
Solution: Not too long ago, one lawyer could represent both Buyers and Sellers, not anymore. Buyers and Sellers appoint different lawyers so why the REBBA not changed, it is a valid question yet to be answered.