As shared in prior blog posts titled Ontario’s new “Trust In Real Estate Services Act 2020 Part 1- What You Need To Know” followed by Part 2 and Part 3, changes are coming to the Province’s real estate Act (legislation) effective December 1, 2023 that will affect both consumers and REALTORS®
In Part 1, I covered the the difference between a real estate client versus a customer as well as the fact that under the new legislation the term “customer” hence the customer relationship with real estate agents will no longer exist. In the Part 2, I went on to explain “Multiple Representation” those occasions when a real estate Brokerage or agent represent both a seller and a buyer or buyers in the same transaction. Lastly in Part 3, I covered a new term/concept, referred to as a “Self Represented Party” that will essentially replace the customer relationship between a real estate Brokerage, their agent(s) and a consumer who is either selling or buying a property.
In Part 4 of this series, I will address another new component to the real estate transaction regarding the “relationship” that Brokerages and their agent(s) have at their disposal under the new Act with Ontario Consumers.
First, you become a client with a real estate Brokerage either by signing a Listing Agreement to sell your property or you have signed a Buyer Representation Agreement whereby you have engaged a Brokerage and one of their agents to represent you and your best interests as a buyer client in the purchase of a property. Under the new TRESA legislation there are two kinds of representation options in Ontario that apply to all types of real estate transactions. These two relationships are as follows:
Under “Brokerage Representation,” the Brokerage and all of its individual real estate agents are bound by the same duties and obligations as the Brokerage itself. They must all promote and protect the best interests of the client whether they are a seller or a buyer. They owe an undivided loyalty to the client. When necessary, they will recommend other professionals such as lawyers, accountants, home inspectors and others to provide a service wherein the agent does not have the qualified skill or knowledge to do so in the client’s best interests.
The second type of relationship is “Designated Representation.” In this relationship, an agent within the Brokerage has been identified in a Listing or Buyer Representation Agreement as being the Designated Representative of the client(s). This is done with the full disclosure and written consent of the client(s). The Designated Representative identified in the Agreement is responsible for representing the best interests of the client(s). Under Designated Representation, the Brokerage and other agents employed by the Brokerage have not been designated to represent the client, hence they are not obligated or responsible to promote and protect the interests of the client. Nonetheless, they must all treat the client(s) fairly and in an objective and impartial manner.
Example: John Smith of ABC Realty Inc. has entered into a relationship to be the Designated Representative of buyers Jim and Cathy Wilson. John Smith’s must act in a manner that will promote and protect the best interests of the Wilsons. As a Brokerage, ABC Realty Inc. and all of its other agents must treat the Wilsons honestly, impartially and objectively, nothing more, nothing less.
Under Brokerage Representation, Multiple Representation can arise under two different scenarios. The first is when the Brokerage has a seller client and one of more buyer clients that are involved in the same transaction.
The second instance is when the Brokerage and its agents represents more that one buyer in the same transaction even if the property in question is listed by a different Brokerage.
Example: ABC Realty Inc, and its agent(s) have two buyers interested in the same house that is listed for sale by XYZ Real Estate Ltd. Even though ABC Realty Inc. does not have the house listed for sale, two of their agents have different buyers that are interested in the same house listed by XYZ Real Estate Ltd. hence ABC Realty Inc. representing two (or more) buyers is in Multiple Representation.
Under Designated Representation, Multiple Representation will only occur when the same Designated Representative is representing more than one client in the same transaction.
Example: John Smith of ABC Realty Inc. has a house listed for sale at 123 Main Street. The house belongs to Jim and Cathy Wilson and the Wilsons have entered into a Designated Representation relationship with John Smith for him to list and sell their home. John Smith receives a call from David and Susan Brown and after viewing the house with John they want to submit an offer. If the both the Wilsons and the Browns consent and agree, John Smith can become the Designated Representative to represent the Browns in the purchase of the Wilson’s house and this transaction now becomes one of Multiple Representation with John Smith representing both parties. If the Wilsons are not comfortable and do not agreed with this type of representation, the Brokerage can appoint another agent within the Brokerage as the Designated Representative to represent the Browns or the Browns can choose an agent from another Brokerage to represent them in the purchase thereby eliminating Multiple Representation.
On the surface this may sound confusing. Put simply, Brokerage Representation creates a relationship where the Brokerage and all of the agents employed by the Brokerage are bound by the same duties and obligations as the Brokerage. Collectively, they must all promote and protect the best interests of the client.
Conversely, under Designated Representation, the Designated Representative is the only agent that will provide representation to the client(s). They are as a result, the only agent within the Brokerage that is responsible for promoting and protecting the best interests of the client. The Brokerage and all of its other agents are excluded from this responsibility, Their only obligation is to act in a manner with the client(s) of the Designated Representative that is honest, impartial and objective.
Under the new TRESA legislation, Brokerages can and are encouraged to adopt their own policy regarding these two forms of relationship with clients. While a Brokerage can choose to operate using both the Brokerage or Designated Relationship format, I suspect that many with set their own policy to choose one. While the legislation permits Brokerages to operate using both types of representation, caution is needed in order to protect both clients and the Brokerages own agents from potential litigation especially in those circumstances when Multiple Representation exists.
In my next post Part 5, I will cover the obligations that real estate Brokerages will have to clients when they have established a Designated Representation relationship.
As always, please feel free to Contact Me if you have any questions or comments about this or any other real estate related topics that impact your real estate selling or buying needs.