Tips for buying
Few people have heard of, or fully understand, what a Buyer Agency Agreement is. “Just one more piece of paper to sign” is often the response. More dismaying still is the reaction that somehow the Realtor is attempting to take advantage of the Buyer in some sinister way.
Every Realtor licensed in Canada today, who is a member of a local Real Estate Board, is also a member of the Ontario Real Estate Association (OREA) and the Canadian Real Estate Association (CREA). These professionals are bound by a Code of Ethics, which all told is a statement of ethical goals and provides moral guidelines for members. The Standards of Business Practice are a part of the Code, and detail more explicit rules of behaviour.
Rule 4 of the Code of Ethics states that all agents “shall enter into a written representation agreement (listing agreement for sellers, agency agreement for buyers) with a client at the earliest practical opportunity”. Listing agreements with sellers are known as an essential tool in the process of selling a home. Any agent or homeowner foolish enough to enter into an agreement of this magnitude without benefit of a written contract is just asking for trouble. And yet why, for so long, have buyers not demanded similar representation?
What happens if there is no written agreement between the Realtor and the buyer? Can the Realtor still work with the buyer? These are questions that come up when the subject of Buyer Agency arises. After all, everyone knows someone who has purchased a home without first signing a representation agreement with their Realtor.
By definition, under Agency, there exists a crucial distinction between buyers who are “clients” and buyers who are simply “customers”. Clients are, in fact, those people who have a written agreement with their agent. As such, the agent owes the highest level of fiduciary duties – competence, diligence, full disclosure, obedience, loyalty and accounting. A written agreement is compulsory in order for buyers to be treated as clients. Customers, however, rank well below client status, and agents only must deal fairly, honestly and with integrity, acting reasonably in providing answers to questions or giving information. Thus, if buyers won’t sign agency agreements, they can only be treated as customers, not clients, and lose the full arsenal of fiduciary duties available to them. A prime example of this is confidentiality. With no signed Buyer Agency Agreement confidentiality isn’t mandatory, and in fact the agent must divulge to the seller, if asked, any pertinent details such as how much the buyer is prepared to spend on the property. Loyalties are divided, and the Realtor is caught in a very difficult situation.
Written agreements (i.e. Buyer Agency) protect the client, providing full representation and clearly stating that the agent is representing them as a buyer. Within the convoluted world of agency law, the Realtor is otherwise seen as representing the seller, under sub-agency, even if the seller is listed with another agent. Should the transaction go badly wrong and the prospect of litigation looms, the buyer is left with no written agreement and no thus no agency representation. Clearly, in the end it is in the buyer’s best interest to ask for and receive a representation agreement from their Realtor, BEFORE they go shopping for their new home.
A buyer who signs an Agency agreement should first make sure that the agreement clearly states the role of the Realtor, and the service he or she is providing; the term of the agreement (particularly the expiry date, which can range from short term of a couple of weeks to up to six months), the commission arrangement, and any further expectations or obligations for both sides.