When providing real estate services, the nature of the relationship that is created between the buyer or seller and the real estate brokerage, including its related licensees, is important. The relationship may be either a sole agency, limited dual agency, or no agency relationship.
Where a licensee acts only for the buyer or the seller, a sole agency relationship is generally created. The buyer or seller who engages a licensee to act as a sole agent is known as the “client”. There are different types of sole agency relationships. The historical model of real estate agency, referred to in this material as ‘brokerage agency’, is one where the brokerage is the agent of the client, and all licensees engaged by that brokerage automatically assume the same agency obligations as the brokerage in relation to that client. When the brokerage only represents one client in a particular transaction this is referred to as ‘sole’ agency. Another type of sole agency, ‘designated agency’, occurs when the brokerage and the client agree that the brokerage will designate one or more licensees engaged by that brokerage to provide real estate services as sole agent to or on behalf of the client. In designated agency, the brokerage has contractual duties to the client but it is the designated agents who act as sole agent on behalf of the client.
As an agent, a licensee has certain duties to their clients. In addition to the general obligation that all licensees have to act honestly and with reasonable care and skill in performing all assigned duties, an agent has:
- a duty of undivided loyalty to the client;
- a duty to keep the confidences of the client;
- a duty to obey all lawful instructions of the client; and
- a duty to account for all money and property of the principal placed in the brokerage’s hands while acting for the client.
In designated agency, the brokerage and the client agree that these duties – other than the duty shared with the designated agents to keep the confidences of the client, and the holding of money on behalf of the client – are the responsibility of the designated agents.
Limited Dual Agency
When a brokerage acts for both the buyer and the seller, with their agreement, the nature of the relationship created by contract is one of limited dual agency. In brokerage agency, limited dual agency can occur when the same licensee engaged by the brokerage represents the buyer and seller, or where different licensees engaged by the same brokerage represent the buyer and the seller. Before a brokerage may represent both the buyer and the seller, the buyer and seller must consent to such a relationship. Before providing their consent, the buyer and seller should be fully informed regarding the limits that will be placed on the agent’s (brokerage’s) duties and obligations to the buyer and seller.
Designated agency allows two clients who have engaged the same brokerage to have independent representation by their respective designated agents, eliminating the occurrence of ‘in-house’ limited dual agency where the interests of those clients are in conflict, e.g. they wish to negotiate in relation to the same property.
Where a limited dual agency relationship has been agreed to, it is not possible for the agent (brokerage or its designated agent) to fulfill all of its duties to both parties. As a result, the duties are limited by contract and the sole agent, whether the brokerage or its designated agents as the case may be, become limited dual agents, with their duties being limited as follows:
- the brokerage and/or its designated agent must deal with the buyer and seller impartially;
- the duty of full disclosure is limited so that the brokerage or its designated agent are not required to disclose what the buyer is willing to pay for the property, what the seller is willing to sell the property for, or the motivation of either party; and
- the brokerage or its designated agent must not disclose personal information about the parties, unless authorized to do so in writing.
A brokerage or its designated agent may also agree with a buyer or seller that they will not act as an agent on their behalf in a transaction. In other words, there will be no agency representation. In such a case, the buyer or the seller will be the “customer”, not the client of the brokerage or its designated agent. This may occur when a licensee already has an agency relationship with a seller, for example, and a buyer becomes interested in the seller’s property. In this situation, the licensee is not permitted to recommend or suggest a price, negotiate on the customer’s behalf, inform the customer of their client’s bottom line price point or disclose any confidential information about their client unless otherwise authorized by the client. However, the licensee can provide a customer with other services, such as:
- explaining real estate terms, practices and forms;
- assist in screening or viewing properties;
- prepare and present all offers and counter offers at the customer’s direction;
- inform you of lenders and their policies; and
- identify and estimate costs involved in a transaction.