Area of Law: Real Estate Law
Answer # 387
Role of Real Estate AgentsRegion: Ontario Answer # 387
Real estate agents or realtors are individuals licensed in their province to facilitate the purchase or sale of property. Agents must undergo training before acquiring a licence and abide by a strict code of professional standards.
What does a Real Estate Agent do for a seller?
Real estate agents generally help buyers find homes and help sellers market and sell their homes. If you are selling your home, a real estate agent can help you determine the fair market value, advertise your home to potential buyers, arrange for interested buyers to view your home, and guide you through the process of facilitating an agreement.
Most sellers sign a listing agreement with their real estate agent. This is a written contract between the seller and the real estate agent that sets out most of the duties and obligations of the relationship. It includes how the real estate agents will market the property and how much they will be paid for their services. In most cases, real estate agents are paid a commission, or percentage of the selling price. Commissions can vary from about 3% to 8%, although 5% to 6% commissions are typical in most areas of Ontario. If your property does not sell, you do not have to pay anything.
What does a Real Estate Agent do for a buyer?
If you are buying a home, a real estate agent can help you find the right type of home at the right price, help prepare your offer to purchase, and present your offer to the owners. In most cases, there is no direct cost to a purchaser for the agent’s services. The agent you work with will normally be paid part of the commission paid to the listing agent.
Buyer Representation Agreement (BRA)
Unlike a seller, a buyer does not normally sign a written agreement with a real estate agent. However, a real estate agent (on behalf of their brokerage firm) is obligated to provide the buyer with a written agreement, known as a Buyer Agency Agreement (BRA), that outlines the agent’s services and fees, and request that the buyer sign it. A BRA constitutes a legally binding contract that commits the purchaser to work exclusively with one real estate brokerage for a certain amount of time.
A BRA lists both the requirements of the buyer as well as the duties of the agent. A BRA will include:
- the property type and location requested by the buyer,
- the services the real estate agent is to provide,
- the distribution and amount of commission that will be paid,
- the duration of the agreement,
- any other terms or conditions agreed to.
As well, a BRA prohibits the agent from sharing any of the buyer’s information with the seller.
Does a buyer have to sign a Buyer Representation Agreement?
Although agents with this type of agreement may provide better service to the purchasers, a buyer is not legally required to sign one. BRAs include a start date and an end date. If you do sign a BRA, you are not required to buy a home during the period of the BRA. However, if you wish to cancel the BRA before the expiry date, because a BRA is a legal document, your agent does not have to cancel it, and you may be bound to the terms. If the duration of a BRA is for longer than six months, the buyer must initial the expiry date.
Obligations of Real Estate Agents
Duty of Care
Real estate agents are held to certain standards and ethics under the Real Estate and Business Broker’s Act, and the Code of Ethics. Overall, they are required to use reasonable care when carrying out all their duties. For example, they must perform the obligations in their agreement, and they must present all offers from potential buyers to the seller. Real estate agents must also be completely honest at all times, and must always follow the client’s instructions.
In addition, if a real estate brokerage wishes to represent more than one client in respect of the same trade, it must disclose this fact to the clients and/or prospective clients. This is referred to as dual agency and can be seen as a conflict of interest because the parties’ financial interests are adverse. In this situation, the individual agent(s) are prohibited from offering advice that could favour one client over the other. Before proceeding with the transaction, the agent(s) must obtain the informed consent of each party to the dual agency. It is important to note that contracts are made between the real estate brokerage and the sellers and/or buyers not with the individual agents (who are employees of the brokerage).
There can be no dual agency issue where the buyer is working with a brokerage that deals exclusively with buyers, and does not accept listings.
If the agent is determined to be acting in a fiduciary relationship they cannot use their position for personal gain and must act in the best interests of their client.
The factors which determine if an agent is in a fiduciary relationship include:
1. Does the agent have discretion or power?
2. Does the agent have power to act alone on behalf of their client?
3. Is the agent in a position of confidence and trust, whereby the client relies on the agent for advice?
Can a real estate agent negotiate a purchase or sale price?
Only in certain situations will an agent be allowed to “negotiate” the purchase or sale of a property. If a brokerage has been engaged to represent both the buyer and seller in the same transaction (the preferred situation for traditional real estate brokerages), the agents involved are legally prohibited from “negotiating” on behalf of their clients.
Do you need a Real Estate Agent?
There is no legal requirement for home buyers and sellers to hire real estate agents. However, most people prefer the services and assistance of a professional. If you decide to contact a real estate agent, make sure you select someone you trust who has a good reputation and who is familiar with your neighbourhood and type of home. If you do not use a real estate agent, you can have a lawyer review any ‘offers to purchase’ or draft your offer.
Although most real estate agents can explain the basics of an Agreement of Purchase and Sale, you should have a real estate lawyer review the agreement before you sign it. You should also have a real estate lawyer review the terms and conditions of the Ontario Real Estate Association’s (OREA) standard Listing Agreement and the standard Buyer Representation Agreement. There may be clauses that you wish to add, delete, or amend. For more information refer to our Real Estate Links for related association and government websites.
If you are buying a home and want to know how much of a mortgage you qualify for, use the Scotiabank mortgage calculator .
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