The absence of consumer protection in the real estate industry was one of the main reasons our team started Realosophy. HomeBuyers are the most vulnerable party in the real estate transaction and yet they lacked their own space, a place to come and get educated about issues that matter.
Traditional real estate websites are more focused on getting your e-mail address than they are on educating you about things like fake multiple offers. The websites of provincial real estate authorities such as the Real Estate Council of Ontario (RECO) can be confusing at times, since they are geared to serve realtors rather than consumers.
To illustrate, let's examine how a visit to RECO’s website may leave a buyer feeling a tad alienated.
As you know, we at Realosophy are big advocates of Buyer Representation agreements (also called Buyer Agency agreements). We encourage HomeBuyers to sign a Representation agreement with their agent because if they don’t sign one, their agent is legally obligated to represent the best interests of the seller, not them.
RECO also talks about Representation agreements on their website, raising the following question: what if I don’t sign one? Interestingly, RECO doesn’t tell consumers that the HomeBuyer’s agent would be legally obligated to represent the best interests of the seller. Instead, they offer this:
The Code of Ethics clearly states that loyalty ultimately rests with the client and that a broker or salesperson must protect and promote the clients best interests.
Most buyers reading this would probably conclude at this point that even without a Representation agreement, the salesperson (a.k.a the agent) I'm working with is ultimately loyal to me, the client, and must protect and promote my best interests. So why sign on a dotted line?
It appears that a little information service start-up called Realosophy is diverging from the expert advice set-out by our provincial regulator RECO by insisting that buyers adhere to a stronger standard - so who's right?
Strictly speaking, both Realosophy and RECO are correct. To understand why, let’s examine the rest of RECO’s response:
However, the Code also requires that a broker or salesperson deal fairly, honestly and with integrity and provide conscientious service to all clients and customers. You can decide to be a customer, rather than a client, but should be aware that the obligations of the brokerage will differ.
Here is where things start to feel a little unfriendly to the average consumer. To most, the words 'customer' and 'client' are synonymous, but - as the last sentence above indicates - the words mean crucially different things in the real estate industry.
Generally speaking, a 'client' is someone who has signed and is represented under a Representation agreement with a brokerage, while a 'customer' is someone who has not signed a Representation agreement and is therefore not represented by a brokerage. Agents owe clients a number of fiduciary duties, including accountability, confidentiality, full disclosure and loyalty. A customer, on the other hand, is not owed the same duties - though they should be treated fairly, honestly and with integrity.
A HomeBuyer working with a real estate agent without a Representation agreement is a customer of that agent, not a client. This means that the agent's client, for all intents and purposes, is the seller. In actuality, the seller is a client of the listing agent, so the buying agent in question ends up working as a sub-agent to the listing brokerage. In plain speak, this means that when it comes to agent loyalty, it's 2 for the seller, 0 for the buyer.
Prior to the mid 1990s, real estate agents working with HomeBuyers automatically worked for the seller as sub-agents for the listing brokerage. As soon as provincial law required agents to disclose who they worked for, it raised some uncomfortable questions. If agents were looking after HomeSellers, who was looking after HomeBuyers? And, in essence, the answer was nobody. Due to consumer activism, a new provincial law was soon enacted, enabling real estate agents to protect the interests of HomeBuyers throughout the real estate transaction. This type of relationship is referred to as a Buyer Agency or Buyer Representation.
Returning to RECO’s response, we see that the regulators are right when they say that even if HomeBuyers don’t sign a Representation agreement, the agent’s loyalty ultimately rests with the client. What isn't as clear is who the client is. Check-out our jargon-free, consumer-focused 'translation' of RECO's lingo, and "however" now takes on a whole new meaning.
What if I don’t sign a Representation Agreement?
The Code of Ethics clearly states that loyalty ultimately rests with the client and that a broker or salesperson must protect and promote their clients' best interests. If you have not signed a Representation agreement with your broker or salesperson, the seller becomes their client and they are obligated to protect and promote the best interests of the seller. However, the Code also requires that a broker or salesperson deal fairly, honestly and with integrity and provide conscientious service to all consumers. As a buyer, you can decide to be an unrepresented customer, rather than a client under a Representation agreement, but you should be aware that the obligations of the brokerage will differ. Customers do not enjoy the same rights as clients.
This - along with recent media reports about the threat of fake multiple offers in Ontario - is a clear sign that consumers need to educate themselves before entering into the real estate market and working with agents. To do this, HomeBuyers need to be able to turn to a different kind of place - one where honest, jargon-free insights are shared freely. We call that space Realosophy, and we invite you to call often.