Dual Agency

Update as of June 15, 2018 there will be almost a ban on limited dual agency. An individual licensee won’t be able to represent more than one party in a transaction in most cases. This applies to sales, leases, assignments, as well as when there are two or more buyers. Designated agency will still be allowed. Here is the new form for Disclosure-of-Risks-Associated-with-Dual-Agency.

Dual Agency? Limited Dual Agency? Designated Agency? What is this all about? I thought you were my agent?

New for 2012 is Designated agency will be implemented in BC by July 2012.

Designated Agency became the industry standard in British Columbia on June 1, 2012. Why? Since the introduction of Limited Dual Agency, REALTORS® in the same brokerage have acted as if they were the sole agent for the seller or buyer rather than the limited dual agent of both. While inconsistent with limited dual agency, the practice was widely accepted by both the profession and the public…leading to an industry decision to align BCREA standard forms with actual practice. The essence of the resulting system of “designated agency” is that the brokerage has contractual duties to the buyer or seller who has engaged it and agency duties are provided by the REALTOR® appointed by the brokerage as the “Designated Agent” for that client.

First w,hat is Dual Agency? Let’s take an in-depth look.

Acting for both Competing Clients

It is always a fundamental premise of both agency law and professional ethics that all professionals must avoid acting for two clients whose interests are in conflict.  A real estate professional’s role is to provide impartial expert advice.   It is difficult to give impartial advice to one client if another client is likely to be adversely affected.   If a professional is placed in a position of conflict between the interests of two clients, they should resolve the matter by declining to act for one, or in extreme cases, both of the clients.

Real estate brokers are particularly susceptible to this type of conflict because of the peculiar nature of the listing and selling process involved in most real estate transactions.  A prospective purchaser of a property will often look to a real estate agent for expert advice and may request disclosure of information about a property that an agent, as a representative of the seller, is not in a position to disclose.  For example, some information relating to a selling price is considered confidential.   A purchaser of a property may be keenly interested to know a seller’s financial status and any details which might reveal the lowest price at which a seller would be willing to sell.  Such details would undoubtedly be disclosed to the seller’s real estate agent in confidence and could not be disclosed to the purchaser without first obtaining the client’s consent.

Agency Laws

Prior to 1994, in British Columbia, real estate agents worked as sub agents of the seller.  This agreement was called “Assumed Seller Sub-agency” and made it confusing for the typical buyer.  The buyers thought the buying agent helping them was working for them, but in fact, the agent was working for the seller.  In 1994 British Columbia changed the agreement to “Assumed Buyer Agency.”  Now, if the real estate agent is working with the buyer, it is assumed s/he is working for the buyer only (this is why we have Exclusive Buyer Agency agreements). This is the case unless the agent has consent from both the buyer and seller to work for both parties.

When the British Columbia real estate industry adopted Assumed Buyer Agency, the industry foresaw situations where the listing agency might also represent the buyer.

One example is when two different agents in the same brokerage work with the seller and buyer respectively.  In law, the seller lists (contracts) with the real estate brokerage, not with an individual real estate agent.  In a large office, one agent may have signed up the listing while another agent in the same office has been working with a buyer who wishes to present an offer.  Although both agents work for the listing brokerage, the agent working with the buyer is presumed, under Assumed Buyer Agency, to represent the purchaser.  However, the brokerage is clearly in conflict.

Another example is when the listing agent also brings a buyer to the transaction (a “double-ender”).  Typically, agents split the sales commission between the listing and selling ends of the transaction.  The listing agent gets paid for his/her work involved in listing the property.  The selling agent gets paid for his/her work in introducing the buyer to the property.  When the listing agent is the same agent who brings the buyer to the transaction, s/he receives all the commission.  On the face of it, a double ender is a clear conflict because the listing agent representing the seller is also assumed to act for the buyer.

To make the arrangement workable, the listing brokerage needs the seller and buyer to permit the brokerage to modify its relationship with both clients.  For example, rather than requiring the brokerage to fully disclose all matters to both sides, the seller and the buyer may allow the brokerage to limit its responsibilities in this area.  In these cases, the listing brokerage will intentionally ask the seller and the buyer for permission to represent both on a limited basis. Note You do not have to enter into a Limited Dual Agency Agreement.

The brokerage uses a form of a written agreement called a Limited Dual Agency Agreement.  Under this form of agreement, the seller and the buyer agree that the brokerage shall represent both of them. Although the brokerage and its agent(s) are still required to deal impartially with both clients, the duty of full disclosure is modified to allow the agent to keep information confidential from one side against the other in three areas:

The price a client is willing to accept or pay
The motivation of either client
Either client’s personal information

Agents must still disclose all known defects of the property to a buyer.

If either client refuses to enter a Limited Dual Agency Agreement, the brokerage must withdraw from representing the buyer.  In that case, the brokerage will typically refer the buyer to another brokerage for separate representation, or the buyer will act for him or herself without any agency representation. I have sold many places without any agency representation. If I do not know a person or work with them I can not have a relationship with them and would rather offer them no agency representation.

In 1994 the real estate profession in British Columbia and elsewhere across Canada adopted the assumed buyer agency system. This system provides for agency representation for both sellers and buyers involved in a transaction. Under the initial assumed buyer agency system introduced in 1994 the brokerage contracted with and became the agent of the buyers or sellers they represented. Licensees within the brokerage assumed the agency obligations of the brokerage.

To address the obvious conflicts that would arise when an agent acted for two clients with opposite interests in the same transaction, the system of limited dual agency was also established. Under the initial system of limited dual agency, the seller and the buyer agreed to have the brokerage continue to act as the agent of both parties with certain limitations. As the brokerage’s duty of undivided loyalty, confidentiality and disclosure could not be simultaneously fulfilled for each client, the buyer, the seller and the brokerage agreed that the brokerage’s agency duties of loyalty, confidentiality and disclosure would be limited. The limitations required the brokerage and the licensees involved in the transaction to treat the buyer and the seller impartially and to disclose all material information to both the buyer and the seller except information related to price and motivation and personal information.

The initial limited dual agency system did not differentiate between a single licensee representing both parties and two licensees engaged by the same brokerage each representing the buyer and the seller. As the brokerage was obliged to treat both parties impartially so were all of the licensees engaged by the brokerage.

Over the years it became apparent that where a brokerage had agreed to act as the limited dual agent of a seller and a buyer in the same transaction through two separate licensees engaged by the brokerage those licensees were acting as if they were the sole agents for the seller and the buyer respectively rather than as the limited dual agents of both of them (which would require each licensee to treat both the buyer and the seller impartially and disclose to both of them all material information, except information related to price and motivation and personal information). While the practice of two licensees in the same brokerage acting as if they were the sole agents for a buyer or a seller in the same transaction was inconsistent with the system of limited dual agency initially set out in the standard form documents it was widely accepted by both the profession and the public. If buyers and sellers expect and want sole agency representation from their licensee even where the licensee on the other side of the transaction is also engaged by the same brokerage then the system should be revised to reflect that reality.

The essence of the proposed new system, referred to as designated agency, is that the brokerage assumes contractual but not agency duties to the buyer or the seller who has engaged it. The brokerage contractually agrees to appoint one of its licensees to be the “Designated Agent” for that client and agrees to appoint other licensees to be the designated agents of all other buyers and sellers who also have or will engage the brokerage. The licensees who are appointed to be the Designated Agents of the individual buyers or sellers will treat them as their sole clients and the Designated Agents rather than the brokerage will provide them with the agency duties of loyalty, confidentiality and disclosure (unless otherwise modified). Under this new system the brokerage’s licensees, other the Designated Agent, will not owe any agency duties to the buyer or seller represented by the Designated Agent and will not be obligated to treat those clients impartially when acting for another client involved in the transaction. Where a Designated Agent is also the designated agent of another party to the transaction the current system of limited dual agency remains in place.

It should be noted that the system of a designated agency is merely a modification of the system of the limited dual agency. It does not affect the system of assumed buyer agency and only impacts transactions where the brokerage and its licensees act for more than one party to the transaction. It is designed to reflect the current commercial practice being followed by brokerages, licensees and the public and little or no change in the day to day practice of licensees is expected.

 

 

Up date February 1st 2013 The following is from BCREA;

Number 459, January 2013

LIMITED DUAL AGENCY AND INDEPENDENT ADVICE

Judicial consideration of the practice of limited dual agency continues to evolve. A recent court decision¹ considered whether a REALTOR® had a duty to refer their client for independent legal advice before the client entered into a Limited Dual Agency Agreement.

The plaintiff was a retired labourer with an elementary school education who, together with his wife, sought to relocate to the Okanagan. He became interested in a property and viewed it with the listing REALTOR®. He decided upon the amount he was prepared to offer for the property and the REALTOR® assisted him in the preparation of a formal offer.

The REALTOR® also had the plaintiff enter into a Limited Dual Agency Agreement. The offer and the Limited Dual Agency Agreement were then delivered to the seller. The offer was accepted and the transaction was completed. Sometime after completion the plaintiff became dissatisfied with a number of things about the property and sued the seller for misrepresentation and the REALTOR® for both misrepresentation and breach of fiduciary duty. The plaintiff was partially successful against the seller with respect to the claims of misrepresentation but unsuccessful against the REALTOR®.

The plaintiff first claimed that the REALTOR® was negligent in not confirming certain representations made by the seller. The court concluded that the duty of the REALTOR® was to check the completeness and accuracy of information which is usual and customary for REALTORS® to verify and all other information of which the REALTOR® is in doubt. The plaintiff did not adduce any expert evidence as to what information was usual or customary for a REALTOR® to verify. Absent any expert evidence the court was not prepared to conclude that it was customary or usual for a REALTOR® to inquire into or check the electrical system in a house or outbuilding nor was it customary or usual to examine the surrounding property.

With respect to the claim that the REALTOR® breached the fiduciary duties owed to the buyer the plaintiff claimed that, because the buyer may not have understood the nature of the Limited Dual Agency Agreement, the REALTOR® was obliged to afford the plaintiff the opportunity of getting independent legal advice before entering into it, that the REALTOR® failed to meet the obligations under the CREA REALTOR® Code and finally that the REALTOR® preferred the interests of the seller over the buyer. The court dismissed each claim.

The plaintiff argued that the requirement in the REALTOR® Code for a REALTOR® to “encourage parties to seek the advice of outside professionals where such advice is beyond the expertise of the [REALTOR®]” obligated the REALTOR® to refer the plaintiff for independent legal advice before the plaintiff entered into the Limited Dual Agency Agreement. The court did not agree. While concluding that there may be circumstances where such a referral was warranted, this was not one of them.

Having found that the REALTOR® had explained the document to the plaintiff, that the plaintiff had bought other houses before and had sold their previous property through limited dual agency and that there was no evidence to suggest that the plaintiff was incapable of understanding the document, the court concluded that the REALTOR® did not have an obligation to refer his client for independent legal advice. The plaintiff also tried to argue, with no success, that the fiduciary duties of the REALTOR® were not affected by the terms of the Limited Dual Agency Agreement.

Once again a BC court has recognized that “limited dual agency agreements are not uncommon in this province.” In this case the court confirmed that, except in extraordinary circumstances, a REALTOR® is not obligated to refer his client (even a client with limited education) for independent legal advice before entering into a Limited Dual Agency Agreement where the document has been explained to the client and there is no evidence to suggest that the client was incapable of understanding it.

Brian Taylor
Bull Housser LLP

Paniccia v. Eckert 2012 BCSC 1428.

“Copyright British Columbia Real Estate Association. Reprinted with permission.” BCREA makes no guarantees as to the accuracy or completeness of this information.

Cheers

Scott Simmons