Agency Relationships Explained

Buyers and sellers may enter into one of two types of agreements with a brokerage: a representation agreement (buyer or listing agreement), or a customer service agreement. Both are considered legally binding agreements.

If you enter into a representation agreement, you are considered a client of the brokerage; if you enter into a customer service agreement, you are considered a customer.

There are two big differences between the brokerage’s obligations to a client versus a customer.

First, if you are a client, the brokerage has an important obligation to you, called fiduciary duty, and must promote and protect your best interests in the real estate transaction. If you are a customer, the brokerage does not have that obligation, but is obligated to treat you with fairness, honesty and integrity, and to provide you with conscientious and competent service.

Second, if you are a client looking to purchase a property, under a legislated Code of Ethics, the salesperson must take reasonable steps to determine, and then disclose to you, all material facts about the property. If you are a customer, however, the salesperson only has to disclose to you the material facts that he or she already knows or ought to know, and they are not required to take any further steps.

There are a couple of other points to consider when deciding whether to become a client or a customer of a brokerage, especially if you are a seller.

As a seller being represented by a salesperson, the salesperson must convey all written offers to you unless you specify otherwise in writing. A salesperson working with you as a customer, however, is not obligated to convey offers to you unless your agreement with the brokerage provides for the brokerage to receive written offers on your behalf. In that situation, the buyer’s representative would have to contact you directly.

With all of these points in mind, your decision boils down to a basic question when considering the client versus customer relationship: What are my needs and which relationship best meets them?  If you have knowledge and a comfort level with buying and selling real estate, then perhaps the customer relationship is sufficient for your needs. If your knowledge and experience is limited, then the client relationship is likely your better option.

No matter what you decide, remember to do your homework in advance. Before you sign your agreement with the brokerage, make sure you know what you want and the services you expect to receive. For sellers, this could include staging, open houses, advertising and a marketing plan. For buyers, this could include must-have features, potential deal breakers, amenities and geographic considerations. In both cases, make sure that it’s clear who will be paying for these additional services.

Be informed. Determine what you want and what you need. Understand your rights and obligations under your relationship with the sales representative. If you prepare well in advance, this will help ensure there are no surprises during the buying or selling process.

Information Supplied by Joseph Richer of RECO (Real Estate Council of Ontario)