BC Sunshine Coast real estate by Menno at Royal lePage Real estate on the BC Sunshine Coast

After decades of steady industry improvements, one could start to say that our real estate industry is beginning to grow up. Agency matters are being taken very seriously now and the clients’ interests are most important, like never before.

It's not uncommon to hear negativity about real estate professionals and that's not always fair. The rules are now much tighter and "ethics" is serious business.

The real estate industry, let’s be fair, had a little bit of an image that all-would-go-and-be-permitted. People rated real estate sales people as less than trustworthy. It’s hard to improve on a negative image (as politicians know all too well) but I think that we’re beginning to gain the public’s trust, as we should. Major rule changes, over the years, have weeded out the problem areas. Today, when you make contact with a real estate professional, you are well protected in many different ways.

The rules of agency have been changed and given some new definitions. Last year, we went through the introduction, in British Columbia, of “Designated Agency”, a term that hasn’t been promoted before. The indication of “designated agency” is supposed to make it clearer to understand who’s working for whom. The purpose of the exercise is that we all understand that YOUR real estate agent only works for you and not for somebody else and certainly not for a person with an opposing interest. But … who does your real estate agent actually work for? Few people know the correct answer to this fundamental question.

Members of the general public are generally most annoyed when an agent is vague about who he or she is working for; a problem that could be fixed so easily.

YOU GOT TO KNOW WHO YOUR AGENT WORKS FOR

It remains a confusing topic that many buyers and sellers won’t quite understand: who really works for whom. Sometimes it’s so hard to determine who really works for whom that real estate agents get confused about this ever so basic question: who’s representing whom? Does a real estate agent always represent the seller? The quick answer is: no, not always. And now, let’s stir up this potentially controversial topic.

The confusion about “who works for whom” in real estate is an old one. It used to be so simple (about 20 years ago). All real estate agents worked for the seller. This has changed dramatically. These days, you have an agent, the other party has their own agent and to make matters even more complicated, both can share one and the same agent. Sometimes, one won’t have an agent at all. How can you benefit in these various situations?

When you go to your lawyer, you can be pretty sure that this person will be your lawyer (not the other party’s lawyer). With real estate agents, you can’t be so sure. With the confusion surrounding such a terribly boring topic, it’s still quite useful to be aware of the hitches of agency, dual agency and the possibility of not having any agency relationship at all. Some people actually still think that the person who’s paying the real estate fee “controls” the agents involved and therefore an agency relationship exists. This may be true – or not entirely – or not at all.

WATCH OUT: An agent who's not working for you may be working for somebody else; possibly for somebody with interests that oppose yours.

AN EXAMPLE TO MAKE THINGS (UN)CLEAR

It’s immediately useful to know for sure if your agent is working for you or not. If the agent doesn’t bring up this topic immediately, you should ask. This is because you may compromise your own bargaining position if you say the wrong thing to an agent who’s not YOUR agent.

EXAMPLE: Imagine, for instance, if you tell that agent that you think the house is quite affordable. If that agent is NOT working for you but for the seller only, then that agent can give that information to the seller. Stronger yet, that agent MUST give that information to the seller – because as an agent, he or she is an extension of the seller client. What you’ve just done, because of the agency misunderstanding, is to tell the seller that you believe that the house is “quite affordable”. The chances of negotiating down the price are minimal. If you had “your own agent” in between, your remark would’ve never gone to the seller. You would’ve been protected due to simple agency rules.

Since we happen to live in a cover-your-behind world, everybody, particularly professionals, need to look over their shoulder to minimise the risk of stepping on someone’s toes. With a fairly strict set of rules on our roster, it’s difficult to make agency mistakes any longer.

Although agency relationships MUST be disclosed, the rules are not quite clear as to when this (allegedly) mandatory disclosure is to take place.

AGENCY RELATIONSHIPS MUST BE DISCLOSED

Barring special situations, things can be quite simple in real estate. We now work with “disclosed agency relationships”. Let’s recap what various agency situations are possible:

- The buyer has their own agent and the seller has another agent as their own. Each agent represents their designated client (“the principal”) to the best of their ability.

- The buyer and the seller share an agent. The agent then becomes a Dual Agent. In order for this situation to work, the dual Agent has to be “limited” in his/her fiduciary obligations to each party. This is where the term Limited Dual Agent comes from.

- Either the buyer or the seller has no agent. This would result in a no-agency situation (for one party) which is totally legal but fairly uncommon in residential transactions. However, it’s quite common in commercial real estate.

Life would be so simple if you could be certain that this professional you’re working with, is in fact your agent and not somebody else’s.

As a prudent consumer, you may (and perhaps should) ask early on if the agent is working for you or not. Don't disclose any personal stuff before that's all settled.

AVOIDING THE CONFUSION FROM THE GET-GO

It’s the “Limited Dual Agency” that tends to create the most confusion and actual problems. Most members of the public have a hard time with the notion that an “agent” would serve more than one master at the same time.

People have pointed out to me that “lawyers don’t do that”; which is a statement that is mostly true. A lawyer will represent one party, not two opposing parties. An agent can only be a “Limited Dual Agent” if both the buyer and seller will agree to that, in writing. If one of the two (either the buyer or seller) says “no” to the situation, then a “Limited Dual Agency” cannot be created. A buyer or seller would be entirely in their rights to demand exclusive representation.

Over 20 years ago, it was the person paying the fee who was at the centre of the deal. Not so these days. Agency and fee payment have no relationship any longer. Particularly people who’ve been dealing with real estate (agents) for decades find this non-relationship a bewildering change.

There are still many misconceptions on what constitutes agency. There is no need to assume agency (or non-agency for that matter): just ask, when in any doubt.

WHO PAYS. WHO GETS THE SERVICE?

Many people STILL believe that an agent is only YOUR agent when you pay him or her. That, however, isn’t always the case. Here are some scenarios to show that payment and agency are NOT the same thing at all:

- I can BE your agent, even when you don’t pay me (could be because the other party is paying me);

- I can NOT be your agent, while you still will pay me (this has to be disclosed clearly but it CAN happen, for instance in a “FEE agreement”;

- It is also possible that I can BE your agent and get paid by nobody (special circumstances).

Therefore, it’s very prudent to talk about these things. Who works for whom and who pays for what. Do not overlook or skip this discussion in the heat of the activities.

For a quick read-up of this topic, look here: http://www.mennorealty.ca/WorkingWithAREALTOR.ubr.

Some people (particularly professional buyers or sellers) may choose "non-agency". You should only do that if you are absolutely certain what, exactly, that means.

WHAT “NO AGENCY” MAY MEAN

“No agency” is one possibility of dealing with an agent. At first, this sounds like a contradiction – after all isn’t an agent automatically YOUR agent once you start talking to him or her? Sometimes, yes. Sometimes, no. One can quibble about when an agent actually becomes one’s agent. At an “Open House”, for instance, a person who just walks in to look at the house and ends up chatting with the agent, when does that person become a client and at what point is “agency” in any form established?

If nobody brings up the topic of “agency”, then somebody is going to make assumptions that may or may not be correct. The consequences of these assumptions could boil over, if not dealt with early on. This goes to say that agency is much more complicated than it appears at first glance. I strongly ask that you talk about it to clarify things – just in case your agent doesn’t bring it up immediately.

There's (of course) more to real estate than matters concerning agency. To read up on some other interesting topics, please view some of the blog article links below.

MORE agency reading is available here as well, in the following earlier blog articles:

Your agent’s market knowledge: http://www.mennorealty.ca/Blog.php/market-knowledge

Special topic: rental properties: http://www.mennorealty.ca/Blog.php/illegal-rentals

Market predictions we really can’t make: http://www.menno.ca/?p=20197

Questions about open houses: http://www.mennorealty.ca/Blog.php/open-house-quiz

Condo strata units on the Sunshine Coast: http://www.menno.ca/?p=20271

Still complaining about the new mortgage rules? http://www.menno.ca/?p=20259

Look at the affordable Sunshine Coast: http://www.menno.ca/?p=20284

Downpayment requirements explored: http://www.menno.ca/?p=20301

Small homes, big home, small land, big land: http://www.menno.ca/?p=20216

Real estate agents in a small town: http://www.mennorealty.ca/Blog.php/small-town