As members of the Canadian Regulators Group
Agency Task Force (ATF), we read with interest Albert Teichner’s
article entitled Designated Agency: A ticking time bomb in the February
2005 edition of REM. In the interest of furthering dialogue within the
real estate industry on the recommendations of the ATF, we offer the
following comments on points raised by Mr. Teichner.

Mr. Teichner suggests, “In the legal sense of
the word, Realtors are not truly ‘agents’. They do not have power of
attorney to sign documents on behalf of their principals.” It is
certainly true that members of the public and real estate licensees may
contractually establish a relationship that is not an agency
relationship; however, the extensive research conducted by Professor
William Foster on behalf of the ATF confirmed that the courts view the
relationship currently established by listing contracts and exclusive
buyer agency contracts across Canada (except in the province of Quebec
where the common law does not apply) to be an agency relationship.

Real estate licensees are considered by the
courts to be trusted advisors with special expertise. While they may
not often exercise their legal ability to “bind their principal” in the
trading sector of the real estate business, there are numerous court
decisions that confirm principles of agency operate in real estate
transactions, such as “notice given to an agent is deemed to have been
given to the agent’s principal.”

Further, in the rental property management
sector, it is common for licensees to have the authority to sign
documents on behalf of their landlord principals; for example, tenancy
agreements, expense payments and giving notice.

Mr. Teichner suggests that a factor in
supporting his view that “Realtors are not truly agents” is that
“Realtors do not get paid a wage for work performed, but earn a
commission only on successful completion of the task.” Neither the
manner in which a licensee’s remuneration is calculated, nor who is
responsible for paying a licensee’s remuneration, determines whether
that licensee is acting as an agent. Does the fact that a lawyer gets
paid, in certain cases, based on a contingency fee calculated on the
amount of damages awarded’ mean there is no agency relationship between
that lawyer and his/her principal? Does the fact that a buyer’s agent’s
remuneration often comes from a portion of the listing commission
offered by the listing brokerage to co-operating brokerages mean that
licensee does not have an agency relationship with the buyer?

Mr. Teichner states that “The real estate
company’s interest in Designated Agency may be perceived as a conflict
of interest because of the basic profit motive: the buyer will not be
lost to another competitor…” If this is the case, is the brokerage’s
position viewed differently today with ‘in-house’ dual agency? Today,
when any licensee engaged by ABC Realty takes a listing, every licensee
engaged by ABC Realty is immediately considered to be an agent of that
seller. Even if one of those other licensees has long before
established an agency relationship with a buyer, if that buyer becomes
interested in any of the brokerage’s listings, both the seller and the
buyer must first agree for their respective licensees and the brokerage
to act as dual agents before the seller and buyer can begin negotiating
the transaction while using the assistance of those two licensees. To
act as dual agents, both licensees and the brokerage must now become
impartial, neither advocating the interests of the seller or the buyer,
nor providing any advice to either party that would be in conflict to
the interests of the other party. How does this benefit either of the
parties?

In this scenario, both the seller and the buyer
initially enter into an agency relationship with the brokerage as
represented by the two licensees because they want and need advice and
advocacy to protect and advance their respective interests. Do either
of them really want to give that up by entering into the impartial
world of dual agency?

The basic principle of designated agency as
proposed by the ATF is that, in the above scenario, both the seller and
the buyer in this ‘in-house’ transaction would be able to continue to
receive the full benefit of agency representation, complete with the
undivided loyalty, advice and advocacy of their respective licensee
agents, while it is the brokerage that remains impartial. The
brokerage’s responsibility would be to ensure that each of the
licensees acts in accordance with his/her respective agency
responsibilities, and that the confidential information of the seller
and buyer remains confidential. The brokerage would be a transaction
facilitator, with responsibilities similar to those it has today under
dual agency.

The main difference between today’s role of the
brokerage as a dual agent, and the proposed role of the brokerage as a
transaction facilitator, is that this is the role of the brokerage that
would be established from the outset, either when a listing is taken or
a buyer agency agreement is signed. The brokerage would not start out,
as it does today, as the sole agent for one of the parties, with every
licensee engaged by the brokerage taking on the same status, and then
have to strip away many of its agency obligations (and simultaneously
stop being able to provide the agency services it initially offered) to
become an impartial dual agent in an ‘in-house’ transaction.

Would this result in “some special degree of
liability being shifted to the individual salesperson” as suggested by
Mr. Teichner? The courts have always held individual licensees
responsible for their actions. This would not change. The ATF report
concludes, however, that properly practised designated agency would be
more reflective of the commercial reality of the real estate market,
and the expectations of the public, than dual agency is when it comes
to ‘in-house’ transactions.

Contrary to Mr. Teichner’s assertions,
designated agency is not a new, untested concept. Various forms of
designated agency are currently offered in jurisdictions in the United
States. In some jurisdictions it has been offered for more than a
decade. As with any contractual agency relationship, the courts would
expect a licensee acting as a designated agent to perform his/her
obligations in a manner that is consistent with the contract and the
common law of agency.

Mr. Teichner states that “Designated Agency
will discourage Realtors from advertising their own listings” because
“if they find a buyer — they have to turn over the buyer to somebody
else.” There is nothing in the ATF recommendations that would suggest
or require this. The ATF considered designated agency to be a positive
alternative to in-house dual agency when there is a licensee acting as
sole agent for the seller, another licensee engaged by the same
brokerage who is acting as sole agent for a buyer, and the buyer
becomes interested in the property offered for sale by the seller.

Where an unrepresented buyer approaches a
licensee who is acting as a designated agent for a seller, as in Mr.
Teichner’s example of an open house, and that buyer expresses interest
in the property being offered for sale by that seller, the ATF suggests
that the designated agent should inform the buyer that the licensee is
the agent for the seller (this is typically already understood by the
unrepresented buyer) and explain the services that can be provided to
the buyer as a customer. The ATF Report refers to these as
“facilitation services,” which are services that allow the designated
agent to provide the unrepresented buyer with general market and
transaction information and assistance without advising the buyer in a
manner that would be detrimental to the best interests of the seller.
The buyer is treated as a customer, not a client, and the licensee
continues to act as the designated agent for the seller. This does not
mean that the designated agent cannot “double end” the transaction. It
simply means the licensee should avoid acting as a dual agent. Of
course, should the buyer wish to be represented by his/her own agent
that would continue to be the buyer’s right, just as it is today.

Mr. Teichner asks if, once the seller (let’s
call him Mr. Smith) has successfully sold his/her house, “is the
Realtor (the former listing salesperson) reduced to showing only
listings from other companies?” The answer is NO. If the relationship
between Mr. Smith and the licensee continues to the purchase of another
property by Mr. Smith, the licensee would then become the designated
agent of Mr. Smith the buyer. In that capacity the licensee would have
an obligation to “show everything on the market” as Mr. Teichner
suggests. This would include the listings of his/her own brokerage,
other brokerages, and FSBOs that are known by the designated agent to
be offered for sale. This is the same obligation a buyer’s agent has
today.

A further scenario that the ATF explored is the
situation where a licensee already has an agency relationship with a
seller by way of a listing agreement, and an agency relationship with a
buyer to whom he/she has been showing properties. The buyer becomes
interested in the property that the licensee has listed for sale. In
this scenario, where two agency relationships have already been
established, the recommendation of the ATF is that the licensee would
advise both the seller and the buyer that he/she is already acting as
an agent for both parties, although not yet with respect to this
specific property, and explain the possibility of both parties agreeing
that the licensee be allowed to act as a transaction facilitator. In
this capacity the licensee would act in a similar manner to how they
are required to act today as a “limited” dual agent — impartially,
without advocating the interests of one party to the detriment of the
other. Just as the informed consent of both parties is required today
before a licensee may act as a dual agent, informed consent would be
required before a licensee could act as a transaction facilitator.

Finally, Mr. Teichner asks if any of the ATF
members “have actually sold a property lately?” The ATF was a task
force struck by the Canadian Regulators Group, a group comprised of
senior staff from real estate regulatory bodies across the country.
Many of the regulatory body staff members who served as members of the
ATF had extensive experience as real estate licensees prior to joining
those regulatory bodies. Further, the Canadian Real Estate Association,
the Building Owners and Managers Association, and the Real Estate
Institute of Canada appointed representatives to the ATF. These
representatives included currently active real estate licensees. As a
result, the ATF believes it was able to maintain a balanced perspective
on the many agency related issues it considered over the course of its
research and deliberations.

Bob Myroniuk, Chair, ATF

Larry Buttress, Vice-Chair, ATF