July 5th - 2003

Spell out buyer agency to avoid misunderstandings

Entering into a buyer agency relationship with a client is more than just having the buyer sign a buyer agency agreement.

Entering into a buyer agency relationship with a client is more than just having the buyer sign a buyer agency agreement. Agency relationships should be carefully explained to potential clients. The OREA Arbitration Appeal Panel decision that follows is a good example of why this is true.

It is important to fully explain the agency agreement to clients so that they understand both their obligations and your obligations as a REALTOR under the agreement. Your firm must also fulfill its obligations under the agreement, and if you and your clients decide to “take a break” from looking for properties, you should make sure that the buyers understand their continuing relationship and the continuing obligations of both the buyer and the firm under the buyer agency agreement. By doing this, buyers are less likely to approach other REALTORS during the term of an existing buyer agency agreement and more likely to remember entering into a prior buyer agency agreement when another REALTOR asks them about it.

Case #1 – ABC Realty (Respondent), represented by Tom Salesperson v XYZ Realty (Appellant), represented by Sarah Salesperson

The buyers did not remember signing a buyer agency agreement with ABC Realty; they did not receive a copy of it; and they thought that the document that turned out to be the buyer agency agreement with ABC Realty was just one of the papers they signed in order to make an earlier offer on another property.

They thought that anything they signed regarding the other property “died” when the deal “died,” especially since they had no further contact with Tom or anyone else from ABC Realty.

In the meantime, Sarah Salesperson made more than reasonable efforts to determine whether the buyers were subject to a current valid agency agreement. She knew that the buyers had made an offer on another property through another firm and for that reason she asked the buyers on several occasions whether they had signed a buyer agency agreement with any other REALTOR and gave the buyers a blank buyer agency form to review before having them sign it.

The buyers stated that they were not aware that they had signed a buyer agency agreement with the Respondent. Sarah did not ignore the existence of a current agency agreement and did not induce or attempt to induce the buyers to breach a buyer agency agreement with another firm.

The arbitration revolved around the interpretation of two sections of the Board’s MLS rules: section 8.01(g) - “Members, prior to entering into an agency agreement, have an affirmative obligation to make reasonable efforts to determine whether the Principal is subject to a current, valid agency agreement to provide the same type of real estate service” and section 8.11(a), which is central to the procurement rule - “It shall be unethical for a Member to ignore the existence of an agency agreement or induce or attempt to induce a breach of such agency agreement with another Firm Member for the purpose of having the purchaser deal with the member regarding the same property. However, this shall not prevent such purchaser from deciding to enter into a purchaser Agency Agreement with any Member.”

The appeal panel concluded, “that there was sufficient evidence to show that Sarah made “reasonable efforts” to determine whether the buyers were subject to an existing buyer agency agreement…The evidence shows that Sarah made several inquiries of the buyers prior to entering into a buyer agency agreement with them and there is nothing in the evidence to support the argument that she should not have believed them and should have taken the additional step of contacting Tom.

Based on the evidence presented in this case, particularly Tom’s statements [about taking a break] and actions [no further follow up] to the buyers after the offer for the earlier property did not go through, the buyers could understandably have mistakenly concluded that their relationship with Tom was over when that deal did not go through. If this is coupled with the fact the buyer agency agreement with the Respondent was one of many documents signed by the buyers at the time that they made the offer on the first property and that they could not find a copy of that buyer agency agreement, it is conceivable that the buyers were under the mistaken impression that they had not entered into a buyer agency agreement with the Respondent and conveyed that to Sarah when she made her inquiries.”

The appeal panel ordered that the Respondent was not required to pay any of the selling commission to the Appellant. It is important to note, and the Appeal Panel stated, that “what are ‘reasonable efforts’ must be determined on a case-by-case basis, depending on the individual fact situation. Certainly, simply ‘turning a blind eye’ and not even asking whether a potential client has signed a buyer agency agreement with another firm is not ‘reasonable efforts’ in this day and age.”

The Appeal Panel further acknowledged that there may be cases where the facts would require a REALTOR to make inquiries of other REALTORS that a potential buyer may have contacted, despite the responses given to the REALTOR by the potential client.

The best course of action for a firm with a buyer agency agreement is to make sure the buyers fully understand the relationship and the rights and obligations of the buyers and the firm under the agreement. Also, make sure that you live up to your end of the agreement, just as you expect the buyers to live up to their end of the agreement.

To read more articles about various arbitration decisions dealing with buyer agency and the procurement rule, visit the following links: http://www.orea.com/edge/default.asp?issue=199905#653 - Respect other REALTOR's Agency Agreements - May 1999 http://www.orea.com/edge/default.asp?issue=200005#17 - Understanding how buyer agency affects arbitration of commissions - May 2000 http://www.orea.com/edge/default.asp?issue=200101#124 - Buyer agency agreements - January 2001.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Senior Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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