June 6th - 2003

When the seller is not my client

Clearly defined relationships are the mark of any successful business transaction and, in real estate, are mandated by the RECO Code of Ethics.

Clearly defined relationships are the mark of any successful business transaction and, in real estate, are mandated by the RECO Code of Ethics. Obviously, the principle has broad applicability to the situation where you are acting for a buyer who is interested in an unlisted property.

Here’s the scenario: Your client, signed to a buyer agency agreement, wishes to purchase a property which is not listed with a REALTOR. The owner is anxious to sell and the buyer has agreed to pay the commission. However, it is preferable for the seller to pay the commission from the proceeds of the sale. While your initial impulse may be to have the seller sign a listing agreement, the seller may not agree to this or it may create a dual agency situation that your buyer may not agree to.

To deal with this situation, OREA has developed Form No. 201, Commission Agreement (For Property Not Listed.) This document clearly establishes that the REALTOR is acting for the buyer and is not the agent of the seller but that the seller agrees the pay the commission.

REALTORS dealing with sellers who are not their clients should review the RECO and CREA Codes of Ethics in two specific areas, namely the rules for dealing with customers and those relating to disclosure.

It is the REALTOR’s duty to protect and promote the interests of clients while dealing fairly with all parties. REALTORS should not mislead customers on any matters pertaining to a property or transaction and, when dealing with a customer, should exercise “reasonable care and skill” so that answers and information are complete and accurate.

And even though the REALTOR is not the sellers’ agent, the rules relating to disclosure must still be adhered to. Broadly, the codes require the REALTOR to provide written disclosure to his or her client, as well as disclosure to other parties involved in the transaction, regarding the role and nature of service the REALTOR will be providing.

REALTORS are also strongly advised to obtain written acknowledgement of the disclosure from their clients.

A final note of caution: Having established that the seller is a customer rather than a client, it is important that a REALTOR’s subsequent words and actions in dealing with the sellers do not lead to an implied agency relationship.

To learn more…

  • Download the OREA legal pamphlet “WHEN THE SELLER IS NOT MY CLIENT” from the members’ only section of the OREA web site, www.orea.com.
  • For how to treat sellers who are customers rather than clients, see Article 2 and Interpretation 2-3 and Rule 2, Principles 2.7 and 2.8 of the CREA and RECO Codes of Ethics respectively.
  • Disclosure to all parties involved in the transaction, see CREA Article 3 and Interpretation 3-1 and RECO Rule 3 and Guiding Principles 3.1 through 3.5 
  • Check out “Legal Forum” in the members’ only section of the web site to find answers to commonly asked questions about · agency relationships under the Topic - “Agency” and about commission negotiation, entitlement and collection under the Topic - “Commission”.
  • Contact OREA or your local real estate board for details of OREA continuing education courses on this or related subjects.

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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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