We have to go back over 30 years. Sellers paid a commission to the Listing Brokerage which would then share it with a co-operating Brokerage. However, how they did this was very unusual. The co-operating Brokerage became their “sub-agent”.
Sub-agency
So, the Seller had two agents:
- The Listing Brokerage, and
- The Co-operating Brokerage.
Both owed fiduciary duties to the Seller.
What about the Buyer? They were on their own. No one represented them. Yet, very, very often buyers thought that their agent was “their agent”. They told their agent the highest price they would pay and their agent then passed this information on to the Seller.
Very few would ever say: “don’t say anything to me, anything you say can and will be used against you…”.
Life went on in the real estate industry for years with that arrangement in place. That was until there were Court cases. Judges all over North America came to the same simple conclusion “two agents for the Seller and no one for the Buyer, that’s just stupid”.
Buyer Representation
The National Association of Realtors came up with a solution: Buyer Representation. This time the real estate working for the Buyer would be engaged by the Buyer and have fiduciary duties owing to no one other than the Buyer.
That was fine, but how were they going to get paid, when it was the Seller who had the money at the end of the deal?
No one really gave much thought to the concept that all the money in the deal actually flowed from the Buyer. So, let’s just ignore that issue and move on.
Arrangements were set in place where Listing agreements would specify the amount of commission to be paid to the Co-operating Brokerage. Similarly, Buyers would direct the funds to the Buyer’s Brokerage in the Buyer Representation Agreement. In that document they established “agency” and received “fiduciary duties” in exchange for payment of a commission. The document also re-directed the co-operating commission as payment by them, rather than payment by the Seller.
Legal Result
Seller is represented by the Listing Brokerage as agent.
Buyer is represented by the Co-operating Brokerage as agent.
That result now works quite well, but there’s one possible complication. What if both real estate agents work for the same Brokerage, or there is just one real estate agent involved for both parties?
Double Agent
The double agent, that is, one single real estate agent acting on behalf of both the Seller and the Buyer faced some inevitable conflicts in terms of whose interests they were protecting at any given time. In some cases, they weighed in favour of the Seller, at other times, they weighed in favour of the Buyer, In some jurisdictions this was referred to as “dual agency” and in others as “multiple representation”.
Who is the actual Agent?
Brokerages all took the position that it was the Brokerage themselves which would provide “agency services” and act as the “agent” and owe “fiduciary duties” to the consumer.
The reason for this was quite simple: money!
They made far more money in their role of providing professional services than they would if the they simply provided “back end” support to their own real estate agents, ie, printing, photocopying, office supplies etc. They wanted to step up to the plate, offer professional services and have their real estate agents as independent contractors. Brokerages would retain a greater portion of the commissions.
Unfortunate Consequence
While we all know the inherent problems with multiple representation involving one single person, we now have a brand new and rather significant problem with multiple representation by accident.
Many successful Brokerages employ significant numbers of real estate agents, some in the hundreds and many in the thousands. The chances of one real estate agent with XYZ Brokerage acting for the Seller and another agent with XYZ Brokerage acting on behalf of the Buyer are really quite high.
Multiple representation rules are automatically in effect (but, obviously, technically by accident).
Agent Bob, who listed the property, now has fiduciary duties to the Buyer,
The Buyer’s agent, Mary, now has fiduciary duties to the Seller.
Not everyone will like this, and not everyone will agree to this type of arrangement.
The Solution: Designated Agency
In order to avoid this unfortunate, accidental conflict, the Brokerage can now APPOINT an agent in law.
So, XYZ Brokerage appoints:
- Bob to represent the Seller alone, and he only owes fiduciary duties to the Seller, and
- Mary to represent the Buyer alone, and she only owes fiduciary duties to the Buyer.
In this situation, the technical problem of the double agent is eliminated. In fact, with several thousand real estate agents all working for XYZ Brokerage, it’s unlikely that they had even met, so they can very easily act for their own client.
Brian Madigan LL.B., Broker