Let’s roll back the clock by 30 years or so!
Sub-agency was in full gear. Yes, there were indeed two agents in a real estate deal, but they both represented the Seller.
The Buyer’s agent represented the Seller as well as the Listing agent. Why? There was a sub-agency arrangement if they wanted to be paid. The Seller would actually pay both agents.
So, what that meant legally was the real estate agent that the Buyer thought was acting for them, was really just an extension of the Seller’s agent and would be paid by the Listing Brokerage.
Both agents owed fiduciary duties to the Seller and none to the Buyer.
That arrangement was in place for years until several Courts in various jurisdictions concluded that this was an absurd arrangement. In Ontario, it was Knoch Estate v. Picken (Jon) Ltd. et al., (1991) 49 O.A.C. 321 (CA), which decided the issue here.
Buyer’s Agency was born
This made sense. Let’s bring in Buyer’s Agency. Buyers can now have their own agents representing them. One little problem. Who is going to pay them? Well, let’s still leave that up to the Seller. The Seller’s agent will compensate the Buyer’s agent. This arrangement works well until we have two agents from one Brokerage office.
Who’s the Agent?
Technically, it’s the Brokerage. The sales people are just helping out. Actually, it’s the Brokerages who wanted this arrangement. This was designed to hold onto their role of importance in a transaction. This was to elevate the Brokerages beyond “Staples” and just making photocopies, providing paper and pens, and perhaps office space.
So, if there were two sales people working out of the same Brokerage and frequently, there could be 1,000 or more, then, this could be a problem going forward.
We could do the step down, so that both sales people simply become couriers carrying messages back and forth rather than negotiators. Neither party gets “good service”.
Sometimes, the Listing agent will have the potential Buyer contact them directly without an agent or walk into an Open House. There’s a solution here too! The second person, namely the Buyer could receive “low end” services. They could be a “customer” rather than a “client”. Here, all the fiduciary duties are owed to the Seller and none to the Buyer. The sales person here, gets to keep the entire commission themselves.
Thirty Years of Difficulties
So, over the years:
- No proper service for two parties, or
- One party gets proper service at the expense of the other.
TRESA: Potential Solutions
Under the new TRESA legislation, there are some potential solutions:
- “Customer service” will be eliminated,
- There will still be a lower level of service,
- Almost everyone will be a “client”, so that fiduciary duties will be owed,
- The actual sales people can act as “agents” rather than the Brokerage.
That was a very good potential solution, however, it’s important to note that under TRESA it was just “potential”.
There is a lower level of service and it’s now called “Self-representation”. A real estate agent can still help them out. This person must “sign off” on this arrangement.
If we run into a situation where the Brokerage is the agent on both sides of the transaction, then the Brokerage can shed this legal obligation by transferring it to each of the two sales people at the office. Yes, I do appreciate that most consumers always thought that was the case anyways, but technically Brokerages fought against that.
So, the solution here is “Designated Agency”. The Brokerage will appoint each of its two respective sales representatives as the “agents” of the Seller and Buyer.
No one else in the Brokerage owes any fiduciary duties to either party and the role of the Brokerage is restricted to supervision and compliance.
In essence, this proposal under TRESA should eliminate about 99% of the problems.
Brian Madigan LL.B., Broker