If you’re thinking of buying a home in Canada, you must be familiarized with the different types of real estate transactions and how they work. In particular, the polemic dual agency should be on your watch list. A dual agency situation might be beneficial since it can save time and potentially simplify selling or buying a home. However, you should be aware of the risks associated with dual agency before placing an offer for one of the homes for sale in Toronto, or listing a condo in the British Columbia real estate market.
Dual agency is a common practice in most of the United States, but is it allowed in Canada? This post will explore dual agency in Canada and provide helpful tips for the home buyer and seller to avoid conflict of interest while working with a single agent or brokerage.
What’s Dual Agency In Canada?
Dual agency, also known as dual representation or multiple representation, is a real estate term that describes a situation where one or two agents from the same brokerage represent both the buyer and seller in the same real estate deal. Because a single legal entity conducts the transaction, a potential conflict of interest is an inevitable risk. This might lead to neither the home buyer nor the seller feeling like they are receiving a complete, disinterested fiduciary service.
Evolution Of Dual Agency In Canada
In the past, real estate agents in Canada understood their area very well and mostly worked in a particular geographic location. When the location was distant or rural (both pretty frequent), a scarce number of transactions normally took place every year, and very few agents earned a living in the local real estate sector. Under those circumstances, the dual agency was not only understandable but an actual necessity.
In other situations, one or two real estate agents opted to specialize in a determined region or area and ended up dominating the business in the nearby communities. Because these brokers would typically form close and mutually beneficial relationships with the community members, they would frequently be involved in neighbourhood real estate deals on both the buyer’s and seller’s sides.
Rooted in years of tradition and custom, the business model of dual agency was apparently successful until the press uncovered how certain unscrupulous brokers were putting their earnings ahead of their clients’ interests. As a result, several provincial governments investigated and questioned the legitimacy of real estate deals with dual agency agents.
At the present day, only the provincial governments of British Columbia and Ontario have taken action to prohibit or severely limit dual agency in real estate transactions, although more jurisdictions may do so in the future.
Why Is Dual Agency So Problematic?
There are two main reasons why dual agency is problematic. Let’s dig deeper into each of them:
Conflict Of Interest
In a single agency transaction, the buyer’s agent and the listing agent receive a commission from each party they represent during the transaction. In most of Canada’s jurisdictions, that commission ranges between 3% and 7% of the purchase price (minus the brokerage fees), translating into several thousands of dollars in Canada’s hot real estate market.
However, in a dual agency situation, a single agent represents both parties, meaning they will earn a double commission, one from each of those parties. That potential financial incentive for a dual agent may create a conflict of interest. The agent may be tempted to advise against suggesting the highest price for the seller and the lowest price for the buyer.
There’s an increasing risk that the agent may prioritize their potential earnings before the buyer or seller’s needs and, as a result, omit crucial information that might negatively influence the overall deal.
Limited Advice & Information disclosure
The agent (or agents) involved in a dual agency situation is still expected to give complete and ethical service to both the buyer and seller. As expected, the advice this agent may traditionally offer their client may be limited by being tasked with representing both parties.
For example, if a buyer’s agent discovered that the property seller is putting the house up for sale because the family has to relocate for work, they would most likely advise their client to make a competitive offer.
But suppose the same agent was representing both the buyer and the seller. In that case, they couldn’t tell their buyer client about the seller’s intentions being time-critical without incurring a breach of their fiduciary duty to the seller by disclosing confidential information. At the same time, the buyer is missing out on proper and advantageous advice from their agent.
Can An Agent Represent Both Buyer And Seller in Canada?
The answer to this question depends on where the real estate agent is doing business. In Canada, each province handles dual agency differently. However, most provinces do allow the multiple representation situation under specific conditions. In most cases, the buyer and seller must be informed of the implications of working with a dual agent and accept to be part of the process by signing an agreement.
There are only two provinces that have strict regulations against the practice of dual agency. British Columbia prohibited dual agency in 2018, but there is an exception that real estate professionals may use in certain situations.
The Ontario provincial government has also safeguarded consumers from a few unethical real estate professionals. The Real Estate Business Brokers Act (REBBA) was updated in 2017 to double the fines (from $25,000 to $50,000) for brokers with unethical behaviour. They also increased brokerage penalties to a maximum of $100,000 per infraction.
What Can Buyers And Sellers Do
Thousands of dual agency transactions are carried out across Canada each year, with the agent providing excellent guidance and maintaining professional ethics. Even though conflict of interest is always possible, not all dual real estate agents are unethical or dishonest. If you are considering a dual agent for a real estate deal, these tips can help you out:
- If the dual agency relationship is unavoidable, it’s a good idea to hire an independent legal counsel or representation. Go for a real estate lawyer or a notary specialized in those transactions.
- Information is power. If you decide to work with a dual agent or with two agents that work for the same brokerage or firm, make sure you know everything about the process, how they will be handling it, and what measures are they putting in place to prevent a potential conflict of interest.
- In jurisdictions where dual agency is allowed, the agent and brokerage must adhere to certain rules and standards. One of those rules is that they must inform the clients of the dual agency situation and its implications as soon as possible. The relationship should be accepted by both parties in writing.
- Therefore, no one can be forced to participate in a dual agency relationship. If either the buyer or the seller refuses to consent to multiple representation, the brokerage must allow one or more clients to select alternate representation with another firm or agency.
