The subject of the last Realty-Wise was the significant real estate regulation changes introduced in Dec 2023. We discussed the overall objectives and guiding principles of the new legislation as well as digging a bit deeper into one of the higher profile changes: allowing “open” offers. But there are other, and perhaps more impactful, changes, governing how sellers and buyers formally interact with brokerages and agents.
As previously noted the government’s stated objective was to “strengthen consumer protection, better educate home buyers and sellers, and enhance professionalism within the real estate services sector.” Buying or selling a home is a complex combination of moving parts and legal doctrines, so a large portion of the new legislation aims to reduce the ambiguity and legal mumbo-jumbo that makes it difficult for most people to truly understand. By incorporating plain language in describing the nature of the relationship between industry practitioners and sellers and buyers, it’s hoped that there will be added clarity for everyone involved.
To start with, buyers can now designate themselves as “self-represented” meaning they have not engaged the service of an Agent to help them with a purchase. As such, they formally acknowledge that they alone are responsible for protecting their own interests and that the listing Agent can not provide them with any guidance or advice unless it specifically serves the interests of their client - the home seller. The related documentation goes on to detail examples of the information that a self represented party must determine on their own.
The paperwork also makes it clear that anything a self-represented party discloses to an Agent will be relayed to, and used by, the Agent’s home selling client to their own advantage.
So what? Why is this a big deal? Well before this new legislation there were 2 types of agreements that a brokerage/agent could sign with buyers. The first is a Client Service Agreement which provides the highest level of protection and prioritizes their interests. The second is a Customer Service Agreement where an Agent provides buyers with essentially administrative-type support (paperwork preparation) and only a limited amount of additional information and advice. The legal distinction between each of these two scenarios is significant and very hard to describe, and the paperwork involved usually just muddied the waters further.
By getting rid of this 2 tier approach to the potential relationships that can exist, the new rules definitely make it much more black and white: either you are or you aren’t - there’s no sort of.
The other main change to the way brokerage’s/agent’s interact with sellers and buyers is establishing Designated vs. Brokerage Representation. Previously when an Agent signed an agreement with a seller or buyer, the Brokerage and all of it’s other registered Agents were by default also automatically bound by that agreement. With the new rules, this situation - Brokerage Representation - is still an option. But now agents and their sellers and buyers also have the option to choose Designated Representation meaning it is ONLY the Agent who is solely and legally responsible for the relationship with the seller or buyer.
(Note: don’t be alarmed that it sounds like Brokerages are totally absolved of legal obligations towards clients under a Designated Representative relationship. There is other legislation in place that governs how brokerages must behave in their daily operations regardless of the individual client agreements. Brokerage vs. Designated Representation applies more at the individual property/transaction level.)
Again, so what? Why does this matter? It’s all about clarity and making it much easier for consumers to understand exactly who is on their side protecting their interests. This is particularly important with multiple representation situations. This is where the seller and the buyer are represented by the same Brokerage (or Agent) in the same transaction. Under the old rules and also now under Brokerage Representation this could very well be a regular occurrence. Consider that most brokerages have 100’s of agents and there are even some with 1,000’s making it quite possible that an Agent has a buyer for a home listed by another Agent from the same brokerage. In this case, a “Multiple Representation” relationship exists even if the two agents don’t even know each other. Not only does this not make a lot of sense, but it leads to a pile of extra legal restrictions and documentation, that for buyers and sellers is about as clear as mud to understand.
Under Designated Representation the above scenario does not result in Multiple Representation because only each Agent is solely responsible for the relationship with their client. Accordingly each agent can then clearly and easily provide the highest level of service to their respective clients free of restriction.
Whatever the case, what this does is define who is responsible for maintaining confidentialities and prioritizing a client’s interests, regardless of whether it’s only the Agent, or the Brokerage and it’s entire line up of registered agents. The new rules also tighten what is expected of brokerages and agents and give additional disciplinary powers to the provincial regulator when dealing with violations.
In the end, the new rules have gone a long way to making it easier for the industry to know exactly what their obligations are, or aren’t, and to explain to the consuming public what their options and obligations are. It’s not perfect, and may never be given the complexity of the subject matter, but it’s moving in the right direction.
Lee Lander is the Owner & Broker of Record of Lander Realty Inc. and has lived in East Gwillimbury for over 25 years. She’s become the go-to local market expert: nobody knows EG Real Estate like Lee because nobody buys and sells more homes in EG as Lee. Reach out at Lee@LeeLander.com.