December 14th - 2009

Same agency rules apply for commercial, residential REALTORS®

It used to be the three most important rules in real estate were Location, Location, Location.

It used to be the three most important rules in real estate were Location, Location, Location. However, nowadays that adage has been replaced by Disclose, Disclose, Disclose. Although commercial real estate is an entity completely different than residential real estate, REALTORS® in both areas of the profession are still obligated under the same REBBA Code of Ethics.

The Code of Ethics identifies that real estate is a service profession where the consumer relies on the expertise of its members. In any transaction, consumers must be able to rely on the good word and knowledge of their representative.

Client or customer
Many real estate salespeople and brokers assume that if the person they are working with is not a client then the obligations to that person in large part disappear. Alternately, some incorrectly suggest that they have fiduciary responsibilities to their customer. While there is no fiduciary responsibility owed to a customer there are still professional, ethical and contractual expectations, such as:

  • acting fairly, honestly and with integrity
  • demonstrating reasonable knowledge, skill, judgement, and competence
  • disclosing any fact that would affect a reasonable persons decision to buy or sell an interest in real estate
  • not knowingly making an inaccurate representation about services.

As well as other obligations to customers set out in REBBA 2002 and the REBBA Code of Ethics.

An area of difference between customers and clients and one that poses potential difficulty is providing information and not advice. For commercial REALTORS®, a good example of this might be where someone has requested you assist him in finding office space. During the process this individual refuses to enter into a client relationship with you. As a result, when suitable space is finally found, and an Offer to Lease is being prepared, difficulty may arise. When asked what they wish to offer as a rent, this person asks your advice as to what would be an appropriate amount. If you respond to this question by offering a figure, you have begun to treat him as a client.

The consumer comes to the real estate salesperson or broker for their expertise. If the consumer chooses to be a customer then your ability to assist is limited. If you suggest specific amounts in this scenario, you are offering advice and that then translates into a client relationship.

OREA offers two legal pamphlets that would be helpful in dealing with customers. When the Buyer is a Customer, and When the Seller is not my Client can both be found in the Legal Forum & Resources - Legal Pamphlets section of the website.

Disclose, disclose, disclose
Section 10 of the Code is clear on the requirement to provide the buyer or seller with certain information regarding their potential relationship. It requires all REALTORS®, including Commercial REALTORS®, to disclose in writing the nature of the services you are providing, and encourages you to make that disclosure as early as possible in the relationship. It also encourages you to get acknowledgement, in writing, of that disclosure.

In a commercial scenario, consider an individual who has contacted you to help him or her find office space to lease, or for that matter, a commercial or investment property for purchase. Under the provisions of Section 10 it is mandatory to ensure that the individual understand the ramifications of entering into a business relationship with you. In order to accommodate the requirements as set out in the Code it is necessary to develop a system whereby you are disclosing all the different relationships possible.

It’s also important to understand that the conduct of a salesperson or broker is sufficient to create an agency relationship. The definition of agency recognizes that fact. The consumer brochures entitled “Working with a REALTOR®” and “Working with a Commercial REALTOR®” identify the various arrangements possible. The last page of the brochure allows for written acknowledgement of the disclosure.

Unlike a residential real estate transaction where you are usually dealing with a buyer and a seller, a commercial transaction may include a buyer, a seller, a landlord and/or a tenant. It’s important to set out the procedure for working with a client under the requirements of the REBBA Code of Ethics, and the laws of agency while still maintaining a practical approach.

The process begins with a meeting and discussion with a prospective seller, buyer, landlord or tenant. As soon as possible, it is necessary to establish the relationship in writing. If your prospect is a seller then you require a representation agreement (e.g. listing). If the prospect is a buyer or tenant who wishes to be a client, a representation agreement is also required. If you are representing the buyer and you do not want to enter into a representation agreement with the seller, (i.e. the seller is to be a customer) then a Seller Customer Service Agreement would be the way to go. Finally, if the prospective buyer or tenant wishes to be a customer, then a Buyer Customer Service Agreement is required.

Learn more about agency as it applies to commercial real estate in OREA’s Continuing Education course called Commercial Agency. For more information, visit www.orea.com or contact your local real estate board.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246