January 7th - 2012

Whose side are you on anyway? Multiple representation is a complex scenario

Representing more than one party in the same deal is a challenging scenario in real estate.

Representing more than one party in the same deal is a challenging scenario in real estate.

One person, two different directions visual rendering of multiple representationThis situation is called multiple representation, and it occurs when your brokerage represents both buyer and seller (or more than one competing buyer) in the same transaction. It was formerly known as “dual agency” under the old RECO Code of Ethics, which has since been replaced by the Code of Ethics under REBBA 2002.

Multiple representation can be tricky because a brokerage’s loyalty is divided between buyer and seller (or between two buyers), who undoubtedly have opposing interests within a single deal.

Karen Pynn, an Ottawa salesperson, notes that due diligence is needed in multiple representation situations. “I believe in educating my clients on many aspects of real estate, and multiple representation is high on my list of things that need to be explained thoroughly,” she says. “It’s vital to be impartial in a multiple representation transaction, and I work hard to do just that.”

“Excellent material is available to us from OREA to help clarify our roles and processes for our clients,” adds Pynn. She notes that her brokerage requires her and her colleagues to present and explain to clients the contents of OREA’s Working with a REALTOR® brochure and to get their signatures on it. “The brochure spells out the basics and helps us explain representation to consumers, including multiple representation.”

Confidentiality is very limited under multiple representation, since the brokerage must treat both clients equally and impartially. In theory, a “pure” form of multiple representation means that everything known about a client by one registrant is deemed known by all others within that brokerage -- even those who are not directly involved in the deal. This is called imputed knowledge. The brokerage and all of its brokers and salespersons represent the client, so the underlying assumption is that all registrants within the brokerage share each other’s confidential client information. In practice, most brokerages put at least a few limits on complete disclosure so that some information remains confidential.

Either way, you must properly explain, document and obtain written consent from your clients on the multiple representation relationship, and you must adhere to the restrictions and disclosures. This is mandated and enforced by the Real Estate Council of Ontario.

Multiple representation can be problematic because brokerages and REALTORS® have a fiduciary relationship with their clients and must act in their best interests. When your clients are buyers and sellers in the same trade, those interests are opposing. This can be a concern if a conflict arises between the two parties.

If disputes involving legal issues emerge during the transaction, you should advise both parties to contact their respective lawyers immediately. You and your brokerage could be in a conflict of interest and should not provide advice in that situation.

As well, due to the potential for conflict of interest, the OREA Agreement of Purchase and Sale (APS) restricts the authority of the brokerage for the delivery and receipt of notices in multiple representation situations. In other words, instead of faxing or handing forms to another registrant within your own brokerage, you must convey the forms directly to and from the parties themselves, unless the APS states otherwise.

You as a broker or salesperson must be careful with multiple representation because the regulatory obligations and legal ramifications are extensive. In addition to complying with all regulatory requirements, registrants must ensure that clients are fully informed and understand the duty of disclosure by the brokerage and its registrants as well as limits on confidentiality.

Standard forms from OREA can help with documentation in cases of multiple representation, after the Working with a REALTOR® brochure has been explained and signed. Appropriate forms include: the Listing Agreement (Form 200); the Buyer Representation Agreement (Form 300); and the Confirmation of Co-operation and Representation (Form 320). These forms can help a registrant explain the few items which may remain confidential in a multiple representation arrangement.

Although the basic principle in multiple representation is that nothing is confidential and all information is shared, clients may alter that basic principle and agree not to disclose certain facts – in other words, limiting complete disclosure between clients.

Details you can agree not to share are: whether sellers might or will accept less than they’re asking; whether buyers might or will pay more than they’re offering; the motivation of the parties; personal information about the parties; advice on the price that a seller or buyer should accept or offer; or the terms of any other offer.

One way to avoid multiple representation is to have one party as your client and another as your customer. However, in that situation, both the REALTOR® and the customer must clearly understand the limitations of customer service, and the registrant’s words and actions must always be consistent with that arrangement. Otherwise, the brokerage and its REALTORS® could wind up in unintended multiple representation.

Most real estate transactions do not involve multiple representation, but it can work well if all guidelines are followed. Although there is a potential for conflict of interest, it rarely happens because of the disclosure required and because of the professionalism of REALTORS®.

Pynn believes that multiple representation can work -- with some provisos. “In this situation we should remain impartial and provide both clients with the same information, allowing the lawyers for both parties to review the contract,” she says. “My advice is to disclose, get consent, use the most up-to-date forms, keep copies of all correspondence, and above all, hold yourself to a high standard.”

To ensure consumer protection, REBBA 2002 and its regulations, including the REBBA Code of Ethics, cover multiple representation -- primarily through enhanced disclosure and consent requirements.

To learn more, check out the OREApedia topics on Multiple Representation/Dual Agency and the Confirmation of Cooperation and Representation on this website. Also look in Legal Forum under the topic of Agency, subtopic of Multiple Representation, for answers to common questions about multiple representation.

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