March 5th - 2013

Duty of care to clients and customers

The difference between a client and a customer is a crucial one in real estate.

The difference between a client and a customer is a crucial one in real estate.

As a registrant, it is vital for you to understand this difference, as well as the duties of care that a brokerage and its representatives owe to each.

“The key difference is from the point of view of consumers,” says Brian Hoffman, an instructor at the Ontario Real Estate Association. “They must know up front what our obligations as REALTORS® are to them and what services we provide. If they are our clients, we will look after their best interests, but if they are customers, we aren’t obliged to provide that same level of service because the duty of care to clients trumps the duty to customers.”

A duty of care is defined as the obligation owed to clients and customers, as established by an objective standard. Your level of obligation to these two groups is different, particularly as it relates to the representation agreement.

For clients, the duty of care involves everything that is done (or ought to be done) by the agent (i.e., the brokerage). A relationship is established through a representation agreement. As such, the brokerage owes the client fiduciary obligations under agency/common law, and regulatory obligations, as set out in the Real Estate and Business Brokers Act, 2002, and associated regulations.

For customers, your duty of care is more limited due to the absence of a representation agreement. However, a customer may enter into a service agreement with a brokerage. The duties owed to customers include honesty, providing accurate information and responding to questions and performing functions to which the brokerage has agreed.

“We don’t have the same obligation to respect confidentiality with a customer that we do with a client,” says Hoffman, a Thornhill REALTOR® who has worked in the field for 30 years.

“If a customer inadvertently reveals something to me, he may not realize that this could hurt his interests because I must provide full disclosure to my client. For example, if a customer tells me his motivation, he may not know that I’m obliged to share details with my seller because I’m representing my client’s best interests. A customer should limit what he tells me. If he then wants to make an offer on my seller’s property, I’m representing the client’s best interests, not the customer’s.”

The relationship with the consumer should be established and clarified from the start, says Hoffman. “It’s vital to address this right off the bat and explain in detail the difference between client and customer,” he says. “People must understand our obligations and duties and the services we provide. If they are a client, we will look after their best interests, but if they are a customer we aren’t required to give that same level of service and they should understand that.”

Note that two duties are owed to both clients and customers: (1) exercising care and skill, and (2) ensuring honesty.

You as a REALTOR® have general and fiduciary obligations to clients. The general obligations owed to clients are as follows:

  1. Exercise care and skill: have the requisite knowledge and skills; provide complete and accurate information; recommend relevant experts, where applicable
  2. Negotiate favourable terms: advance the client’s interests by assisting in negotiations; draft favourable terms and conditions for agreements arising from the negotiations
  3. Maintain confidentiality: maintain confidentiality regarding all matters (e.g., client’s personal information, client’s motivation for buying/selling, and the amount to be paid or accepted during negotiations)
  4. Disclose information: disclose information pertinent to the client (e.g., actual or potential conflicts of interest); disclose matters relating to the transaction
  5. Ensure honesty: demonstrate honesty of intent in all dealing
  6. Act in person: perform duties personally, unless otherwise instructed
  7. Obey instructions: obey the client’s instruction, unless it’s not lawful (e.g., the client asks you to create a misleading advertisement regarding the property)
  8. Perform mandate: perform the mandate as set out in the representation agreement; act only within specified authorities; seek clarification if you are uncertain about said authorities.

The fiduciary obligations owed to clients are as follows:

  1. Maintain utmost loyalty: the client’s interests come first and are best achieved in single representation (i.e., you represent the interest of only one party to a transaction)
  2. Avoid conflicts of interest: be aware of situations that may lead to conflicts of interest, such as: representing two or more clients at the same time (multiple representation); acquiring the client’s property; selling your own property to the client
  3. Disclose conflicts: disclose any personal or third-party interests that do or might conflict with the client’s interests; disclose the exact nature and extent of the conflict(s), in writing and signed by the client
  4. Do not make secret profit: do not make a profit at the client’s expense (e.g., providing improper advice, accepting payment from another party without the client’s knowledge and written consent)
  5. Do not misuse confidential information: do not use confidential information (e.g., confidential details about the client, the property, and/or the transaction) for your own interests, to harm the client, or to interfere with the client’s endeavours.

The Real Estate Council of Ontario has produced a video on representation that addresses these issues.

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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