Unit 5: Consumer Relationships

Unit 5 - Consumer Relationships

• This unit explains the different types of relationships between consumers and real estate professionals.

• It emphasizes the importance of clarity regarding the roles and responsibilities of real estate professionals.

• It covers the process for establishing role clarity and consistency for consumers.

• The unit explains the difference between representation and non-representation relationships.

• It stresses the importance of actions aligning with the consumer's chosen relationship type.

• It identifies and discusses in detail the specific responsibilities in a representation relationship.

• It addresses conflicts of interest, which occur when client interests conflict with other clients' or the brokerage's interests.

• It covers a process for managing conflicts of interest in general.

• The discussion leads to conflicts of interest in brokerages practicing agency under common law.

• It discusses designated agency and its specific conflicts of interest.

• Finally, it discusses transaction brokerage for modifying agency responsibilities to manage conflicts in both common law and designated agency practices.

Session 1 – Real Estate Relationships

• Common Law: In most of Canada, laws are made by the government and the courts.

  • Statute Law: Laws passed by federal or provincial governments.

  • Common Law: Laws made by courts based on precedence (previous decisions on similar matters).

• Common law determines responsibilities in business relationships, including those between real estate professionals and consumers.

• Real estate brokerages are the only entities authorized to trade in real estate.

• Responsibilities set out in common law are between the brokerage and the consumer.

• Real estate professionals take on these responsibilities when acting on behalf of the brokerage.

• The specific responsibilities and services are determined by the type of real estate relationship.

• Two types of real estate relationships:

  • Non-representation Relationship

  • Representation Relationship

• Non-Representation Relationships

  • A real estate professional works with a party but does not act on their behalf (customer).

  • A customer is someone who has contacted but not engaged a real estate professional.

  • Responsibilities to customers are limited to providing factual information (e.g., property details, market data) and administrative support (e.g., drafting offers).

  • Real estate professionals cannot provide advice or opinions or advocate on behalf of customers.

• Representation Relationships

  • A real estate professional acts for one of the parties (client) on behalf of the brokerage.

  • A client can be a buyer, seller, tenant, or landlord.

  • Responsibilities vary based on whether working with clients or customers.

Role of Real Estate Professionals and Relationship Disclosures

• Real estate professionals must ensure their role is clearly understood by consumers.

• This includes confirming consumers understand the responsibilities and services associated with each type of real estate relationship.

• Making Relationship Disclosures: Real estate professionals must disclose the types of possible relationships.

  • Written disclosure provides proof and clarifies understanding, especially in disputes.

  • Disclosure should be made when first approached by consumers interested in establishing a real estate relationship.

  • Written disclosure must be timely which means it occurs before consumers are led to believe that a representation relationship exists and before any potential conflicts of interest arises.

  • Timely disclosure allows consumers to consider their choice of relationship.

• Written disclosure is not required when:

  • A consumer attends an open house.

  • A consumer reveals their price range, location preferences, or property styles.

  • A consumer asks general questions with factual answers.

• Written disclosure is needed when a real estate professional receives or is about to receive confidential information, such as real estate needs, motivation, or financial ability.

• Written disclosures must include:

  • Whether the real estate professional already represents another party in the transaction.

  • The services to be supplied to the consumer.

  • Any conflicts of interest.

  • Any additional facts or information that may influence the consumer's decision.

• Documenting Relationship Disclosures: Real estate professionals must try to obtain written acknowledgement from consumers after providing written disclosure.

• Residential real estate professionals must provide RECA's Consumer Relationships Guide to consumers.

• This guide helps to discuss relationship types clearly and consistently.

• Documenting Relationship Decisions

  • Customer Acknowledgement Forms: Used when a consumer chooses a non-representation relationship and when the real estate professional already represents a client in the transaction.

  • RECA has Customer Status Acknowledgement Forms for buyers and sellers on their website.

  • Written Service Agreements: Used when the consumer chooses a representation relationship.

  • These agreements document the relationship and are tailored to the area of practice (residential, commercial, property management) and services to be rendered.

• Acting Consistently: Real estate professionals must act in accordance with the established relationship type.

• It is possible to unintentionally create a representation relationship through actions, even if it wasn't intended.

Avoiding Unintended Relationships and 5 D's of Role Clarity

• Actions inconsistent with the established relationship can create an unintended relationship.

• In a non-representation relationship, real estate professionals must avoid actions characteristic of a representation relationship.

• Representation relationships are not automatically established through:

  • Conveying documents and/or providing general information.

  • Using terms like "client" or "customer".

  • Consumers using terms like "real estate agent" or "buyer's agent".

  • Consumers paying remunerations (commissions, fees) to the brokerage.

• The 5 Ds of Role Clarity And Consistency: RECA's memory tool for real estate professionals.

  • Discuss, Determine, Document, Disclose and Do.

  • Discuss the types of real estate relationship

    • Discuss non-representation and representation relationships.

    • Ensure disclosure occurs before or when confidential information is provided.

    • Disclose in writing to prove it was made. RECA's Consumer Relationships Guide must be used by residential real estate professionals.

  • Determine your representative capacity

    • Consumers determine the relationship type.

    • The decision should be informed by a complete disclosure and questions answered by the real estate professional.

    • If the real estate professional already represents one party in a transaction, the consumer's only option is a non-representation relationship.

  • Document your representative capacity

    • Document the relationship in writing.

    • Use customer status acknowledgement forms for non-representation relationships.

    • Use written service agreements for representation relationships.

  • Disclose your representative capacity

    • Disclose capacity (seller's agent, buyer's agent, etc.) to others involved in the trade.

    • Disclose before any confidential information is provided.

  • Do actions consistent with your representative capacity

    • Act and provide services consistent with the established relationship.

• Benefits of Role Clarity and Consistency

  • Complies with regulatory requirements

  • Enhances image of real estate professional

  • Prevents unintended real estate relationships

  • Clarifies responsibilities owed to consumer

  • Clarifies services to be provided to consumer

  • Reduces disputes with real estate professionals

Session 2: Non-Representation Relationships

• In a non-representation relationship, a real estate professional works with a party but doesn't act on their behalf.

• The party not represented is called a customer.

• A customer is someone who contacted but hasn't engaged a real estate professional.

• Who Are Customers? There are 4 types of circumstances in which parties should be treated as customers:

  1. Consumer Represented with Different Brokerage

     • Parties represented by another real estate professional from a different brokerage must be treated as customers.

  2. Consumer Trades or Potentially Trades with Client of Brokerage

     • A party considering a trade with a client who is already represented by a brokerage must be treated as a customer.

     • A customer in one transaction can become a client in another if the real estate professional's brokerage isn't already representing the other party.

  3. Brokerage Client Trades with Other Brokerage Client

     • Conflict of interest arises when a brokerage represents multiple clients in a transaction with opposing interests.

     • Unless both parties agree to being represented by the brokerage simultaneously, one party must cease to be a client for that transaction and be treated as a customer.

  4. Consumer Wants to be Unrepresented in Trade or Potential Trade

     • Some consumers prefer to represent themselves and are willing to work with real estate professionals acting for the other party.

• Written Disclosure to Customers: Real estate professionals must ensure customers understand their role and make efforts to disclose it in writing.

• Written disclosure should include:

  • The customer forgoes a representation relationship and its protections, services, and advantages.

  • The real estate professional doesn't owe the customer responsibilities of a representation relationship.

  • The real estate professional won't provide confidential advice, services requiring discretion or judgement, or any advocacy or representation.

• Responsibilities To Customers: Real estate professionals have limited responsibilities to customers, known as general obligations.

• General Obligations to Customers and Standard of Care

  1. Exercise Care and Skill: Real estate professionals must exercise care and skill when working with customers.

     • The expected degree is that which would be considered usual and necessary for the real estate profession.

     • It's about reasonableness, how a knowledgeable, well-trained real estate professional would act in similar circumstances.

     • Competence involves possessing the necessary ability and knowledge to perform an action proficiently.

     • Real estate professionals shouldn't agree to provide services they can't perform.

  2. Act Honestly: Honesty is the refusal to lie, steal, or deceive.

     • This obligation extends to all activities performed while working with customers.

     • Statements, actions, and omissions must not mislead customers.

     • Claims and facts provided must be accurate.

     • If unsure about accuracy, express concern and indicate efforts to verify the information.

• Standard of Care for Customers: A legal concept establishing the attention and caution a reasonable person would exercise in similar circumstances.

• It's determined objectively, based on facts.

• Real estate professional's actions are compared to how a reasonable and prudent real estate professional would act.

• The standard of care is established using the following measures:

  • Professional Standards: Compliance with all applicable legislation (e.g., Real Estate Act) and RECA requirements.

  • Professional Norms and Practices: Conformity with the norms and practices of the real estate profession.

  • Expert Testimony: Information from other real estate professionals or experts on the expectations of a reasonable and prudent real estate professional.

• Failure to meet the expected standard of care may result in RECA sanctions and/or legal action.

• Meeting the Standard of Care: Real estate professionals can ensure they meet the standard of care by:

  • Being a lifelong learner

  • Seeking advice when appropriate

  • Being aware of market/practice issues

  • Making reasonable efforts to confirm information

  • Exercising due care preparing documents

Incurring Liability and Preventing Unintended Client Relationships

• Real estate professionals may become liable to customers for damages if they fail to meet their general obligations.

• Three situations in which a real estate professional may become liable to a customer:

  • When the real estate professional fails to disclose his or her role in a real estate transaction

  • When the real estate professional acts, but no authority has been granted for the action

  • When the real estate professional causes a tort (commits a civil wrong)

• Failure to Disclose: Real estate professional may be held responsible for misleading a customer into thinking that he or she is interested in trading property.

  • Can be avoided with proper written disclosure.

• No Authority: If a real estate professional enters into an agreement with a customer on a client's behalf but the client hasn't authorized it, the real estate professional may be held responsible for the misrepresentation.

• Causing a Tort: A real estate professional is responsible for torts caused to a customer.

  • A tort is a civil wrong arising from the assumption that a party must adhere to a standard of care.

  • Torts relate to omissions (failing to do something) or commissions (doing something that shouldn't have been done).

  • The wronged party believes they've been injured.

• Services That May Be Provided To Customers and Services That May Not Be Provided To Customers.

  • In general, real estate professionals only provide services to customers that advance the interests of their clients.

• Services that may be provided:

  • Providing statistics and information on comparable properties and the local real estate market

  • Providing standard forms and agreements

  • Complete standard forms and agreements as per the customer' s instructions

  • Providing the names of several other licensees and/or service providers without recommending one in particular

  • Deliver offers and counter-offers to and from the client and customer in a timely manner

  • Communicate information the customer wishes to convey to the client in a timely manner

  • Keep the customer informed regarding the progress of the real estate transaction

• Real estate professionals must take care not to provide services to customers that would change a non-representation relationship into a representation relationship.

• Services that may not be provided:

  • Any confidential advice (e.g., a real estate professional cannot advise a customer on the best course of action to take in relation to a trade or potential trade in real estate)

  • Any services that require exercising discretion or judgment

  • Any services involving advocacy or representation (e.g., a real estate professional must not act in a customer's best interests).

• Preventing Unintended Client Relationships: While working with customers, real estate professionals must be careful not to let a non-representation relationship develop into a representation relationship.

• To ensure that customers do not become clients, real estate professionals should follow the Ds of Role Clarify and Consistency

Session 3: Representation Relationships and Agency

• Representation Relationships and Agency: The basis of all representation relationships is agency, a common law concept.

  • Agency is a legal relationship between two persons, where one (the principal) consents that the other (the agent) should act on his behalf, and the other consents to do so.

  • The party being represented is the principal.

  • The party acting on the principal’s behalf is the agent.

  • A third party exists outside the relationship between the principal and agent.

• In real estate:

  • Client instead of Principal: A principal in a representation relationship with a real estate professional is referred to as a client (seller, landlord, buyer, or tenant).

  • Real Estate Professional instead of Agent: A brokerage establishes a representation relationship with a client and engages real estate professionals to act on its behalf.

  • Real estate professionals are essentially agents of agents.

  • Customer instead of Third Party: A third party is referred to as a customer (seller, landlord, buyer, or tenant).

• Authority: Representation relationships are found in many professions where professionals represent other parties in negotiations and transactions.

Types of Authority

• There are 3 types of authority:

  1. Express Authority: Describing actions orally or in writing that an agent may take on behalf of a principal.

  2. Implied Authority: Every agent has implied authority to do anything related to carrying out an express authority.

  3. Customary Authority: A widely accepted way of behaving or performing an action.

     • Agents may act in accordance with the 'customs of trade' without express authority if those customs are lawful, reasonable, and not prohibited by the principal.

Limits on Authority

• An agent must have express authority from a principal to act in certain capacities:

  1. Capacity to Contract: An agent must have express written instruction from the principal granting the authority to enter into a contract.

     • The instruction should be specific regarding the conditions under which the agent is permitted to contract.

  2. Capacity to Delegate: An agent may delegate responsibilities owed to a principal to another agent as long as the principal has given express written authority.

     • The original agent must ensure all responsibilities are fulfilled.

  3. Capacity to Incur Expenses: Agents cannot incur expenses on behalf of a principal or seek reimbursement without express written authority.

Elements of Representation Relationships

• There are generally 5 elements in all representation relationships:

  1. Creation of Law: Whether a representation relationship exists is determined by the courts based on the actions taken by the parties.

  2. Consensual: Representation relationships are formed and exist with the consent of both the principal and agent.

     • Consent can be written, verbal or implied by the conduct of the principal and agent.

  3. Controlled By Principal: An agent must always obey the lawful instructions of the principal.

  4. Usually Involves Fiduciary Duties: A fiduciary duty is a legal duty requiring an agent to always act in the principal's best interest.

  5. Affects Principal's Legal Position: A principal is legally liable for the actions taken by an agent acting on his or her behalf so long as the agent acted within the scope of authority that was granted.

Establishing A Representation Relationship

• Representation relationships are established by the actual or perceived actions of a principal and an agent.

• Both parties must give their consent.

• In general, representation relationships are established as follows:

  • By agreement

  • By implication

  • By ratification

  • By estoppel

  • By operation of law

By Agreement

• Most representation relationships are established by express agreement (orally and/or in writing).

• Oral Agreements: Creates risk for real estate professionals because there is no way to prove that the required disclosures were made. It also doesn't allow for demonstration that the client understands the real estate professional's role and services.

• Written Agreements: In the real estate profession, representation relationships typically must be established through a written service agreement between a brokerage and client.

• Real estate professionals fulfill the responsibilities and services the brokerage has agreed to provide as per the written service agreement.

• Using written service agreements has the following benefits for all parties in the representation relationship:

  • Ensuring that the real estate professional has made the disclosures required under the Rules

  • Providing the client with clarity as to the real estate professional 's role and responsibilities

  • Helping the client to know specifically what services are to be provided

  • Describing how the brokerage will be compensated for the services provided

  • Providing clarity as to what was agreed between the parties if a dispute should arise

Exclusive and Non-exclusive Representation Relationships

• RECA requires that agreement establishing exclusive representation relationships must be documented in writing.

  • An exclusive representation relationship gives a brokerage the sole right to represent a client.

  • A client can have multiple exclusive representation relationships with different brokerages

• RECA requires non-exclusive representation relationship to be established through written agreements for all areas of practice except commercial real estate.

  • Non-exclusive representation relationships allow multiple brokerages to act on behalf of a client; clients are not bound to only one particular brokerage.

By Implication

• A representation relationship can be implied by the conduct of the parties involved.

• If one party implicitly authorizes another to act on their behalf, and the other party accepts this authority, a representation relationship has been established.

• If a representation relationship is created by implication between a real estate professional and a party to a real estate transaction, the real estate professional has effectively contravened the Rules for failing to disclose their role and ensure their role is understood.

• As a result, the real estate professional could be subject to sanction by RECA.

By Ratification

• A representation relationship is established by ratification when an agent acts without authority or in excess of the authority that has been granted.

• Representation relationships should not be created by ratification in the real estate profession.

• If a representation relationship is created by ratification between a real estate professional and a party to a real estate transaction, the real estate professional has effectively contravened the Rules for failing to disclose their role and ensure their role is understood.

• In addition, a representation relationship created by ratification means that the real estate professional acted without, or in excess of, the authority that has been granted, and this conduct also contravenes the Rules.

• As a result, the real estate professional could be subject to sanction by RECA.

By Estoppel

• A representation relationship arises by estoppel when a principal acts in a way that leads a third party to believe that an agent has been given authority to act on behalf of the principal.

• However, the agent has not consented to the creation of a representation relationship with the principal and may not even be aware that the principal has suggested a representation relationship exists.

By Operation of Law

• A representation relationship is established by operation of law when an agent takes immediate action to save the property of or prevent imminent danger to, a principal.

• Representation relationships established by operation of law do not require consent to be given by either the agent or principal.

• In addition, these representation relationships only exist for as long as it takes to resolve the situation.

• Responsibilities to Clients: In a representation relationship, the agency responsibilities of a real estate professional to a client are categorized into the following groups:

  • General obligations

  • Fiduciary duties

• General Obligations: In a representation relationship, there are eight general obligations that real estate professionals owe clients. These general obligations are as follows.

  • Exercise care and skill

  • Act honestly

  • Negotiate favourable terms

  • Maintain confidentiality

  • Disclose information

  • Act in person

  • Obey lawful instructions

  • Perform mandate
    Note: the first two have already been discussed in a previous section

Negotiate favorable terms

• Real estate professionals must assist clients with negotiating contracts that include the most favorable terms and conditions possible.

• This means that real estate professionals are responsible for doing everything reasonably expected of a knowledgeable and well-trained real estate professional to help clients sell, buy, lease, or rent property under the best terms and conditions.

• A contract is a binding agreement enforceable by the courts that is made between parties to do or refrain from doing a lawful and genuinely intended act in exchange for something of value.

• Terms are the essential details of a contract and represent a shared understanding between the parties (e.g. purchase price, possession date).

• Conditions make a contract subject to the fulfillment of certain actions and must include a specified time after which they expire (e.g. property inspection, obtaining financing).

• If the conditions included in a contract are not met, the contract cannot proceed.

Maintain confidentiality

• Real estate professionals must maintain confidentiality regarding all matters that could adversely impact clients or in any way undermine a client’s position in a trade or potential trade in real estate.

• All information received from a client or obtained as a result of representing a client must be kept confidential.

• Common examples of confidential information include the following:

  • The motivation of an owner /landlord for selling/leasing a property

  • The motivation of the buyer/tenant for purchasing/leasing a property

  • The price for the property that a seller will accept

  • The price for the property that a buyer will pay

  • The existence of offers received by a client

• Brokerages must also ensure that all of their real estate professionals and administrative staff are familiar with and consistently follow the information protection policies and procedures that have been put in place.

• The obligation of real estate professionals to maintain confidentiality surpasses termination of the representation relationship (i.e. the written service agreement terminates, the real estate transaction completes).

Disclose information

• Real estate professionals have an obligation to disclose to clients all information pertinent to the representation relationship and all matters relating to a real estate transaction.

• The clients determine what information is pertinent and of interest to them.

• It is not up to real estate professionals to decide what information is or is not relevant to clients and thus, should be disclosed.

• In addition, disclosure must be timely.

• This means that the disclosure must be made in advance of the client having to make a decision.

• The consequences for real estate professionals who do not make full disclosure to clients can be significant and may include the loss of commissions, a finding of conduct deserving of sanction by RECA, and/or the commencement of legal action against the real estate professional and the brokerage.

• The obligation of full disclosure continues until the representation relationship is terminated.

Act in person

• Real estate professionals must personally perform the activities required of them for a trade or potential trade in real estate.

• Therefore, unauthorized assistants and administrative staff for a brokerage cannot carry out activities that require a licence.

• Furthermore, the Rules restrict real estate professionals to trading in real estate only in the name that appears on their licence and only on behalf of the brokerage with which they are registered.

• A brokerage may delegate its agency responsibilities to another brokerage, so long as the client gives their informed consent in writing.

• In the Rules, the brokerage to which the agency responsibilities are delegated may be referred to as a sub-agent.

• Sub-agents act under the control of the original brokerage.

• The original brokerage maintains accountability for the agency responsibilities it delegates to a sub-agent.

• In addition, the sub-agent cannot exceed the authority granted to the original brokerage.

Obey Lawful instructions

• Real estate professionals are obligated to strictly follow clients' lawful instructions, regardless of whether they agree with them or not.

• In the real estate profession, lawful instructions are any instructions that are reasonable and ordinary under the circumstances.

• Real estate professionals have an obligation to refuse to carry out the instructions of clients when those instructions are unlawful.

• Examples of unlawful instructions include the following:

  • To forge the signature of a client

  • To provide false or misleading information

  • To access a property without a licence

  • To contravene the Act or other legislation

  • To create false or misleading documents

  • To not disclose a known material latent defect.

• A material latent defect is a defect that cannot be discerned through a reasonable inspection of the property

Perform mandate

• A mandate can be defined as a licence to act in a particular way.

• A real estate professional' s mandate is to act on behalf of a client in a trade or potential trade in real estate.

• The extent of a real estate professional's mandate is determined by the services that are to be provided to the client.

• Examples of mandates given by clients to real estate professionals include the following:

  • Finding a buyer/tenant for a seller’s/landlord’s property

  • Finding a property or properties for a buyer/tenant

  • Providing advice related to the sale, purchase, lease, or rental of property

  • Researching land use designations, land use bylaws, and/or subdivision issues

  • Holding and/or administering trust funds

  • Drafting and/or procuring documents for real estate transactions

Fiduciary Duties

• A fiduciary duty is always a legal duty requiring a real estate professional to act in the client's best interests.

• Fiduciary duties arise in a representation relationship between a client and real estate professional because the client is in a position of vulnerability and trusts that his or her interests will be protected by the real estate professional.

• Fiduciary duties are owed by real estate professionals as soon as they receive confidential information from clients.

Fundamental Principles of Fiduciary Duties

• A representation relationship that includes fiduciary duties is based on 3 fundamental principles. These principles are as follows:

  • Trust and Confidence: The key factor for determining if a representation relationship gives rise to fiduciary duties is whether the client places trust and confidence in the real estate professional and as a result, relies on the advice that is given by the real estate professional. In relying on the advice given, the client becomes dependent and vulnerable to the real estate professional

  • Best Interests: In a representation relationship that involves fiduciary duties, the real estate professional must at all times act in the client' s best interests. A real estate professional must never permit personal interests or the interests of another party to take precedence over the interests of the client.

  • Loyalty: The focus of any representation relations hip that gives rise to fiduciary du ties is loyalty. A real estate professional must ensure that the client's best interests are served and always take priority over personal interests or the interests of another party.

• The three fundamental principles are the basis of the six fiduciary duties. The six fiduciary duties that may apply to real estate professionals when representing clients are as follows:

  • Utmost loyalty

  • Avoid conflicts of interest

  • Disclose conflicts of interest

  • Not make secret profits

  • Handle confidential information properly

  • To account

Utmost loyalty

• Utmost loyalty always requires one party to be faithful and committed to another party.

• This means that real estate professionals must always focus on the client’s interests

Avoid Conflicts of Interest

• A conflict of interest is a real or apparent incompatibility between a licensee's interests and the interests of the client.

• In general, conflicts of interest arise in the following 3 types of circumstances:

  • Competing Interests: When the interests of clients represented by the same brokerage compete with each other regarding a real estate transaction or potential transaction (e.g. 2 buyers attempting to purchase the same property).

  • Opposing Interests When the interests of clients represented by the same brokerage oppose one another in the same real estate transaction or potential transaction (e .g. a seller wants to get the highest price for the property while the buyer wants to pay the lowest price for the property).

  • Brokerage Interests When the interests of the brokerage are at odds with the interests of a client of the brokerage.

    • Conflicts between the interests of the brokerage and the interests of a client of the brokerage can be direct (e.g. a real estate professional registered with the brokerage wants to purchase the property of a client of the brokerage) or indirect (e.g. a brokerage has a business relationship with a real estate lawyer who wishes to purchase the property of a client of the brokerage).

• Following the 5 Ds of Role Clarity and Consistency help real estate professionals to avoid and prevent conflicts of interest from creeping into a real estate transaction.

Disclose Conflicts of Interest

• Real estate professionals must be able to recognize circumstances that give rise to unavoidable conflicts of interest and provide their clients with full disclosure.

• Circumstance when conflicts of interest cannot be avoided include the following:

  • When real estate professionals have pre-existing representation relationships that gives rise to conflict of interest. For example, a brokerage enters into a representation agreement with a retail property owner who is trying to lease space. The brokerage also enters into a representation agreement with a retail business owner looking for pace to lease.
    Sometimes later, the retail business owner becomes interested in leasing the space of the retail property owner, which gives rise to a conflict of interest

  • When client seek service that give rise to conflicts of interest with the interest of the brokerage, including those of the real estate professionals registered with the brokerage.
    For example, a real estate professional practicing property management advises a client that her husband's lawn care company offers the best service and best rates. Failing to advise the client of the possibility of a conflict of interest if he selects her husband’s company is a breach of the real estate professional's duty to provide the client with full disclosure regarding conflicts of interest.

• All disclosures concerning conflicts of interest should be provided in writing.

• Failure to be able to demonstrate that disclosure of a conflict of interest was made and consent from the client was obtained can result in loss of commissions, sanctions by RECA and/or legal action against the real estate professional and the brokerage.

Not Make Secret Profits

• A secret profit involves a real estate professional receiving remuneration or other compensation from a party other than the client without the client's knowledge or informed consent.

• Real estate professionals are prohibited from making secret profits.

• As a result, real estate professionals must disclose to their clients any instances where another party offers them remuneration or other compensation.

• In the real estate profession, secret profits can arise in various situations, including the following:

  • When a client relies on the advice given by a real estate professional: Clients place their trust and confidence in real estate professionals and as a result, rely on the advice that is given to them by real estate professionals. In relying on the advice given, clients become dependent and vulnerable to real estate professionals. As a result, some real estate professionals may attempt to profit from their clients’ vulnerability.

  • When a real estate professional makes a referral: Making referrals in exchange for remuneration or other compensation is a common business practice in the real estate profession. The Rules define a referral as ‘the act of recommending or directing a person for service, assistance, or business to another person or business.’ There are two types of referrals that real estate professionals can make based on the type of remuneration or other compensation they receive. The two types of referrals are as follows:

    • Direct Referrals. A real estate professional receives a fee for referring a client to a particular licensee or service provider

    • Indirect Referrals.

• A real estate professional is able to enhance a business relationship they have with another party by referring a client to that party (e.g. a real estate professional recommends his clients use a specific lawyer for their real estate transaction because the brokerage office is located in a building owned by the lawyer).

• Pursuant to the Rules, real estate professionals must always make disclosures to clients regarding referrals in writing.

• In addition, real estate professionals must retain a copy of the disclosure and provide it to the brokerage for its records.

• A disclosure related to a referral must include the following:

Referral Disclosure Contents

*   Who is providing the remuneration or other compensation?
*   How the remuneration or other compensation could affect the real estate professional's  ability to act in the best interests of the client. 
*   The amount of the remuneration, including the formula for its calculation, or adescription of  the other compensation
*   The client ' s options, including disallowing the real estate professional from collecting the

remuneration or other compensation

Handle Confidential Information Properly

• All information about a client is confidential information. Real estate professionals who have been entrusted with confidential information have a duty to handle that information properly.

• In the real estate profession, handling confidential information properly has 2 components:

  1. Keep Client Information Confidential: Real estate professionals must keep a client's information confidential unless the client gives his or her consent to disclose the information or disclosure is required under the law. This applies even if the information appears to be harmless and/or of little importance.

  2. Use Clients' Confidential Information Properly: Real estate professionals must only use confidential information for promoting the best interests of the client to whom the information belongs. A client's confidential information must never be used for anything beyond the purpose for which it was collected without first obtaining the informed consent of the client.

To Account

To Account

• Real estate professionals must be able to strictly account for all money, documents, and other property that has been entrusted to them by clients.

• Real estate professionals must safeguard any client property that has been entrusted to them and must keep this property separate from their own property. A failure to properly account for client property is one of the most frequent areas of complaint received by RECA

Terminating Representation Relationships

• Representation relationships can be terminated in a number of ways:

• Performance

• Agreement

• Frustration

• Operation of Law

• Breach

Performance

• A real estate professional has fulfilled the obligations of the service agreement they have with the client

Agreement

• A client and a real estate professional may agree to terminate a representation relationship before the agreement has expired when circumstances change.

• However, real estate professionals shouldn't encourage clients to terminate agreements to allow the real estate professional to enter into a representation agreement with another client or to pursue personal interests.

Frustration

• A representation agreement is frustrated when circumstances make it impossible for the real estate professional to fulfill its obligations under the agreement

• Examples include the following:

  • The client's property is destroyed.

  • The client is declared bankrupt

  • The real estate professionals license is suspended

Operation of Law

• A representation relationship is terminated through operation of law when one of the following circumstances occurs:

• A client or a real estate professional becomes incapacitated (i.e. death)

• The client's property is foreclosed on

Breach

• A representation relationship can be terminated when one party has breached a term or condition of the representation agreement

Session 4: Consequences of Breaching Representation Relationships

• Real estate professionals have obligations to clients that must be upheld to prevent sanctions by RECA and legal action

Breach of Contract

• When a real estate professional breaches an established representation agreement with a client, real estate professionals can face civil action through court

• Damages such as the award of lost profits or specific performance may be sought by the client through legal action

Negligence

• When a real estate professional commits an action or omission that results in financial loses for a client

• Negligence requires the following conditions to be met for legal action to proceed against real estate professional

  • The real estate professional owed a duty of care to the client

  • The actions or omissions of the real estate professional breached the standard of care

  • The client suffered some damages or losses

  • The real estate professional was the direct cause of the client' s losses

Fraud

• Fraud is an intentional act committed by a real estate professional that caused damages or losses to their client. The purpose of these fraud actions is to recover damages from the real estate professional

• Examples of fraudulent acts may include falsifying information, misrepresenting facts, or knowingly concealing defects to secure a sale

Conflicts of Interest in Common Law

• Occurs when client's interests conflict with other clients' or the brokerage's interests.

• Can arise from duties of loyalty, confidentiality, and full disclosure.

Identifying Conflicts

• Competing clients want the same property.

• Opposing clients in the same transaction (e.g., buyer vs. seller).

• Brokerage's interests conflict with client's (e.g., personal relationship).

Managing Conflicts of Interest

• Disclosure: Inform all affected parties in writing.

• Informed Consent: Obtain written consent to continue representation.

• Decline Representation: Withdraw from representing one or more parties.

• Impartiality: Remain neutral when representing multiple parties.

Example Scenario

• A real estate professional represents both the buyer and seller in a transaction without full disclosure and informed consent.

• The buyer offers less than the asking price, and the seller wants more.

• The real estate professional, due to their dual agency, fails to advocate effectively for either party, leading to a suboptimal outcome for both.

• This situation exemplifies a conflict of interest where the real estate professional's divided loyalty harms both clients.

Consequences of Failing to Manage Conflicts

• Legal repercussions, including lawsuits and damages.

• Sanctions from RECA, such as fines or license suspension.

• Reputational damage to the real estate professional and brokerage.

Session 5: Designated Agency and Conflicts of Interest

• Designated agency allows different real estate professionals within the same brokerage to represent different clients with competing interests.

• This model aims to provide better client representation while managing conflicts of interest.

How Designated Agency Works

• Each client has a designated real estate professional responsible for their interests.

• The brokerage implements policies and procedures to prevent the sharing of confidential information between designated real estate professionals and administrative staff.

• The designated real estate professionals owe full agency duties to their respective clients.

Conflicts in Designated Agency

• While it reduces conflicts, designated agency doesn't eliminate them.

• Situations where conflicts may arise:

  • Dual Agency: When the same real estate professional represents both buyer and seller.

  • Information Barriers: Failure to maintain confidentiality within the brokerage.

  • Imputed Knowledge: Knowledge of one real estate professional is attributed to others in the brokerage.

Managing Conflicts in Designated Agency

• Information Barriers: Establish strict policies to prevent information sharing.

• Training: Ensure all real estate professionals and staff understand their obligations.

• Supervision: Brokerages must supervise real estate professionals to ensure compliance.

• Disclosure and Consent: Inform clients about potential conflicts and obtain their consent.

Example Scenario

• A brokerage has two real estate professionals: one representing the seller and another representing the buyer.

• Despite information barriers, the buyer's real estate professional inadvertently learns that the seller is highly motivated to sell quickly due to financial difficulties.

• If this information is used to the buyer's advantage without the seller's consent, it constitutes a breach of confidentiality and a conflict of interest.

Consequences of Failing to Manage Conflicts

• Same as in common law agency:

  • Legal repercussions

  • RECA sanctions

  • Reputational damage

Session 6: Transaction Brokerage

• Designed to mitigate conflicts of interest between clients and agents primarily in common law agency and designated agency practices.

How Transaction Brokerage Works

• Involves a brokerage providing a limited range of services to both sides of the transaction (e.g., buyer and seller) without acting as an agent for either party.

• Transaction brokerages provide administrative support, facilitate communication, and ensure paperwork is completed accurately.

• They don't offer advice, advocate for either party, or negotiate on their behalf.

Benefits of Transaction Brokerage

• Reduces conflicts of interest by avoiding full agency duties.

• Allows both parties to receive necessary assistance without compromising loyalty.

• Simplifies the process for straightforward transactions.

Limitations of Transaction Brokerage

• Requires both parties to be self-sufficient and informed.

• May not be suitable for complex or contentious transactions.

• Parties forego the benefits of full representation and advocacy.

Implementing Transaction Brokerage

• Full Disclosure: Explain the role and limitations of transaction brokerage.

• Written Consent: Obtain written agreement from both parties.

• Impartiality: Maintain neutrality throughout the transaction.

• Limited Services: Provide only agreed-upon administrative and procedural support.

Using Transaction Brokerage in Common Law

• In common law agency, conflicts arise when a single agent represents both buyer and seller.

• Transaction brokerage can be used to transition from dual agency to a neutral role, providing limited services to both parties.

• The agent must cease acting as an advocate for either party and disclose all relevant information to both sides.

Using Transaction Brokerage in Designated Agency

• In designated agency, conflicts may arise if information barriers fail or if the same agent is designated for both parties.

• Transaction brokerage can provide a neutral approach in such cases, ensuring that both parties receive fair treatment without compromising confidentiality.

• The brokerage must ensure that designated agents do not share confidential information and maintain impartiality.

Example Scenario

• In a designated agency, the buyer's and seller's agents work for the same brokerage but are designated to represent their respective clients.

• The clients agree to transition to transaction brokerage to avoid potential conflicts.

• The brokerage assigns a neutral transaction facilitator who assists with paperwork, coordinates inspections, and ensures all legal requirements are met, without providing advice or advocating for either party.

Consequences of Failing to Properly Implement Transaction Brokerage

• Legal Disputes: Parties may claim inadequate representation or breach of duty.

• RECA Sanctions: Failure to disclose limitations or maintain impartiality.

• Reputational Damage: Loss of trust and future business opportunities.

Best Practices for Consumer Relationships

• Transparency: Disclose all potential conflicts of interest upfront.

• Informed Consent: Ensure clients understand the implications of their choices.

• Documentation: Maintain detailed records of all disclosures, agreements, and transactions.