Agency Relationships

WHAT IS AN AGENCY RELATIONSHIP

Agency is a legal concept and the root of all agent-client relationships. The law of agency describes it as a relationship where one party (the licensee) accepts responsibility for representing another party (the client) in dealing with a third party.

A licensee may or may not have an agency relationship with you. If you are a client, you are in an agency relationship; if you are an unrepresented party, you are not. The difference between the two relationships is that licensee and brokerage have a much higher level of responsibility to you if you are a client.

CLIENT RELATIONSHIP

As the client, the agency relationship exists between you and the brokerage under common law agency, or between you and the designated agent under designated agency. The essence of the agency relationship is that the brokerage has the authority to represent you as a client in real estate dealings with others.

Brokerages and designated agents are legally obligated to protect and promote their client’s interests. As a client, your licensee has the following duties to you:

• to protect and promote your negotiating position at all times;
• to disclose all relevant facts about a property or a transaction known to the licensee, including material latent defects;
• to obey your lawful instructions;
• to provide undivided loyalty;
• to act in your best interest;
• to keep your confidence;
• to exercise reasonable care and skill in performing all assigned duties; and
• to account for all money and property placed in their possession while acting on your behalf.

As a client, your licensee will also:

• explain real estate terms and practices;
• provide and explain forms used;
• identify and estimate service costs of other professionals involved in a transaction;
• assist you with negotiation;
• prepare offers and counter offers at your direction;
• present all offers promptly; and
• give you true (identical) copies of all agreements.

TWO AGENCY MODELS

There are two different agency models practiced by brokerages in Nova Scotia: common-law agency and designated agency.

Common-law Agency: Under common law, agency is between the client and the brokerage. All licensees within the brokerage represent all clients of the brokerage and are deemed to know all relevant information about those clients. That is to say, when any licensee at a common-law brokerage enters into agency with a buyer or a seller, every licensee at the brokerage is immediately considered to be a representative of that buyer or seller and owes them undivided loyalty, advice and advocacy.

Designated Agency: Under designated agency, the agency relationship is only with the designated agent(s) specified in the brokerage agreement, not with the brokerage, and not with any other licensees of the brokerage. Unlike common law, when any licensee at a designated agency brokerage enters into agency with a buyer or seller, only the licensee(s) specified in the brokerage agreement as the designated agent(s) represents the buyer or the seller. It is the brokerage’s job to put written policies and procedures in place to protect the confidential information of all clients and ensure the designated agent does not communicate any confidential information in the interests of clients to other licensees of the brokerage. This is how a designated agency brokerage can represent a buyer and a seller in a single transaction with full agency representation to both parties, when both parties have different designated agents.

UNREPRESENTED PARTY RELATIONSHIP (NO AGENCY)

A buyer or a seller may also choose to use the services of a licensee without requiring an agency relationship. For example, this might occur when a licensee is showing an unrepresented buyer their seller-client’s property or when they approach a seller directly on behalf of their buyer-client. If you are in an unrepresented party relationship, do not provide the licensee with any information you do not want the other party to know (ex. motivation, divorce, financial situation, etc.) as the licensee has fiduciary duties to their client to tell them anything they know.

In an unrepresented party relationship, the licensee has a legal and ethical duty to provide accurate and honest answers to questions and can provide the following services to you:

• explain real estate terms and practices;
• provide and explain real estate forms;
• identify and estimate service costs of other professionals involved in a transaction;
• prepare offers and counter offers at your direction;
• present all offers and counter offers promptly; and
• give you true (identical) copies of all agreements.

The licensee cannot:

• make recommendations about the transaction, for example, what you should offer or counter offer;
• assist you with negotiation;
• inform you of their client’s top/bottom line; or
• disclose any confidential information about their client unless specifically authorized to do so.

CONFLICTS OF INTEREST

Designated agents and common-law brokerages cannot be in an agency relationship with more than one party to the same transaction, because they cannot represent the best interests of opposing sides. Any conflicts of interest, whether real or potential, must be addressed in accordance with by-law 733. Examples of representation conflicts of interest include:

• If you are in an agency relationship with both the seller client of a property and with a buyer client who wants to make an offer on that property; or
• If you are in an agency relationship with two or more different buyer clients who want to make an offer on the same property (even if the seller in this situation is not your client.)
• In either of these situations, a brokerage cannot provide advice to any of the parties including drafting an offer until a change in the representative capacity of the brokerage and licensee(s) occurs which resolves the conflict of interest.

If your brokerage practices common-law agency, it is a conflict if there are competing interests between any two or more clients within the brokerage.

If your brokerage practices designated agency, it is only a conflict of interest if there are competing interests between any two or more clients being represented by the same designated agent/team. If two separate designated agents within a brokerage each represent a client with opposing interests, this is not a conflict as the designated agents do not owe agency to each other’s clients.

Resolving Conflicts of Interest
The best option for both parties, which allows all parties to receive full agency representation for the transaction, is for the brokerage to continue to represent one party and refer the other party to seek independent representation with a different brokerage or designated agent. (If your brokerage practices designated agency, the conflict can be resolved by the broker designating another designated agent of the brokerage or by referring the client to a different brokerage. Licensees at a designated agency brokerage only owe agency to their own clients, not the clients of other designated agents in their brokerage. If your brokerage practices common-law agency, only referrals to another brokerage can solve the conflict. Clients cannot be “reassigned” to other licensees within a common-law agency brokerage to resolve a conflict because the obligation of agency still remains, regardless of which licensee may be working directly or regularly with the client.)

A second option to resolve the conflict, depending on the conflict, is if one party agrees to forfeit their agency relationship and proceed through the transaction as an unrepresented party, while the other party maintains their agency relationship with the brokerage or designated agent. (This is not the ideal resolution and the party must be given the opportunity to receive their own independent representation and consult with legal counsel. They must understand that this option puts them at a disadvantage as they are self-represented whereas the other party will continue to receive agency representation from the brokerage or designated agent. But if they are sophisticated enough to proceed with the transaction, and decide they do not need agency representation, it is an option that can resolve the conflict, as with only one party in an agency relationship, and the other regressed to an unrepresented party relationship, there would no longer be a representation conflict of interest.)

The third option to resolve a conflict is to enter into transaction brokerage. In some instances these parties may feel confident that they do not require agency representation at all, and can mutually agree to enter into transaction brokerage with the competing party and the brokerage or designated agent.

MORE INFORMATION ABOUT TRANSACTION BROKERAGE

Under transaction brokerage, none of the parties receive agency representation and the brokerage or designated agent becomes an impartial facilitator who does not advocate, give advice or promote the interests of either party. This method is rarely used, as it offers the least benefits and most risk to the parties.

Before entering into transaction brokerage, licensees must fully explain the cons and risks associated with this option as both clients would be forfeiting the benefits provided in an agency relationship. They must have the opportunity to receive their own independent representation and consult legal counsel. Clients are not obligated to enter into transaction brokerage and all parties must agree, in writing, to this change before the preparation of the offer to lease, lease, purchase agreement, or letter of intent.

As an impartial facilitator, the brokerage or the designated agent treats both parties in an even-handed and impartial manner. Because the transaction facilitator’s obligations to the clients are restricted, entering into transaction brokerage requires the written consent of both parties prior to the facilitation of a transaction.

In transaction brokerage, the transaction facilitator will, for both parties:

• explain real estate terms and practices;
• provide and explain forms;
• identify and estimate service costs of other professionals involved in a transaction;
• prepare offers and counter offers at your direction;
• present all offers and counter offers promptly; and
• give true (identical) copies of all agreements.

In transaction brokerage, the transaction facilitator cannot for either party:

• make recommendations about the transaction, for example, what you should offer/counter offer;
• assist with negotiation;
• inform of their other party’s top/bottom line; or
• disclose any confidential information about the other party unless specifically authorized to do so.

It is inappropriate to enter into transaction brokerage in certain situations, such as when the transaction facilitator:

• is representing family, colleagues or themselves;
• has an ongoing agency relationship with one of the parties, like a builder or developer; or
• is representing a novice seller or buyer.