There has been much discussion in the Real Estate Industry on the legal aspects of agency relationships. The central issue is who pays the real estate agent/who is the agent working for, and to whom is the agent legally obligated. The text below is taken from a pamphlet put out by the Toronto Real Estate Board that describes agency relationships with respect to Real Estate Agents (Realtors) and their clients (sellers and buyers)

WHAT IS AN AGENCY RELATIONSHIP?

An agency relationship is created where one person, know as the principal, asks another person, known as the agent, to act for and on behalf of the principal. The principal will define the nature and extent of the agency relationship; in other words, what the agent is being asked to do. In real estate transactions, agency relationships are created when sellers or buyers ask REALTORS to act on their behalf in real estate transactions.

CONSEQUENCES OF AGENCY REALTIONSHIP

As a matter of law, an agent who represents a principal owes that principal the highest duty of "utmost good faith"; the agent must represent the principal's best interest at all times. The agent owes his principal a duty of confidentiality regarding information about the principal.

AGENCY IN REAL ESTATE TRANSACTIONS

In most cases, ther are two parties to a real estae transaction; a seller who owns a property and who wants to sell it, and a buyer who wants to buy a property. The job of REALTORS is to bring together willing sellers and willing buyers in successful real estate transactions.

CAMBRIDGE REAL ESTATE BOARD

The Cambridge Real Estate Board is an association of REALTORS. The Cambridge Real Estate Board operates an MLS (multiple listing service) system; this System is a mechanism whereby sellers, through their agent (known as a Listing Broker), can make know the fact to other REALTORS that a particular property is for sale. By placing a property on the MLS system, the Listing Broker (agent of the seller) lets it be known to every other REALTOR that they can be a"C0-operating Broker".

AGENCY RELATIONSHIP BETWEEN SELLER AND LISTING BROKER

As noted, a seller ususally engages a REALTOR to act on its behalf in the sale of a property; this REALTOR is known as the Listing Broker. The seller and The Listing Broker will enter into an MLS Listing Agreement whereby the agency of the Listing Broker is confirmed, and the seller agrees to compensate the Listing Broker for its efforts. This compensation is ususally called commission, and usually takes the form of a fee or payment from the seller of the real property upon the success of the real estate transaction. By placing a property on the MLS System, the Listing Broker, in its offer to all other Co-operating Brokers to bring a buyer, offers to share the commission the Listing Broker is being paid by the seller.

Thus, for a seller, the key to the MLS System is that the seller's agent, being the Listing Broker, has placed the seller's property on the MLS System and so made an invitation to all Co-operating Brokers to bring a buyer's offer acceptable to the seller, and thereby become entitled to a portion of the commission which the seller has agreet to pay.

PURCHASERS AND THEIR REPRESENATIVES

Just as with the seller, the buyer of real estate will often engage a REALTOR in connection with a real estate transaction. However, it is important to understand that by contacting a REALTOR, it does not necessarily mean that the buyer has established an agency realtionship with that REALTOR. There are several usual types of realtionships which may exist between a buyer and REALTOR (the "Co-operating Broker") in a real estate transaction. 1.sub agent of seller, 2. Buyer Broker, to be compensated by buyer, 3. Buyer Broker, to be compensated through the Listing Broker.

These are the usual forms of agency relationship; this is not to say there may not be others.

Where a REALTOR is acting as sub-agent of the seller, it is important for buyers to realize that the REALTOR is technically an agent of the seller so that duties are owed by the REALTOR to that seller. However, the buyer can expect the REALTOR to disclose all pertinent information about a property, not to misrepresent any facts, and to honestly answer all questions about the property. This has been a usual form of relationship for many years in the real estate industry.

When a REALTOR acts as Buyer Broker (whether paid by the buyer directly or through the Listing Broker), the buyer can expect the REALTOR to act in the buyer's interest alone as there is no sub-agency relationship with the seller. In case of buyer brokerage, the realtionship is typically established by a Buyer's Agency Agreement, and the REALTOR is clearly only the agent of the buyer.

DUAL AGENCY

It may be on a particular transaction involving real estate that both the seller and buyer are represented by the same Firm. This is known as dual agency. In dual agency, there is effectively only one agent, or Firm, in a situation where there are two principals. In this case, duties to principals can become conflicting given that one agent is acting for more than one principal.

When REALTORS seek a Listing Agreement from a seller, or REALTORS seek confirmation of agency relationships from a buyer, it will be normall for the REALTOR to ask the party signing the agreement to acknowledge that dual agency may occur, and that conflicts and duty of confidentiality are waived.

DISCLOSURE OF RELATIONSHIP

At the earliest practical point in time, in an offer regarding real property,and from time to time if the agency realtionship changes, REALTORS are required to disclose to other REALTORS the nature of their agency relationship.

COMMISSIONS AND PAYMENT OF COMMISSIONS]

As noted, by placing a property on the MLS System, the Listing Broker (agent of the seller) lets it be known to every REALTOR the offer to become a Co-opeating Broker, and that the Listing Broker is offering to share the commission that the seller has agreed to pay the Listing Broker. Where a Co-operating Broker acts as a sub-agent of the seller, the REALTOR will be paid through the Listing Broker and the buyer will not have to pay anything directly to the REALTOR. However, where the buyer enters into a Buyer's Agency Agreement with a REALTOR as a Buyer Broker (the REALTOR is only agent of the buyer), the buyer will either compensate the REALTOR directly, or direct that the REALTOR is to be compensated through the Listing Broker.

CONCLUSION

It is up to all sellers and buyers to discuss openly and freely with REALTORS agency, agency relationships, the type of agency realtionship desired and the best approach to compensation for REALTORS. ALL REALTORS are dedicated to acting for sellers and buyers, and the effiecent working of organized real estate. All REALTORS are ready and able at all times to answer all questions and inquiries.