Tips For Buyers

It can be a nasty surprise for novice purchasers to discover on closing day, that their dream home can become a nightmare of hidden closing charges, costing them thousands of dollars more than expected. These extra charges are pesky and unpleasant, but are inevitable, so that first-time buyers should be fully aware at the outset of a transaction in order to set aside additional funds.The following will apply in most real estate deals. Caveat Emptor: "The Devil is in the details".

Confusion over change mirrors the level of controversy that preceded it. A prime example: the relationship between buyers and real estate agents.

In the early 1990s, sub-agency (where both the seller's agent and the buyer's agent represent only the seller) was denounced in several Canadian cases. Not only was the door opened to buyer agency (agents representing buyers only), but agents were now obligated to disclose to buyers, sellers and other agents exactly who they represented in a transaction, and what services would be provided.

That principle is now embodied in the new Code of Ethics governing all real estate agents in Ontario. Disclosure must be made "at the earliest practical opportunity," but no later than when an agent "accepts an agency" (when their conduct establishes a professional relationship. Agents don't accept zin agency simply by answering questions, talking about a property, or showing a listing).

Rule 4 of the code says agents "shall enter into a written representation agreement (listing agreement for sellers, agency agreement for purchasers) with a client at the earliest practical opportunity, and in all cases before any offer to purchase is submitted or presented."

Prudent agents won't wait until the offer stage to get these agreements signed, but will seek them much earlier, in other words before "accepting an agency."

Listing agreements with sellers, while technically not needed to sell a property, are essential for agents to claim commission. What happens if a purchaser won't sign a buyer agency agreement? Can an agent still represent the buyer? And do consumers benefit by signing that document?

I posed those questions to Allan Johnston, manager of complaints, compliance and discipline at the Real Estate Council of Ontario, whose mandate is to enforce the Code of Ethics.

At the outset, Johnston drew a critical distinction between buyers who are "clients" of an agent, and buyers who are simply "customers."

"Agents owe clients the highest level of fiduciary duties - competence, diligence, full disclosure, obedience, loyalty, confidentiality and complete accounting. Agents shall endeavour to protect and promote the best interests of a client," he commented.

Being a customer ranks well below client status. Agents only must deal fairly, honestly and with integrity with customers, and not mislead them about a property or a transaction. When acting for customers, agents need only exercise reasonable care and skill, to ensure answers given or information provided is complete and accurate.

"Written representation agreements are mandatory if an agent is to represent a consumer as a client. If buyers won't sign agency agreements, they can only be treated as customers, not clients," Johnston explained.

Buyers then lose the full arsenal of fiduciary duties available to clients. So when no buyer agency agreement is signed, confidentiality is out the window.

"Anything the buyer tells his or her agent can and must be divulged to the vendor (i.e. how much the buyer is prepared to pay for a property), as the agent is not working under a buyer agency agreement."

Nor should the buyer expect undivided loyalty from his or her agent, as customer status means the tainted sub-agency rule governs their relationship, not buyer agency.

"Clearly," Johnston emphasized, "it is in a buyers' best interests to sign a representation agreement. It allows them to benefit as a client from the full set of fiduciary duties. However, what creates concern for consumers are the terms and conditions of that contract." What should a buyer agency agreement contain? According to Johnston:

UNDERSTANDING DUAL AGENCY

IMPORTANT GUIDELINES FOR BUYERS BUYING THROUGH
A LISTING BROKER:
It is the primary duty of the listing broker to protect the interests of the VENDOR, who is the party paying the real estate commission. Specifically, the Realtor who is the listing agent has the following legal obligations: 1) To advise and help the Vendor obtain the best selling price. 2) To negotiate the most favorably terms and conditions for the Vendor. 3) To maintain confidentiality as directed by the Vendor, and within the law. It is the secondary duty of the listing agent to the PURCHASER: A) To treat the Purchaser fairly and professionally. B) To answer the Purchaser's questions honestly. C) To provide information, not advice. HENCE, WHENEVER A PURCHASER INTENDS TO PLACE AN OFFER THROUGH THE LISTING AGENT, IT IS IMPERATIVE THAT: i) The Purchaser obtain independent legal and financial advice prior to the offer. ii) The Purchaser should verify information and inspect the property throughly for any defects or deficiencies. iii) The Purchaser should conduct his due diligence as to market value, and not seek advice regarding price from the listing agent. iv) The Purchaser should not disclose any confidences to the listing agent that he does not wish the Vendor to know.