The role of an agency becomes necessary in a real estate deal when the seller of a property or house seeks the help of a property sales person or broker engaged by a brokerage in the course of conversation to help materialize the transaction. In this case, the property seller is the main person, while the brokerage is the mediator. On the other hand, a person trying to purchase a property may also employ a brokerage to help him or her in acquiring the asset. And in this situation, the buyer is the main person, while the brokerage the agent or mediator. Regardless of the fact that the real estate agent or the sales person gets hold of the contract or deal, in both instances, the agency connection is basically between the brokerage and the seller or the purchaser of the property.

The development of a new variety of client-customer association in the real estate market has transformed the term 'agency' into a multifaceted issue that is ahead of the conventional seller agency. What has made the issue more vexed is the fact that the manner of functioning of the agencies and the related disclosure methods presently not only differ in different provinces, but also within the brokers' businesses and the realty boards all over Canada. The term agency and other expressions also vary depending on the particular necessities of a specific province.

The association with a real estate agency or mediator may arise in a number of circumstances. For instance, an executor may play the role of an agent or mediator for a property, custodians of juveniles may be active as agents, members of trade unions may perform as agents for the workers they represent, and even sales person, brokers and brokerages may also be active as mediators or negotiators on behalf of property sellers and buyers.

Establishment of an agency

The formation or establishment of an agency is accomplished through different procedures. Normally, the connection between the agent or mediator and the main buyer or seller (known as the principal) is one where the buyer or seller empowers the agent to initiate actions on his or her representative in specific business deals with any one other than the principal. This association between the agent and the principal is an outcome of a shared assent. Nevertheless, formal issues like reimbursement or a contract in black and white are not essential to set up a company to function as an agent. In fact, it is also not necessary to plan an agency as it can even be established unintentionally.

Through direct contract

Usually most agency associations are established through a direct contract. This is the most widespread method of establishing an agency and in this case both the client and the brokerage representing either the principal or the mediator enter into a direct and precise agreement. Although the legal system does not make it necessary for the parties to have an agreement in black and white, both the principal (buyer or the seller) and the agent would feel more comfortable in dealing with each other in the presence of a written contract. It may be mentioned here that written permission is a common practice in the real estate business and this is usually done through registration as well as filling the forms issued by buyer agents.

Through approval or endorsement

Another way of establishing an agency is through endorsement or ratification. This is only possible when a principal (buyer or seller) approves the advantages derived from an action of the agent for which the latter had not previously obtained permission from the buyer or the seller. Here is a case in point to understand the issue better. Suppose a seller or buyer named Tom approves the steps taken by an agent called ABC Realty Inc. without seeking prior permission or authority from Tom.

An approval or ratification can also take place in an instance when a real estate sales person tries to secure a registration, but the owner of the property is not ready to enter into any contract. On the contrary, the home owner asks the sales person to bring in any willing buyers he or she may have. Next, when the sales person really brings in an interested buyer and a sale is transacted, the home owner actually approves the action of the sales person and agrees to the advantages and responsibilities arising out of the deal. In this case, the home owner automatically becomes a principal. It may be noted here that if an agent wants to establish an agency in connection with an action taken in the past or retroactively, he or she should ensure that they do something as the principal's representative prior to getting an approval or ratification for the organization.

Through estoppel or legal rule barring discrepancy

An agency can be established through estoppel (a bar or impediment preventing a party from asserting a fact or a claim inconsistent with a position that party previously took, either by conduct or words) if a buyer or seller provides an inkling to a third party that someone else is representing him or her as a mediator in a real estate deal. For instance, Steve grants permission to John through a legal contract or action to function as his manager. In this instance, later Steve cannot afford to deny to any third party that has dealt with John that he has not authorized John's agency to represent him. In fact, it is a practice in real estate business that when a property seller hints to a potential purchaser that he or she should get in touch with a particular sales person to negotiate the sale of his asset, it is possible that the purchaser be legally prohibited from refusing the existence of the bureau. This may occur even in the instance of the seller not having registered his or her property or entered into any legal agreement with the sales person. On the other hand, a real estate agency may also be established when a sales person or a mediator gives an indication to a third party that he or she is endorsing and negotiating the property of another person.

By effecting a law in a crisis

A real estate agency or mediating firm may also be formed in case of an urgent situation when an agent has the right to compel his or her principal (buyer or seller). However, the agent or mediation is not able to exercise this privilege. For instance, a situation may arise when it may be obligatory for a mediator or agent to protect the assets of his or her principal (buyer or seller) in their non-attendance and when the agent is unable to contact the principal to come to a conclusion on the issue instantly. Although such a situation is unlikely to happen in the case of a real estate deals, it may be possible in the instance of a ship owner or the proprietor of a unpreserved commodity.

Through oblique sanction

Real estate agencies may also be established through oblique permission. In such instances, an agent is granted permission to represent another person indirectly in specific situations. Supposing ABC Realty Inc. has been granted direct authorization to Steve to represent it or act on its behalf, the courts would deem that the agency has the privilege to take a direct and instant action to act on behalf of Steve in an emergency situation and on his behalf. However, this is only possible when there is no proof contrary to the claims of ABC Realty Inc.

Disclosure or clarification

Before we go on to discuss the different aspects of agency disclosure in a property transactions, it is essential to comprehend the term in the context of real estate. Simply speaking, agency disclosure denotes a clarification in black and white that needs to be signed by a potential purchaser of seller of a property stating the responsibility of the broker in a particular real estate deal. The basic reason for such a clarification is to give an explanation on whether the broker is acting on behalf of the seller or the prospective purchaser or is representing both. An agent disclosure helps a client to recognize the role of the broker and to whom he owes his allegiance.

With the onset of different types of agency relationship, the issue of agent disclosure has assumed greater complications. It may be mentioned here that even as the mediators are obliged to the buyers or sellers as far as integrity and complete clarification are concerned, the existing laws are not enough to regulate the issue and hence, there is a need for more specific rules. It is also worthwhile to note that as a result of this the concerned authorities have worked out new rules concerning values and regional governing measures that call for precise declaration or clarification appraisals relating to the function and the description of the agency expertise. In addition to the terms in the general law, majority of the agent disclosure conditions focus on the efficacy and comprehensiveness of the disclosure as well as the customer's up-to-date approval. The Canadian code determined by the organized real estate dealers as well as the in the policies of the jurisdiction of particular states have specified the prerequisites for a disclosure.

Ethical policies of the Canadian Real Estate Association

All agencies associated with the organized or controlled real estate business in Canada need to effusively disclose or clarify the presence as well as the description of their agency's liaison or relationship. This code of ethics of CREA has been in effect from January 1, 1995 and was later amended in April 1995.

The real estate code of practice

Several states in Canada have already instituted the prerequisites for agency disclosures or clarifications by the property owners or licensees.

Responsibilities and Obligations

According to the rules of the land, an agent acts on behalf of the principal (buyer or seller) helping him or her to enter into authorized associations with other parties regarding a real estate transaction. The role of an agent assumes importance considering the fact that a seller or potential buyer has to negotiate with several individuals during the transaction of a real estate and the requirements of each individual is so varied and complex that often a deal is not possible without the help of an outside party or someone representing the seller or the potential buyer in a negotiation. In such a situation, when a person (agent) represents another (principal) in a real estate transaction, the law deems the former to be a supplement of the latter. And the rules that describe as well as control the association of these individuals or any other related person in known as the law of agency.

As mentioned earlier, the agents are responsible to their clients, also known as principals, and need to be committed to them. The agents should be loyal to their clients in matters such as integrity, complete clarification of their roles, capability, compliance as well as bookkeeping. The term 'fiduciary responsibility' includes the expressions and categories stating the responsibilities and duties that often vary from one book to another. To understand the responsibilities included under the fiduciary duties better, one needs to go through six different classifications - disclosure, competence, obedience, accounting, confidentiality and loyalty.

Clarification or disclosure

It is essential for an agent to always reveal to his or her principal (buyer or seller) all data and evidence related to the real estate deal for which their services have been employed. Here data or information denotes all facts that may influence the value or appropriateness of the property in question as well as all other identified and pertinent information concerning the transaction.

Aptitude or competence

In the real estate or for that matter in any business, a certain level of competence or proficiency expected from an agent or mediator so that he or she is able to help their clients in executing the task. As the law deems an agent to be a supplement of the principal (buyer or seller) they represent in all agency associations, it is essential that the agent should be competent and possess a certain level of professionalism. This is all the more important keeping in view that the principal is always accountable for all the steps initiated by an agent in all real estate transactions. It is, therefore, mandatory for an agent to exercise the best of his or her best talents and capabilities while serving the principal. In case an agent or mediator claims to be an expert in a particular field, he or she must demonstrate their skills and knowledge on that subject.

Compliance or obedience

As obedience or compliance is an essential aspect in any agency relationship, it is mandatory on the part of an agent to comply with all legitimate and rational directives of his or her client. This is essential even in the instance when an agent may disagree with his or her principal on any issue.

Bookkeeping or accounting

The real estate laws stipulate that an agent is obliged to keep a record of all the money or assets delegated to him or her by their principal. It is mandatory for an agent to protect all cash, deed or property related to a real estate transaction that has been handed over to them by the principal. To be precise, an agent is accountable for all the personal possessions and the matters of concern of his or her principal or client.

Privacy or confidentiality

Maintaining utmost secrecy or confidentiality regarding the principal's affairs or business is of prime importance to any agent. It is essential on the part of an agent not to utilize the data or statistics obtained by him or her from the principal in any manner that may cause damage or impede their client's business at any point of time - currently or later. It is important to note here that the responsibility of an agent to maintain the privacy of his or her principal or client is not mixed up with the property mediator's duty to divulge certain acknowledged basic information about the real estate to people other than the principal or offer clarifications on certain issues pertaining to the agent and the principal's association as well as the agent's role in the property deal. In fact, it is the professional responsibility of any agent to offer clarifications or disclose facts, even deficiencies of a specific property. This is essential on the part of the agent with a view to remain fair and candid to everyone concerned.

Allegiance or loyalty

Loyalty or allegiance toward his or her principal or client is perhaps the most important responsibility of an agent in the real estate business. The law stipulates than an agent should always keep the interests of his or her client ahead of all other issues, barring the law, while performing their assigned duties on behalf of the principal.

It is essential to note that the professional and moral responsibilities entail the agents to remain sincere and also not offer any false account regarding a property to any third party or the customers. At the same time, the agents need to be adequately cautious while replying to customers' queries or providing them with information regarding the real estate on sale. As it has been mentioned earlier, real estate business permits setting up of an agency association between the agent or negotiator and the seller or the proposed purchaser. Moreover, the agency relationship may take place through a direct contract or by oblique sanction and the agreement between the agent and the principal may be oral or in black and white. However, it is advisable to always have a written agreement while establishing an agency relationship and that the real estate broker's business ought to make certain that all actions of the agency is limited within the parameters of the powers vested on it. Even if there is no written agreement between the two parties, a real estate agency can be established when a property mediator deems his or her patrons as principals or clients.

Cessation of an agency relationship

There are numerous procedures to terminate an agency relationship - an association between and agent and his or her client. Cessation of an agency relationship, however, does not impinge on the privileges of any of the two parties that may have developed during the establishment of the association.

Shared sanction or mutual consent

As all agency associations or tie-ups in the real estate business are established through agreements between two parties (the agent and the principal), any such contract may be brought to an end through if both the parties concur on the subject.

Annulment or revocation

Under normal circumstances, it is the principal (seller or the prospective buyer of a property) is entitled to cancel an agency association or any power he or she has vested on the agent or mediator whenever he or she wishes to do so. Nevertheless, in most instances of real estate transactions, the principal concur on fulfilling certain commitments of agency association for a specific period of time and cancel the agreement on the expiry of that term. In such circumstances, it is not necessary for the principal or the seller to get in touch with anyone in connection with the agency relationship accord and is free to take off the property from the open market and turn down any proposal to enter into any contract. Nevertheless, if the terms of the agency contract are fulfilled, the principal may be responsible for compensating for violating the terms of the agency. In the same manner, even an agent is free to cancel an agreement with his or her principal, but will be accountable for reparation for committing a contravening the contract provided the agreement was for a predetermined period.

Cessation or expiration

An agency association will cease to exist at a specific date predetermined by the two parties (principal and agent) under two situations - first, when the term of the property listing ends and second, on the cessation of the agreement between the agency and the seller or prospective buyer. Once an agency relationship expires, both the parties may agree to either renew the old contract or enter into a new agreement. In the instance of renewing an agency relationship contract, it is essential to provide the purchaser with a duplicate of the deed. Both the parties may agree to maintain the contract with the intention of payments arising out of the sale of the property during the leftover time as may be mentioned in the registration contract or the buyer agency covenant.

Conclusion or performance

An agency relationship in real estate business will automatically be considered as terminated when the agent or the mediator has performed according to the contract or completed the job agreed upon by the agent and the principal at the time of signing the agreement. In brief, the agreement will cease to exist once its objective has been accomplished. When an agreement is signed between the agent and the principal, both parties expect that they will have a fruitful ending. While the seller is hopeful of selling his property, a prospective buyer is expectant of acquiring a new asset.

Unfeasibility or impossibility

In real estate business, agency relationship also ceases to continue when the asset or property mentioned in the contract or that has been put up for sale in the open market does not existent any more. For instance, it may be a case of a building being gutted or a ship drowned. However, in the first case, there may still be a listing contract that allows the transaction of the unoccupied land on which the building once existed. On the other hand, an agency association contract relating to a property may also be deemed terminated if the asset is confiscated or foreclosed and there is no provision for any payments or compensation in the stipulations of the contract.

Bereavement, cerebral failure or insolvency

The death, mental imbalance as well as insolvency of either the principal or the agent may also lead to the termination of an agency relationship. However, there may be specific instances where the agency contract between the principal and the agent may persist even after the demise of the property seller. For this to happen, the agency contract must stipulate irreversible conditions as well as a prerequisite that the agreement will be obligatory on the principal's property under any situation.

Cancellation of authorization or registration

Cancellation of a broker's license or listing may also lead to the termination of an agency relation agreement. As the broker's license is annulled the agreement between the principal and agent cannot exist any longer.

Real estate agency categories

Basically there eight main types of real estate agencies and they include buyer agency, dual agency, implied dual agency, limited dual agency, undisclosed dual agency, seller agency, single agency and sub-agency. Here is a brief discussion on each of these agency categories.

Buyer agency

When the real estate broker firm acts on behalf of a prospective property purchaser, the organization is known as a buyer agency. There are two primary manners for creating a buyer agency - either by inference (association) or through a contract in black and white. Normally, prospective property purchasers who are looking for brokers to solely act on their behalf prefer a buyer agency and establish it by means of an agency contract. A buyer agency may be considered to be the other side of a seller agency and in both cases same rules and procedures are applicable.

There are certain stipulations for a real estate broker firm looking after a buyer's interests. It is essential for agency acting on behalf of a prospective property buyer to utilize expert mediation proficiency, look for suitable assets that would fulfill the purchaser's requirements, portray as well as explain the advantages and disadvantages of any asset selected, preserve the privacy of all affairs and business of the purchaser and always function keeping the client's interests in view. The basic characteristics of such a relationship between a prospective buyer and a real estate brokerage firm include honesty, total revelation, capability, compliance and maintaining the business records of the buyer by the agency. To establish this category of agency, the real estate brokerage firm and the buyer need to enter into a contract that will provide particulars of their association. It may be noted here that the precise heading of the buyer agency contract will differ depending on the authority in each province. For instance, the agreement may be titled Exclusive Buyer's Brokerage Contract or the Buyer Agency Agreement.

In a real estate transaction, the seller shells outs all the charges to the registered broker's firm which then passes on an suitable fraction to the brokering agency engaged by the purchaser. On the other hand, even the buyer may pay the brokering firm hired by him or her and in such circumstances the brokerage commission is not included in the money obtained from the sale of a property. However, in the majority of the real estate deals, the percentage fee payable to the buyer's broker is compensated through the seller's registered broker and the commission forms a part of the earnings from the sale. Again, it may be noted that the modus operandi for paying the commission will also differ depending on the prevailing rules in a particular province.

Dual or twofold Agency

A dual agency is one where a real estate broker's firm has entered into agency association contracts with the buyers as well as the seller in a property deal. When several real estate marketers acting on behalf of the seller as well as the prospective buyer are engaged by the same broker's firm it is also termed as a dual agency. This is true even when the different salespersons work in different offices of the same brokerage. In this case, it is mandatory for the real estate broker's firm or people working on its behalf to inform both the seller and the purchaser regarding the twin facet of their portrayal and need to be fair while acting on behalf of both clients. At the same time, it is essential for both the seller and the buyer to offer their respective up-to-date approval for such twofold portrayal of the brokerage firm or its salespersons.

When a real estate brokerage or its representatives act on behalf of the seller as well as the buyer, it is essential that they adopt tremendous caution and precision in their actions. Even in the occurrence of a disagreement between the two parties and the failure to resolve it the real estate broker's firm and its salespersons need to continue working impartially for their dual clients. In ordinary conditions, a dual agency may be established by the seller entering into a registration contract with the real estate broker's firm and the prospective purchaser granting permission to a buyer agency covenant to the same broker's agency. In this case it is important that both the seller and the buyer accept the innate twofold activities of the real estate broker and or its representatives. Although the law permits the brokerage firms to undertake such twin performances, it has always been dissuaded by the Canadian Real Estate Association. Lawfully as well as morally, dual or twofold agency functions are not only ill at ease, but also may prove to be hazardous as well as detrimental both for the real estate broker's firm and people working on its behalf.

Nonetheless, advocators of the dual agency practices have been campaigning that if complete and absolute revelation and appropriate credentials are made mandatory for the brokerages and exact principles are developed, the hazards prevalent in this category of agency can be effectively done away with. They are of the view that despite the risks involved, the dual agency system is as effective as others. All said and done, there is still reason for issuing a clear warning reminder.

Indirect or unintentional dual agency

Real estate experts are of the opinion that the practice of implied or unintended dual agency is more risky compared to straightforward or direct dual agency. In the instance of direct or express dual agency, the association between the brokerage and the clients (the seller and the buyer) is completely revealed and acceptable to all the parties concerned. Thus, the shortcomings or the risks involved with this category of agency can be corrected or reduced. In fact, the real estate broker's firm as well as marketers working on its behalf can carry out their duties in the instance of direct dual agency provided the sellers as well as the potential buyers are kept abreast about the dual facet of their functioning beforehand and they give their approval to this. Moreover, in the case of dual agency all concerned parties enter into agreements in black and white. Contrary to this, in the instance of implied dual agency there is no official documentation. Implied dual agency occurs when a real estate broker's firm or its representatives unintentionally works on behalf of both the parties (the seller and the buyer) or unknowingly represents both sides in the transaction of the same property.

Limited or restricted dual (twofold) agency

The growing concern regarding the possible unlawful actions, especially when it comes to preserving the privacy of the clients and the agent's allegiance towards them, of the agents in the case of dual agency has led the authorities in many provinces to impose specific course of actions through legislations as well as local governing bodies to limit the authority of the agents while carrying out their duties both for the seller and buyer in the same real estate transaction. In addition, the disparities existing in the local rules in different provinces as well as among the broker firms have only helped to increase worries. This is owing to the fact that dual agency has often given rise to disputes between the sellers and buyers over the functioning of the brokers working for them simultaneously.

As a consequence, the authorities have been compelled to pass laws restricting specific powers and functions of the brokers in dual agency. The new procedures that have been imposed on the brokers or agents with a view to make the real estate transactions more fair and transparent in dual agency include non-revelation of the property prices that one party is ready to pay another, preventing the brokerage from stimulating either the seller or the borrower and also non-exposure of the conditions of the contending offers by either party. At the same time, the new legislations also prohibit the brokerages in dual agency from revealing any information relating to the personal as well as the fiscal matters of either the seller or buyer unless they have been granted permission to do so and also from upholding one party's interests over the other. It is hoped that such rules would bring some semblance of impartiality, transparency and integrity among the brokerages in dual agency.

Hidden or undisclosed dual agency

When a real estate broker's firm or its representative functions as an agency for rival parties (buyer as well as the seller) without obtaining their authorization, understanding or concurrence of the parties concerned beforehand, it is termed as undisclosed or hidden dual agency. When any firm or person indulges in such illegal and dishonest activities they are liable to face grave penalties. In such circumstances the consequences may include confiscation of brokerage fees, chastisement by the local controlling body, financial punishments such as charging exemplary compensation and even cancellation of the broker or the salesperson's authorization or listing. At the same time, even the broker or the persons who may be found guilty of such unlawful activities also face personal hazards.

Seller agency

In the instance of a seller agency, the brokerage firm as well as its marketer acts solely on behalf of the seller of the property and under all circumstances is expected to look after the property owner's benefits.

Here the owner of a property or the seller enters into a registration contract with the broker's firm to create an official agency association between the two parties thereby granting the broker the permission to sell his or her property. The contract signed by the seller and the broker states the details of the seller's directives to the brokerage as well as the facilities offered to the property owner in the seller agency provision. In addition, the agreement will also make it mandatory for the brokerage or its salespersons working on behalf of the seller to utilize their expert mediation talents in finding suitable buyers and endorse the property listed in the open market. At the same time, the agreement makes it binding on the seller's representative to maintain the privacy of all matters pertaining to the property owner and work in the interest of the seller at all times. Like in the case of the buyer agency, the characteristics of this category of agency too are sincerity, complete disclosure of data and statistics, proficiency, compliance and maintaining the business records of the seller. Conventionally, in this type of agency relationship, the seller pays the brokerage expenses directly to the mediator. On its part, the registered brokerage firm or agent compensates other brokers and marketers engaged by it and also to other collaborating brokerages, in case there are any.

Single agency

In real estate transaction, a single agency is an association between the seller or buyer and an agent or mediator where the law deems the agent to solely act on behalf of the principal. Normally, single agency is a widespread practice in places where authorities do not permit dual agency.

Like in most other agency categories, in the instance of a single agency too it is mandatory that the agents are totally committed to the principals and they need to be sincere, subservient and provide complete disclosure of all information, possess proficiency and maintain the business accounts of their client. Single agency is entirely different from dual agency where the common real estate broker has agency association or relationship with the seller as well as the prospective buyer in the same property deal. With the evolution of the buyer agency, a relatively new category in real estate business, now the expression single agency generally denotes a broker that solely represents either the seller or the buyer. Here is an example that will help one to comprehend the issue more explicitly. In some provinces, where a broker's firm only offers its services to the buyers and does not provide its services to the sellers, it is known as a single buyer brokerage or agency.

Secondary or sub-agency

When a real estate brokerage or an agent authorizes any individual to work on behalf of its principal, this agency relationship is known to be a secondary or sub-agency.

In fact, the conception or model of sub-agency has basically arisen from the practice of granting permission to collaborating brokers to represent the seller in a real estate transaction. In the real estate business, Multiple Listing Services were conventionally begun with the usual subscription of sub-agency by registering a property dealer with all the other affiliates of the realty board. It is generally considered that with the advent and popularity of the buyer agency concept, the role and utilization of subordinate or sub-agency has lessened to a great extent.

Agency administration or management

When the proprietor of a housing or business property grants permission to an individual or organization to administer his or her property, it is known as agency management. In fact, agency management, also known as fee management, is among the three universal categories of managing or administering real estate. These three categories of property administration include agency management, in-house management and owner or self management. Here is a brief description of each of these categories of property management.

Agency management

Agency management or administration may be best described as a situation when the proprietor or proprietors of a building employs an expert administrative firm to run the affairs of the property. In this case, the person responsible for administering the property is employed by a management company and the charges for the management of the property depend on the commission from the proceeds generated by the property.

In-house property administration

Organizations or societies possessing a hefty assortment of properties involving huge revenue normally go for the in-house property management category. In this case, the substantive amount of revenue generated from their properties enable the proprietors to engage a whole-time property administrator. Opting for the in-house asset administration liberate the owners from their daily chores of looking into the property management and enables them to concentrate more in their greater task of decision making.

Owner or self administration

Contrary to the in-house property management where the owners possess several properties and require a full-time manager to administer them, the owner or self property management category is beneficial for proprietors of small houses or constructions. By managing their properties themselves, owners of these small buildings are able to save money.

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