The following is a verbatim copy of the brochure Form No. 045 01/99 as first presented by OREA and The Toronto Real estate Board. You can download a new 2007 copy of this brochure in pdf format here.

When working with a REALTOR, it is important to understand:
Who the REALTOR works for.
To whom is the REALTOR legally obligated?

When you deal with a REALTOR, you can expect not only strict adherence to provincial laws, but also adherence to a Code of Ethics and Standards of Business Practice. The Code and Standards are very important to you, because it assures you will receive the highest level of service, honesty and integrity. One provision of the Standards requires REALTORS to seek written acknowledgment from Buyers and Sellers of disclosure of the agency relationship.

A REALTOR will be pleased to discuss his or her agency relationship and responsibilities with you. If you need clarification about the types of agency relationship available, as the REALTOR to explain your alternatives.

As required by the Canadian Real Estate Association, the requirement to seek written disclosure is a part of the *REALTOR Code of Ethics and Standards of Business Practice.

ARTICLE 3 of the TORONTO REAL ESTATE BOARD'S Standards of Business Practice states, in part, that:
"The Member shall fully disclose in writing to, and is advised to seek written acknowledgement of disclosure from, all parties to a transaction regarding the existence of a Member's agency relationship and the nature the service the Member will be providing to the client versus the customer or other party to the transaction. The Member shall also disclose to other Members involved in the transaction whether the Member is representing the Vendor, the Purchaser, or some other party to the transaction."

*REALTOR is a trademark which identifies real estate professionals in Canada who are members of the Canadian Real Estate Association and of the National Association of REALTORS (U.S.) and, as such, subscribe to a high standard of professional service and to a strict Code of Ethics.


Agency Relationship Explained

WHAT IS AN AGENCY RELATIONSHIP

An agency relationship is created where one person, known 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 Buyers and Sellers ask REALTORS to act on their behalf in real estate transactions.

CONSEQUENCES OF AGENCY RELATIONSHIP

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, there are two parties to a real estate 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 Buyers and willing Sellers in successful real estate transactions.

TORONTO REAL ESTATE BOARD

The Toronto Real Estate Board is an association of REALTORS. The Toronto Real Estate Board operates an MLS System; this System is a mechanism whereby Vendors, through their agent (known as a Listing Broker), can make known 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 Vendor ) lets it be known to every other REALTOR that they can be a "Co-operating Broker".

AGENCY RELATIONSHIP BETWEEN SELLER AND LISTING BROKER

As noted, a Seller usually 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 usually called commission and usually takes the form of a fee or payment from the Seller of the real property upon successful completion 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 agreed to pay.

BUYERS AND THEIR REPRESENTATIVES

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 relationship with that REALTOR. There are several usual types of relationship which may exist between a Buyer and REALTOR (the "Co-operating Broker") in a real estate transaction.

Sub-agent of Seller:

Buyer Broker, to be compensated by Buyer.
Buyer Broker, to be compensated through Listing Broker.

These are the usual forms of agency relationships; this is not to say theremay 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 fiduciary 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 the case of buyer Brokerage, the relationship is typically established by a Buyer's Agency Agreement, and the REALTOR is clearly only the agent of the Buyser.

Dual Agency

It may be on a particular transaction involving real estate that both the Buyer and Seller 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 normal 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

A the earliest practical point in time, in an offer regarding real property, and from time to time of the agency relationship 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-operating 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 Buyers and Sellers to discuss openly and freely with REALTORS agency, agency relationships, the type of agency relationship desired and the best approach to compensation for REALTORS. All Realtors are dedicated to acting for Buyers and Sellers, and the efficient working of organized real estate. All REALTORS are ready and able at all times to answer all questions and inquiries.

Once you have read this brochure, you are then ready as a Buyer or Seller to discuss with your REALTOR the next step; as Seller, the MLS Listing Agreement. or as a Buyer, the Buyer Representation Agreement.

ACKNOWLEDGEMENT

I/we have read and understand the brochure "Agency Relationships Explained" and acknowledge having received part 1 of same from:



_______________________________________________________
Real Estate Company

Dated at ________________________________________________

this ______________ day of ___________________ year ________



_______________________________________________________
Name
Please Print


_______________________________________________________
Signature
Buyer or Seller


_______________________________________________________
Signature
Buyer or Seller