Real Estate 101

What is dual agency and why does it matter?

A B.C. ban on dual agency is expected this year, but is it really that big of a problem? We dive in to find out how dual agency impacts real estate transactions across Canada
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When you’re ready to buy or sell the single largest asset in your personal net worth, you want and expect to work with a real estate agent that is solely concerned with providing you with the best possible advice. No distractions. No disappearing acts. And definitely no conflicts of interest.

The great news is that in the vast majority of cases, this is absolutely the case. Ask any real estate agent who’s been in the business for five or more years and they’ll tell you: An agent won’t last and their business won’t grow if they don’t put the client’s needs first and foremost.

Problem is, the opportunity to make money tends to attract the unscrupulous as well as the hard-working. In the last decade — when real estate prices were hitting astronomical new highs and just about everyone was trying to get into the property market — a few of these bad apples ended up in the real estate agent bushel. As a result, reports began to surface of undisclosed assignment re-sales, job incompetence and even fraud. These reports eventually prompted an investigation by various authorities — including the Canada Revenue Agency, various police departments and provincial governmental agencies.

One situation that ended up getting quite a bit of media attention was the concept of dual agency.

What is dual agency?

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Dual agency — also known as multiple representation — is a term to describe a situation where one agent or one brokerage represents both the buyer and seller in a real estate transaction. Because both sides of the transaction are represented by one legal entity, there is a chance for a potential conflict of interest, since neither the buyer or the seller can be 100% certain they are receiving full, unbiased fiduciary service.

Dual agency is created when:

  • A single real estate agent represents both the seller and the buyer;
  • Both the seller and the buyer use the same brokerage firm, but different agents

At first pass, the idea of eliminating dual agency seems logical but, like most things in life, this decision does have unintended effects. To appreciate the role dual agency plays in real estate transactions it’s best to first understand the pros and cons of dual agency.

Dual agency pros

  • Chances are if an agent has been in the business for some time this person will have a long list of potential clients looking for a home in your neighbourhood or a list of potential homes for sale in a neighbourhood you are looking in. This can expedite the need to match a buyer with a seller, which can be good for everyone involved.
  • A single contact for both parties can reduce miscommunication and potentially speed up the process.
  • A single agent representing both sides may be open to negotiating a reduced overall commission since they are receiving payments from both sides of the transaction.
  • An agent who represents both sides of the transaction may be more open to finding a remedy. For instance, if a seller is stuck at a price, say $855,000, and the buyer’s best offer is only slightly less, say $853,000, this agent could agree to split the difference by paying the buyer the outstanding amount, in this case, $2,000, from out of their own out-of-pocket.
  • As a seller, you want to work with an expert in the area. The same applies to the buyer. By allowing for dual agency arrangements, buyers and sellers can work with independent agents who happen to work at the same brokerage. This provides each customer with independent, expert representation, even though the relationship legally falls under a dual agency arrangement.

Dual agency cons

  • Having an agent work for both you and the other party to the transaction could lead to a perceived conflict of interest. Any agent in this situation has to be extra-diligent about not sharing personal or private information, such as why a person is selling, when in a dual agency situation.
  • There is the potential that your agent is now legally barred from offering you the best insight. Because the agent is now working for both you and the other party to the transaction, this person must be careful in what advice is offered and this could mean less insight during the most stressful part of the transaction — the negotiation of the deal.

Bad press for dual agency

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The topic of dual agency really hit mainstream media after it was reported as part of a long laundry list of actions taken by potentially fraudulent and unethical agents operating in Metro Vancouver in the province of British Columbia.

The news reports prompted the creation of a council, in February 2016, to examine real estate practices in B.C. The result was a damning report — which stated that the council “did not effectively deter misconduct and unethical behaviour by real estate agents” — was released in June 2016. A day later, then-premier Christy Clark stepped in and stripped self-regulation from the Real Estate Council of B.C., she appointed lawyer Michael Noseworthy as superintendent to oversee the council and appointed new council members, in an effort to clean house.

But the changes didn’t stop there. Fines for real estate agents engaged in unethical practices were raised from $30,000 up to $250,000 per individual agent and $500,000 for brokerages. Plus, discussions began on what practices need to be eliminated in order to ensure that consumers were treated fairly throughout the real estate transaction process. The biggest fall-out was the decision to eliminate dual-agency. Initially, dual-agency was to be banned at the start of 2018, but pushback from industry stakeholders delayed this decision until June 15, 2018.

Jill Oudil, president of The Real Estate Board of Greater Vancouver is in favour of changes that protect the public, but she wants the proposed changes to be made clearer.

How eliminating dual-agency impacts the market

According to the B.C. Real Estate Association, about 5% of all residential real estate transactions in B.C. involve a dual agency. Under B.C.’s new regulations, real estate agents will not be allowed to represent both the buyer and the seller in any transaction that occurs in the province of B.C.

About a year after B.C. first started to examine the impact of dual agency, the Ontario Wynn government also began to examine this type of real estate transaction. Then, in early October 2017, the Ontario provincial government also decided to take a step towards protecting consumers from a minority of unethical real estate agents.

To protect buyers and sellers, the Ontario Liberals updated the Real Estate Business Brokers Act (REBBA). They doubled the fines — from $25,000 to $50,000 — for agents who act unethically and brokerage fines jumped to a maximum of $100,000 per violation.

Now, with the Ontario ban on dual agency, when a buyer wants to purchase a property listed by an agent representing both the buyer and the seller, that buyer is assigned to another agent in the same brokerage. However, like B.C., there will still be cases where agents will continue to represent both sides of the transaction, particularly in rural communities where there are not many agents or in family situations where the parties are well known to one another or in some commercial sales where the parties have legal advice and sufficient expertise. In these cases, a dual agency transaction may still be permitted, but the agents will be required to use new forms that will be written in plain language that both the buyer and seller must sign saying they understand the arrangement and the role the realtor will play.

Small towns to lose?

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It’s more common to see a dual agency arrangement in smaller communities, simply because there are fewer realtors per capita than in larger areas. As a result, many critics of the ban on dual agency are concerned that this ban will have a long-lasting detrimental impact on smaller communities.

John Evans, president of BCNREB (BC Northern Real Estate Board) believes the proposed changes will negatively impact consumers in smaller communities because it gives them fewer options.

“In a community like Prince George, these [dual agency] changes may not be a big deal, but in smaller communities, where there are only three or four realtors and maybe one or two brokerage servicing an entire area, these changes will become a real issue,” says Evans.

Evans adds that as a small-town agent who has built their career on getting to know the market and the potential clients, these changes are ludicrous. “This person has chosen me to represent them and I have to send them off to somebody else because I may have implied knowledge about the other side of the transaction.”

The delay in eliminating dual agency was primarily due to concerns voiced by Evans and others. Now, in some areas, dual agency arrangements would be acceptable if it doesn’t make sense to do otherwise, explains Mykle Ludvigsen, spokesperson for the OSRE.

“In a situation where there is just no other option, the superintendent specifically instituted a rule that would allow for the option for a dual agency situation,” says Ludvigsen. “Our expectation is that there will not be a lot of those.”

Anita Cooper
Anita Cooper

Anita Cooper is the founder of Northwoods Writer, a marketing resource for real estate professionals. When Anita and her family aren't cruising the highways and byways on the lookout for something new and interesting, they can be found in their beautiful home located in the Northwoods of Wisconsin, USA.