Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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Agent with Conflict of Interest Fails to Protect Client

May 11, 2013 - Updated: May 11, 2013

 

 

 

This is a rather unusual case in which the Agent really sought to acquire the property for himself.

 

The vendor, John Smith was under severe financial pressure and had been given 10 days notice by the mortgagee to leave the premises.

 

On short notice, William Robertson took on the listing. Smith said he would like to stay on and rent the property for 5 years, if he could.

 

Robertson listed the property and set up an “offer day” for interested parties. He only permitted a 2 hour open house for prospective purchasers to view the property.

 

Bob Jones a prospective purchaser was there and he went back to look around the property the following evening, where he happened to meet Smith and they spoke for almost 2 hours.   

 

In total, 6 offers were received, including one which was submitted by Robertson himself. He did complete the appropriate disclosure documents. It is interesting to note that his offer permitted Smith to remain but he would merely have a licence to occupy the premises and would not, in fact, have a lease. The intention was to circumvent the provisions of the Residential Tenancies Act.

 

The offers were all reviewed at the Smith’s lawyer’s office. Due to the conflict of interest, Smith was not allowed to be in the room when the offers were reviewed. Robertson had not previously advised any of the other competing bidders that he was submitting an offer, personally, or that he proposed to reduce his commission in such instance.

 

The lawyer reviewed the offers with Smith and announced that none of the offers would be accepted that day. Robertson called the other agents and said that their respective offers had not been accepted.

 

Robertson went over to meet with Smith at a neighbour’s house, who had introduced them in the first place. They agreed to the terms of the sale and attempted to put in the agreement some of the changes that Smith’s lawyer had proposed. The neighbour acted as the witness.

 

Bob Jones approached Smith and told him that he might be able to improve his offer. He complained that his agent had experienced difficulty obtaining information from Robertson. Smith explained this to Robertson who agreed to let Smith out of the agreement, if he wished to accept the offer from Jones.

 

RECO received a complaint from Smith that Robertson registered the agreement against the title to his property and that he had a conflict of interest.

 

Jones also complained that he could not secure information about the property in a timely manner from Robertson.

 

Findings

 

Here were the findings of the RECO Discipline Committee:

 

Robertson acted unprofessionally including as follows:

 

1. Robertson failed to treat John Smith (seller) fairly, honestly and with integrity by:

 

a) Failing to review the six offers presented to John Smith (seller), and instead allowing a non-registered individual (the lawyer) to go over the details of the offers with John Smith (seller);

 

b) Attending on John Smith (seller) and encouraging John Smith (seller) to either cancel the listing or accept Robertson’s own offer.

 

2. Robertson failed to promote and protect the best interests of John Smith (seller) by:

 

a) Failing to review the six offers presented to John Smith (seller), and instead allowing a non-registered individual  (the lawyer)l to go over the details of the offers with John Smith (seller);

 

b) Attending on John Smith (seller) and encouraging John Smith (seller) to either cancel the listing or accept Robertson’s own offer; and

 

c) Not immediately amending the Listing Agreement to reflect the lower

commission that was supposed to be paid to Brokerage A.

 

3. Robertson failed to provide conscientious service to John Smith (seller) and failed to demonstrate reasonable knowledge, skill, judgment and competence in providing those services by:

 

a) Failing to review the six offers presented to John Smith (seller), and instead allowing a non-registered individual (the lawyer) to go over the details of the offers with John Smith (seller); and

 

b) Not immediately amending the Listing Agreement to reflect the lower

commission that was supposed to be paid to the Brokerage ; and

 

 

4. Robertson failed to use his best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate by:

 

a) Attending on John Smith (seller) and encouraging John Smith (seller) to either cancel the listing or accept Robertson’s own offer;

 

b) Not amending the Listing Agreement to reflect the lower commission that was supposed to be paid to the Brokerage; and

 

c) Not obtaining the Brokerage’s agreement in writing to reduce its commission until after the agreement of purchase and sale had been executed by John Smith (seller).

 

 

The Decision

 

The RECO Discipline Committee found Robertson in breach of the relevant provisions of the Code of Ethics discussed above, imposed a $15,000.00 fine and a requirement that Robertson attend the Law course offered by the Ontario Real Estate Association. This program runs 6 days

 

COMMENT

 

This is a case where it is extremely evident that the agent Robertson did everything is his power to thwart the interests of others and secure the property from his client at a favourable price.

 

First, at the outset, the property is priced to sell quickly in a bidding war. He fails to tell others that he is personally competing with them, so obviously he has the “inside track”. He doesn’t tell them he proposes to lower his commission if he gets the deal, meaning that they need to offer more money to be on “equal footing” with him.

 

He makes it difficult for others to view the property and obtain information about the property. So, this means: likely fewer bidders, and likely less competitive bidders. Then, he doesn’t tell them to up their bids and come back again, so 4 fall out of contention.

 

Now, if he were truly acting as an agent, he would have been reviewing these offers with his client. But, instead he chose to be a “participating bidder” rather than act as an agent.

 

This is a subtle mistake, but the error really is a significant one. It underlines the proposition that Robertson was acting in conflict of interest, notwithstanding that Smith had his own lawyer step into this role, and Smith may then have been better protected. Nevertheless, an “agent” is truly to act as an “agent” on behalf of his principal, and not be acting for himself as such was the case here.

 

Naturally, an agent should be impartial and not negotiating and jockeying for position, using inside information to their own advantage and thwarting the efforts of competitors. All the while, the agent knew that the client was desperate to sell, and had only a few days before the mortgage company took possession.

 

As a rule, I use fictitious names or do not mention any names if it is not necessary. The actual case is published on RECO's website and is available to the public. For educational purposes, the names of the parties really don't have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.

 

 

Brian Madigan, LL.B., Broker

www.iSourceRealEstate.com

 


Tagged with: discipline reco conflict of interest buying clients property
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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