Are you a client or a customer?
Previously, we spoke about the two classes of services available from the real estate profession:
- first class – clients - agency and representation,
- steerage – customers - non-agency and no representation.
The Code of Ethics under the Real Estate and Business Brokers Act, 2002 denotes:
- statutory obligations owed to clients,
- statutory obligations owed to customers, and
- statutory obligations owed to the public generally.
Here’s the problem: Martha and George wish to sell their house. They list it through Bob of XYZ Realty, Brokerage.
Bob decides to host an Open House. Many people attend including Elizabeth and David. They sign the register which includes their contact information.
Bob noted that they stayed at the property much longer than most people.
Scenario # 1
After the Open House ended, Bob decided to call. He spoke to Elizabeth and she invited him over to their place.
Clearly, they were interested. Could they afford the property? What about financing? When would they move? Was this the right time for them? Could they sell their own property in time at a good price?
Bob spoke to them. He explained about financing and indicated that he could help. He had several mortgage brokers available and he would be able to get them a good deal. Bob asked about their down-payment and their income and stated that they should have no problem qualifying for the mortgage that they needed. The property was available the end of June and that would be a good time to move since they had two children. Bob explained that this type of property is always in demand and the area is hot. Next year there should be a substantial price increase, so now is the time to buy. Bob looked through their property and offered a comment on price.
Now, he inquired about the next step. He explained agency, produced a copy of “Working with a REALTOR”, had them initial that they had indeed received a copy.
Bob stated that since he was the listing agent he could really only have one client, so they would have to be customers. Naturally he would provide them with “other valuable services”. He would look after them as best he could. He knew the property exceptionally well. He saw it last week and spent 3 hours at the Open House walking around. It would be easy to draft up and Offer. He knew the sellers very well, and they trusted him, so getting a good price on the right terms and with the right conditions for the buyers would not be any problem.
He emphasized that there were, of course, statutory duties and obligations in the Code of Ethics under the Real Estate and Business Brokers Act, 2002. Bob stated that he was a “professional” with XYZ Realty, Brokerage. He had been in the business for 15 years. He didn’t do that much advertising because he ran a successful business by referral; it was really all “word of mouth”.
So, Bob signs them up to a Customer Service Agreement. But, are they clients or customers? Did Bob really explain the differences so that they understood? Did he have their informed consent?
Even though, Elizabeth and David signed, they may actually be Bob’s clients and entitled to receive agency fiduciary obligations because they have been treated as clients. This arises by implication. The paperwork doesn’t matter. In fact, the paperwork would be wrong.
That’s day one.
Scenario # 2
Assume all the same facts, except let’s fast forward for two months. Bob has a listing for their house and has taken them to see 12 other homes in the meantime. They still like Martha and George’s house. Bob states there haven’t been any offers, they are just about to lower the listing price, so before they do, this would be a very good time to submit an Offer.
Two months later, can Bob still describe Elizabeth and David as merely customers? He has driven them around town and spent plenty of time with them and their kids at coffee shops discussing the market.
And, they ARE clients for the sale of their house.
What are they for the purposes of Martha and George’s house, customers (that’s what the paperwork says) or clients? Can you be both a client and a customer in the connected real estate deals?
In many cases, if something goes terribly wrong the facts in the first scenario will be sufficient evidence of a client relationship. The second scenario is even much stronger.
It is extremely difficult for Bob to convince the Courts that he was able to stick to the script, state facts, offer information, decline to comment on market conditions, values, and timing or make any statement whatsoever which might be construed as advice, opinions, suggestions or recommendations.
Remember, not all cases get tested. It’s only the ones which go terribly wrong, where the consumer suffers substantial financial losses, and where that same client has both the financial means and the fortitude to litigate.
Brian Madigan LL.B., Broker
If you are buying or selling in the GTA, either residential or commercial properties, buying from a builder, investing in a condo, or just require general advice about the market, then please give me a call.