Two Buyers: Multiple Representation Conflicts and Issues
What happens if a Brokerage represents two different Buyers and they are interested in the same property?
The first and primary issue is whether either party would be favoured in any way. The next matter, is full disclosure to both parties. Then, there’s the matter of what issues will remain confidential. These would certainly include motivation, price and the contents of other Offers.
Consider the following situation, Bob has been working with Mary, his real estate professional, and Henry has been working with Marco, his real estate professional.
They are both looking in the same price range in the same neighbourhood. With so much competition these days, they are frequently one of many potential buyers all participating in a bidding war.
Mary and Marco both work for ABC Realty Inc. a large Brokerage in the area which employs 700 representatives.
They both are interested in submitting an Offer on Mildred’s property which she has listed through David of XYZ Realty Inc., a Brokerage with about 25 representatives.
Buyer Representation Agreement (Standard Form)
This document spells out the two Buyer issues as follows:
The Buyer acknowledges that the Buyer may not be shown or offered all properties that may be of interest to the Buyer.
The Buyer hereby agrees that the terms of any buyer’s offer or agreement to purchase or lease the property will not be disclosed to any other buyer.
The Buyer further acknowledges that the Brokerage may be entering into buyer representation agreements with other buyers who may be interested in the same or similar properties that the Buyer may be interested in buying or leasing and the Buyer hereby consents to the Brokerage entering into buyer representation agreements with other buyers who may be interested in the same or similar properties without any claim by the Buyer of conflict of interest.
The Buyer hereby appoints the Brokerage as agent for the purpose of giving and receiving notices pursuant to any offer or agreement to purchase or lease a property negotiated by the Brokerage.
Later, in this same document, appears the following:
MULTIPLE REPRESENTATION AND CUSTOMER SERVICE: The Buyer understands and agrees that the Brokerage also provides representation and customer service to other buyers and sellers.
If the Brokerage represents or provides customer service to more than one seller or buyer for the same trade, the Brokerage shall, in writing, at the earliest practicable opportunity and before any offer is made, inform all sellers and buyers of the nature of the Brokerage’s relationship to each seller and buyer.
Effect Upon Buyers
Both Bob and Henry will have consented to the fact that there may be a conflict of interest, but they will not claim that to be the case.
Also, the terms of each of their Offers is to remain confidential.
The Regulator has published its position on this matter dealing with “multiple representation” on its website and most recently in a Registrar’s Bulletin, dated 1 March 2016.
The Bulletin is as follows:
March 1, 2016
This bulletin describes the disclosure obligations of a brokerage before it enters into a multiple representation situation. This includes representing a buyer and seller or multiple prospective buyers in the same transaction.
In all situations, before entering into an agreement regarding trading in real estate, registrants are required to:
· Describe the services that are generally available to buyers and sellers;
· Describe the services that will be provided and the alternatives available to the potential client or customer;
· Inform prospective buyers and sellers of the possibility of multiple representation, including a description of the services the brokerage would provide in a multiple representation situation; and
· Make it clear to prospective buyers and sellers that the brokerage cannot represent multiple clients in a transaction unless all of the potential clients consent in writing to that representation.
Written consent from clients
When a multiple representation situation arises, registrants must explain how the services provided to the client will differ from a single representation situation, including any differences in the sharing of information. These disclosures are to be made at the earliest practical opportunity and before an offer to purchase is made.
The brokerage must also obtain the written consent of all of the parties it is representing in that transaction, via their salespersons or brokers.
Written consent is required in situations where a single brokerage represents two or more clients in a trade, even if different salespersons or brokers are involved. Given that the brokerage has a fiduciary relationship with more than one client to a trade, it must be clear to all clients to the trade how information related to the transaction will be exchanged and how services will be provided.
Consent to multiple representation is required when:
· A brokerage is representing both the buyer and seller in a transaction; or
· A brokerage is representing multiple prospective buyers in a single transaction.
In the case of multiple buyers, it may not be clear to the buyer’s brokerage that a single brokerage is representing multiple buyers until one or more buyers have expressed interest in the same property. This knowledge may come through the listing brokerage, or its representatives, as they are in a position to know the source of all buyers. The listing brokerage is then expected to pass on this information to the buyers’ brokerage. In such situations, consent to the multiple representation would be required as soon as the brokerage becomes aware that it is operating in a multiple representation situation.
IF WRITTEN CONSENT FROM A CLIENT IS REFUSED
In situations where a client refuses to consent to multiple representation, the brokerage must release one or more of its clients to seek alternate representation with another brokerage. The brokerage cannot represent more than one party to a trade without the written consent of all parties it is representing in that transaction.
A customer is a person who has entered into a service agreement with a brokerage related to a real estate transaction, but who is not being represented by that brokerage as a client. This might apply to a situation in which a brokerage has entered into an agreement with a person to assist in a real estate transaction, but the brokerage or its representatives are not providing any fiduciary advice or services to the person as part of that agreement.
Registrants must treat customers with fairness, honesty and integrity, but do not have the obligation of protecting the customer’s best interest as they would with a client.
With respect to services provided to customers, registrants must disclose to buyers and sellers that they may act for more than one customer in a transaction. A brokerage does not require a customer’s or client’s written consent to provide services to an additional customer in a transaction.
Relevant sections of REBBA 2002 and the Code of Ethics
Code of Ethics: Sections 3, 4, 5, 10, 16 and 17
REBBA 2002: Section 22 (Ont. Reg. 567/05)
According to RECO, a specific disclosure would have to be made about this particular property. The general authorization contained in the BRA would be insufficient.
Both Bob and Henry need to know that ABC Realty represents them both as competing Buyers. But, they need not know each other’s names.
What does RECO say about “timing”:
“In such situations, consent to the multiple representation would be required as soon as the brokerage becomes aware that it is operating in a multiple representation situation.”
Essentially, that means that as soon as ABC Realty becomes aware that Henry is interested or alternatively that unknown to one another both Bob and Henry had Offers submitted and David at XYZ Realty alerted their agents, Mary and Marco to this fact.
It is interesting that RECO confirms that Bob and Henry do not need to accept this arrangement. They can both withdraw:
“In situations where a client refuses to consent to multiple representation, the brokerage must release one or more of its clients to seek alternate representation with another brokerage. The brokerage cannot represent more than one party to a trade without the written consent of all parties it is representing in that transaction.”
Let’s assume that ABC Realty offers releases to both. Bob says he will stick with Mary. Henry says that he has lost out on 6 properties with Marco, so he’s going to leave.
Marco may go to:
1) David at XYZ Realty,
2) Joshua at KMW Realty, or
3) Go on his own.
Remember that Henry was to be offered a RELEASE. This means that he’s free to go. The referral fee arrangements and the holdover provision would not apply.
Let’s look at the financial implications of Henry’s decision. Assuming a one million dollar property with a 5% commission (2.5% to the co-operating brokerage), this would generate $25,000 for both sides.
At first, Henry offers to go with David, if David reduces the commission by $25,000. This means that Henry will only have to offer $975,000 to match Bob’s one million dollar bid.
Assume that David refuses. He states that he would have to tell everyone in the bidding process, and it wouldn’t be fair. So, Henry agrees and selects David as his agent since he thinks this will provide him with the inside track. David would now make $50,000 on this deal, so this could help in the evaluation process and related conversations between David and Mildred.
Another option is for Henry to go to Joshua. The co-operating commission all goes to Joshua’s Brokerage, KMW Realty. Net net, there’s no difference in the deal.
Henry, since he is now released may decide simply to go it alone. We know that David won’t alter the commission, and cannot pay it to Henry. Still, the effect here is that David will still charge the entire0 $50,000 commission to Mildred.
Brian Madigan LL.B., Broker