November 8, 2016

What Buyers and Sellers Should Know About Multiple Representation in Real Estate

During the home buying or selling process, your agent is supposed to be an utmost source of trust – not only is it their job to help you navigate the market, but they’re bound ethically to represent your best interest at every step of your real estate transaction.

It’s for this reason that recent media reports revealing instances of “multiple representation” or “double ending” on real estate deals have been the subject of intense media scrutiny. In a recent expose by CBC’s Marketplace, a team of undercover reporters posing as home buyers captured on tape several real estate agents breaking this important ethical code. In the footage, the agents claim they can control the deal – including blocking other offers, or revealing their amount – to guarantee a win for the buyer.

Making these promises is in breach of the Real Estate and Business Brokers Act (REBBA), a code of ethics that governs agents, and prohibits using confidential offer information to give anyone an advantage in, or manipulate, a real estate transaction.

Related Read: 4 Questions Sellers Should Ask About Exclusive Listings

What is Multiple Representation?

These agents, who were already representing home sellers, made these promises to prospective buyers in exchange for also representing them, effectively granting them power on both sides of the transaction. In most home sales, the seller and buyer are represented by two different agents, who work together to present and accept offers, and are also both working in the best interest of their clients.

Multiple representation isn’t illegal, and can be handled ethically: all parties must be informed in writing of the situation, and told how it may impact the outcome of the sale. However, according to Lauren Haw, Broker of Record at Zoocasa Realty, the seller is the one with most to lose when agents double-end, as the most competitive offers are most likely to come from other agents representing buyers.

Not only does it pit agents against each other, but it could cheat the seller of the best possible offer, which could potentially be worth thousands of dollars.

“Effectively representing your seller’s interests requires working with every potential buyer – including those represented by other agents,” she says. “Controlling the situation in order to ensure both sides’ commissions risks ostracizing the buyer who was actually willing to pay the most for the property.”

Why do Agents Breach the Code?

There are a number of reasons why unscrupulous agents may try to control both sides of a home sale, and most come down to cold, hard cash.

According to Haw, competition among agents in the Toronto region is at an all-time high, roughly doubling from 20,000 TREB agents in the workforce a decade ago to 48,000 today. Should the 101,299 Toronto Real Estate Board MLS home sales be split evenly among agents-in-force, that works out to 2.1 sales each. “You know the saying,” she says. “Desperate times call for desperate measures.”

Another issue lies in that it’s fairly easy and inexpensive for agents to obtain and keep their real estate licenses, which leads to some undertaking the profession part-time. Those who work in the industry infrequently may only work on one to two deals per year – and doubling commissions effectively boosts their entire annual income. Add to the fact that they may not be as worried about their long-term reputation as a full-time agent, and many resort to these practices.

What Can You Do as a Buyer or Seller?

In today’s ultra-competitive housing market, it’s more important than ever that buyers and sellers be knowledgeable, and make informed choices when choosing their real estate representation. Don’t be afraid to ask your buying and selling agent the following questions:

• Do you work in the industry full- or part-time?
• Have you ever represented both the buyer and the seller in a transaction?
• How would you handle a multiple-offer situation while selling my home?
• How will you prepare me to put my best offer forward?

Be wary of agents who seem uncomfortable answering your questions directly, or seem to have a disproportionately large history of double ending; while the practice on its own isn’t necessarily a red flag, ensure your agent takes an ethical approach when representing your best interest.

Would you work with an agent who represented both the buyer and seller? Tell us your thoughts in the comments!