Last week, CBC’s Marketplace aired an investigation catching Ontario Realtors discouraging unwitting buyers from pursuing homes that offer lower commission rates.
This practice, known in the industry as steering, is illegal for agents, who are required to act in the best interest of their clients. In Ontario, this practice is prohibited by the Real Estate Business Brokers Act (REBBA), which governs buying and selling real estate, in section 19 of their Code of Ethics.
Not following the code of conduct carries serious consequences for agents. Those caught not following the Code of Ethics risk being fined, losing their license, and depending on the offense, could even lead to jail time.
In light of the CBC report, other real estate bodies like the Real Estate Council of Ontario and the Toronto Regional Real Estate Board have reached out to their members to reiterate that steering is prohibited. However, consumers may still be rightly concerned that their real estate agent may not be acting in their best interest. Here’s what you need to understand about your rights as a home buyer.
What are my Rights as a Buyer Against Steering?
Once you have signed a Buyer’s Representation Agreement (BRA), which is likely one of the first steps you’ll take when you begin your house hunt with a Realtor, you have become their client and are owed a fiduciary duty by your agent. This means they’re obligated to act in your best interest at all times – which includes showing you any homes that meet your criteria, regardless of the commission paid by the seller.
However, it’s important for buyers to be aware that a BRA typically outlines obligations for them as well.
Most commonly, this agreement will specify that the agent is owed a certain percentage of commission (usually 2.5% of the purchase price of a home) if the buyer purchases a home within the timeframe or geographical location specified in the BRA contract. This is how a real estate agent is compensated for representing a buyer.
In the vast majority of cases, the buyer won’t need to worry about paying out this commission – it’s usually offered in-full by the seller. However, if a home listed for sale is offering less commission than what is stipulated in a buyer’s BRA, the buyer could be put in a difficult situation. If the buyer wants to proceed with purchasing the home they’re responsible for either topping up their agent’s payment, negotiating with the seller to include a higher commission in the deal, or re-negotiating with their buyer’s agent to take a lower payment than initially agreed on.
Lower commission properties can create a negotiation situation that is inconvenient for buyers to navigate, but it must be the buyer who makes the choice to pass up on a property because of this. It’s never appropriate for a real estate agent to make this decision on behalf of their client, or to try and convince their buyer to choose another property with a more traditional commission structure – especially without the buyer knowing that the true concern with the property is the commission amount.
Instead, it’s the responsibility of the agent to fully inform the buyer about the property details, including how the seller’s commission structure impacts their obligations in the BRA and what their options are if they’d like to buy the home, so that they can make an informed decision on how to proceed.
If the buyer’s agent doesn’t disclose that the commission structure could cause an issue for their client, and instead persuades them to pursue a more conventional listing, that’s steering.
If the buyer’s agent reviews with the client what the commission structure is for the home, how it could impact them, and what their options are if they choose to proceed, that’s acting in the best interest of their client.
How Buyers Can Protect Themselves Against Steering
Know Your Buyer’s Representation Agreement, Inside and Out: Your BRA is the foundation of your rights as a client, and it is your agent’s responsibility to ensure you fully understand the entire agreement. Ask as many questions as you need while you’re reviewing this document with the agent so you’re clear on both the agent’s obligations to you, and your obligation to the agent.
Ask How Your Agent Has Handled Lower-Commission Properties in the Past: The right agent will be able to walk you through exactly how they would handle the situation if you were interested in purchasing a home that’s offering a lower commission than what’s specified in your BRA.