Multiple Representation in Selling and Buying Homes

Real Estate Agent with ClientsWhen a home is sold, there are typically two real estate agents involved: one representing the seller (the ‘listing agent’) and one representing the buyer (the ‘buyer agent’).

Another common situation is where one real estate agent represents both the buyer and seller, for example, when a buyer without an agent comes to an open house and wants to make an offer ‘through the listing agent’. This is called ‘multiple representation’. While there is an obvious conflict of interest here (the seller wants the highest possible price while the buyer wants the lowest possible price), this practice has a long history in the real estate industry, and rules have been established to ensure that both parties are dealt with fairly. The key difference is that the real estate agent in multiple representation cannot put the interests of either party ahead of the other and so must act more like a mediator than a partisan negotiator. This is a very difficult balancing act for the real estate agent and, when when transactions don’t go smoothly and the buyer or seller (or both) are unhappy with the outcome, the real estate agent is often put on the spot.

Another aspect of multiple representation has to do with multiple offers (‘bidding wars’), a very common (if not typical) situation in the hot Toronto market for many years now. Offers are supposed to be secret in bidding wars, that is, all buyers should know how many other offers are in play in the competition, but no buyer should know the content of any other offers. Obviously, if a buyer were to know  what the ‘best offer’ is, he would be in a very strong position to win the competition. This creates two kinds of incentives:

  1. The buyer may want to deal directly with the listing agent (i.e., in multiple representation) in hopes that the listing agent will divulge how much he has to bid to win the competition; and
  2. The listing agent will earn two commissions (called ‘double ending’) if this buyer wins the competition, so he has a strong incentive help the buyer.

It is highly unethical and very clearly against the rules for a listing agent to ‘coach’ his buyer client with information or hints about other offers, but it has been long suspected that it does happen, more than just rarely, and it is very difficult to prove.

Recently CBC’s Marketplace added fuel to the fire by publishing hidden camera footage showing a couple posing as buyers and visiting open houses. The couple asked the listing agents how they could help them to buy the property, and the agents said that, if the buyers were to make an offer through them (i.e., in multiple representation), the agents would provide information on other offers to help them win a bidding war. Here’s the story on You Tube:

The ongoing concerns about multiple representation, brought to a head by the CBC story, has caused the Ontario government to launch a consultation on potential changes to multiple representation, potentially leading to a ban on the practice. Whatever the outcome, this review is long overdue, as it has been 15 years since the governing legislation for real estate in Ontario (the ‘Real Estate and Business Brokers Act’ or REBBA) has been amended.