When you buy or sell, there are legal issues.
Article contributed by :
© 1997 Douglas Buchmayer
Partner in the law firm of Drache, Burke-Robertson & Buchmayer
Ottawa (Ontario) 613-233-2675
There is no law that says you must use a real estate agent when you buy or sell your home - but try doing it without one. As a buyer, the selection of private sales is extremely limited. If the home you want is listed with a real estate agent, the involvement of that agent is unavoidable. If you call the listing agent to make an offer, that agent somehow becomes yours as well (at least he or she will be paid as such).
The private market is just as limiting on a seller. Marketing a home on your own can be a timely process requiring knowledge and experience. Without adequate negotiating skills and a thick skin, your efforts may end in frustration. Without a basic understanding of legal obligations, your efforts may even land you in court.
Whether you appreciate them for their skill and competence, or simply accept that they canít be avoided, buying or selling a home will normally involve a real estate agent. So, what are the legal aspects of this relationship?
'Agency' is legally defined as a relationship by which one person represents or acts for another with the latter's authority. You are known as the 'principal' and the agent 'stands in your shoes' and negotiates on your behalf.
In most real estate transactions, there are agents for sellers and agents for buyers. In the ideal world, a person's agent looks after the best interests of his or her principal and remains loyal to that person.
The waters are muddied, however, when you consider who pays the fees for all this work. In Ontario, the seller normally pays all the commissions - for the buyer's as well as his or her own agent.
If you are a buyer, how can your agent be loyal to you if he or she is being paid by the seller? Can the seller compel information from the buyerís agent? The seller is, after all, paying his or her commission.
The only way a buyer can truly avoid this conflict is to retain and pay his or her own agent, but this rarely occurs. Instead, the real estate trade in Ontario has learned to deal with this issue by imposing rules of full disclosure to all parties, normally getting buyers to sign a form confirming they've been made aware of the situation.
It's now common practice for buyers to sign written contracts of agency. The contract explains the services to be provided, indicates who will pay, and specifies the obligations buyers have to their agents.
The seller's contract of agency is known as the listing agreement. It too will set out the services to be provided, indicate who will pay, and specify the seller's obligations to the agent.
However, because the listing agreement tends to be the only written obligation to pay the realtor, the level of detail is more critical than a buyer's agreement. Only with a signed listing agreement will a home appear on the Multiple Listing Service (MLS), being the exclusive system for advertising properties for sale over a broad geographic area.
The rate of commission will be expressed as a percentage of the full purchase price of the home. Canadian competition law prevents local real-estate boards from setting standard rates of commission, although average rates will normally prevail in any geographic area.
Since commission rates are not set, they're always open to negotiation. Most real-estate brokers will have policies governing the rate their office will be prepared to work for. Remember as well that GST is payable on real estate commissions.
Commissions are normally only payable upon the successful completion of the transaction of purchase and sale (usually when the purchase price is paid, the keys are delivered, and a deed of title is registered at the registry office).
A seller is under no obligation to accept any offer (even if exactly or better than what the seller was initially asking for). However, in these circumstances there may be provision in the listing agreement that requires the seller to pay the commission because of the unreasonableness of his or her refusal to accept an offer.
The listing agreement will set the time for how long a listing will appear on MLS. In the Ottawa-Carleton area, the local real estate board requires a minimum of 60 days.
Perhaps the most significant period of time in the listing agreement is the 'holdover period,' between the day your agreement with your agent ends and the day, if and when, you sell your home.
The minimum in the Ottawa Carleton area is 60 days, also established by the local real estate board.
If the home does not sell during the listing period and the seller terminates the relationship with the real-estate agent, the seller may still be obligated to pay the full commission.
This would occur if the home is privately sold during the holdover period to any person who was introduced to the home by the efforts (no matter how indirectly) of the former agent.
Like all legal documents, any contract you are asked to sign should be reviewed and carefully considered.
All too often sellers and buyers sign whatever is put in front of them. If you don't understand the fine print, ask for clarification.
If things go awry, saying you didn't read the contract will do you no good.
You may even have to retain a lawyer to assist you, being that other group of professionals also difficult to avoid when dealing with real estate. But then again, that ís the subject of another column.
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