Canada’s Largest Real Estate Regulator Is Eliminating “Customers,” and It’s A Big Deal

Canada’s largest provincial real estate market is about to become more transparent. The Real Estate Council of Ontario (RECO) is looking for feedback on proposed rule changes. The proposal is to create more transparency, and includes allowing multiple-bid disclosure. Multiple bids get the most attention, but a less-known change is a bigger deal — eliminating “customers.”

Customer, Clients, and Fiduciary Duties

The difference between a customer and a client boils down to fiduciary duty. Brokerages have fiduciary duty to clients. This means the legal obligation to promote and protect the client’s best interests. One enters into this usually through a representation agreement. This is common with financial and legal professionals as well.

Brokerages have no fiduciary duty to customers. That’s right, they have no obligation to look out for the customer’s best interests, beyond the customer agreement contract. They still have to inform the customer of material issues, but not much beyond that. A good share of the population would likely struggle to tell you if they were a client or customer in a transaction they’ve completed. 

Ontario Real Estate Registrants Aren’t Required To Look Out For Customers

It might be easier to understand at a high level, but what does that mean? The regulator’s common example for buyers is the amount of disclosure. For buyer clients, the salesperson is required to take reasonable steps to determine and disclose all material facts about the purchase. A customer is only entitled to the material facts the salesperson must know. Customers are only entitled to the legal minimum, with no requirement to tell you if you’re walking into a bad deal. 

The regulator’s most commonly used example for sellers has to do with disclosure of offers. A salesperson is required to disclose all offers to a seller client unless they have a written agreement to waive it in certain circumstances. Customers are only entitled to receive the offers stated in the agreement. Salespeople don’t have to pass on every offer if your customer agreement doesn’t outline it. Darn, did you only get the offer from the agent’s client, and not the higher one from a stranger? Better luck next house. 

This issue also tends to occur in situations where a buyer without representation approaches a selling agent. Sometimes they think they’re getting a deal on commission, but if they’re a customer they might just be left with a raw deal. Remember, a salesperson isn’t required to look out for a customer. They do have an obligation to get the best deal for their client, which can involve not warning you of any potential oversights you might have agreed to. 

RECO Wants It To Be Clear If An Agent Is Looking Out For Your Best Interests

Sounds like customers are on their own? That’s how the regulator sees it as well. They’re proposing the elimination of the customer segment, so it’s crystal clear what the agent’s role is. If it passes, the only options would be client representation or self-representation. 

The proposal also includes new rules for salespeople and brokers about disclosure. Prior to representation the consumer would need to have regulator provided information explained, before the agreement can be made.

It’s not clear to what extent consumers have been under the impression they were clients, when they were actually customers. Reputable salespeople and brokerages outline their responsibilities before an agreement is signed, with better ones explaining the difference. Like most rules, this is made to address the small share that take advantage of consumers.