What is designated agency?
Designated agency is an alternative way of providing representation services to consumers. In a designated agency relationship, the agreement to provide brokerage services is between the brokerage and the consumer but the agency relationship is between the consumer and the individual industry member(s) designated as their sole agent(s).
Why are written service agreements necessary to practice designated agency?
All service agreements between consumers and industry members should be in writing. However, industry members in traditional (common law) brokerages have been able to rely on the common law to apply agency principles when they represent consumers, particularly buyers, even when they do not document their relationship with a written service agreement.
Designated agency relationships represent a fundamental change from the common law where the agency and fiduciary relationship is between the brokerage (company) and the consumer. In designated agency, although the service agreement is with the brokerage, the agency and fiduciary relationship is between the individual industry member (not the brokerage) and the consumer. Another significant change is the designated agent’s knowledge is not attributed to the brokerage or to its designated agents representing other buyers or sellers. Such fundamental changes in the common law can only be successfully implemented if they are clearly documented and agreed to in writing by the consumer, brokerage and designated agent.
What are the benefits of designated agency?
Designated agency is consistent with consumer expectations and consistent with existing practices within many brokerages. Designated agency eliminates the conflicts of interest that commonly arise for a brokerage when two industry members from the same brokerage represent the buyer and seller in the same transaction. Although the industry members may act as if they only represent their respective clients, the reality is they and their brokerage are in a conflict of interest as a result of concurrent representation of competing parties. An industry member working under designated agency remains a sole agent for all of their clients, unless a buyer represented by the industry member becomes interested in a property owned by a seller who is represented by the same industry member.
As a result of implementing designated agency, the frequency of conflicts of interest arising from concurrent representation and the practice of transaction brokerage are reduced significantly within the brokerage. Because designated agency requires written service agreements, another benefit is the services to be provided and responsibilities of the brokerage, designated agent and consumer are clearly documented for all parties.
Who decides if the brokerage will operate under designated agency?
The owner and broker will decide if the brokerage will operate as a traditional brokerage (common law agency) or elect to operate as a designated agency brokerage.
How do I know what agency my brokerage offers?
The owner and broker will decide voluntarily to become a designated agency brokerage. If a broker wishes to operate as a designated agency brokerage, he or she must advise all the industry members registered with the brokerage and employees and notify RECA of the change. The broker will need to ensure the brokerage has taken all of the steps and implemented the policies necessary to implement designated agency.
How will designated agency affect my brokerage’s real estate practice?
- the brokerage must enter into written service agreements with all clients, that is, both sellers and buyers;
- industry members who practice in a designated agency brokerage and trade in a residential real estate property, must use the forms specifically designed for designated agency in Schedule 1 of the Real Estate Act Rules;
- agency relationships will be between individual industry member(s) registered with the brokerage and clients;
- one industry member registered with a brokerage can represent a seller and another industry member registered with the same brokerage can represent a buyer without creating a conflict of interest;
- industry members must keep their clients’ information confidential at all times, unless they are required to release the information by law or are authorized to do so by their client; and,
- there must be information barriers implemented by the brokerage to ensure confidentiality of client information between industry members within the same brokerage and between brokerages.
What forms do I have to use?
A client [seller(s) or buyer(s)] must provide their informed and written consent to designated agency. This is achieved by having the client sign a designated brokerage agreement as a seller (listing contract) or as a buyer, as the case may be. If the service agreement involves a trade in residential real estate and an exclusive right to represent (either a seller or buyer), the agreement must also comply with the mandated wording as set out in the Real Estate Act Rules, section 60.1. The forms are contained in Schedule 1 of the Rules.
If the service agreement does not relate to a trade in residential real estate (e.g. commercial, industrial, investment, farm, ranch, etc.), or does not involve an exclusive right to represent the client, you are not required to use the same wording as provided in the mandated form; however, you must still use a written designated agency brokerage agreement and it must comply with sections 43 and 58.1(3) of the Real Estate Act Rules.
Unless a brokerage has developed its own transaction brokerage agreement for either non-exclusive or non-residential transactions, RECA recommends the brokerage and its industry members refer to the suggested forms posted on RECA’s website at www.reca.ca as these forms meet the requirements of the Real Estate Act Rules.
If I practice designated agency and will be representing a buyer, do I have to use a written buyer brokerage agreement? Yes, designated agency may only be established by entering into a written service agreement with a client.
If I practice designated agency and will be representing a buyer, does it have to be an exclusive right to represent?
No, it does not have be an exclusive right to represent. You can enter into a designated brokerage agreement (for buyers) that is non-exclusive. A suggested non-exclusive designated brokerage agreement for buyers is posted on RECA’s website at www.reca.ca.
How are privacy and confidentiality different under designated agency?
In a traditional (common law) brokerage, the service agreement and agency relationship is between the brokerage and the client. Even though the client may only deal with one particular industry member, the client’s file is available to all industry members registered with that brokerage and its employees, subject to any internal policies of the brokerage regarding access to client files. Further, the knowledge of that particular industry member is attributed (by common law) to all of the other industry members registered with that brokerage and its employees. The obligation of confidentiality of the client’s information, whether it is personal information, information relating to their service agreement or relating to a specific transaction, by law, is at the level of the brokerage. Alberta privacy legislation (Personal Information Protection Act) and federal privacy legislation (Personal Information Protection and Electronic Documents Act) also apply to the brokerage, registered industry members and employees in their dealings with third parties.
In a brokerage that practices designated agency, the brokerage is still responsible for keeping client information confidential with respect to its dealings with third parties. However, the brokerage must ensure each designated agent within the brokerage keeps their clients’ information confidential from other industry members registered with the brokerage. The brokerage and the designated agent undertake they will not disclose any confidential information concerning the client to any other member of the brokerage or other person unless authorized by the client or required by law.
Does the broker or supervising manager have access to the client’s information?
The broker has access to the client’s information as it relates to the creation and administration of the service agreement between the brokerage and the client. As a general rule, the broker would not have access to the client’s confidential information except in the following circumstances:
- where it was required for the broker, or supervising manager, to ensure industry members were in compliance with the brokerage’s policies and procedures governing designated agents;
- to ensure industry members were providing services competently and with due diligence; or
- to ensure the brokerage was treating the interests of both a seller and potential buyer in an even-handed, objective and impartial manner.
What happens to my listing if I change brokerages?
The designated seller brokerage agreement (listing contract) is a service agreement between the seller and the brokerage (company). The agreement will include a clause that states if, for any reason, a designated agent ceases to be licensed with the brokerage, the brokerage will designate another member of the brokerage to serve as sole agent for the seller or the buyer, as the case may be. Notwithstanding this clause, each brokerage will have a policy for such circumstances. You should discuss this question with your broker.
If my brokerage becomes a designated agency brokerage, can it return to a common law brokerage later?
Yes, a brokerage would have to cancel all of its designated agency agreements and sign clients to common law agency agreements.
I’m a broker, what do I have to do to implement designated agency within my brokerage?
To comply with designated agency requirements, as a broker, you must:
- notify RECA that you intend to operate as a designated agency brokerage;
- establish written policies and procedures for information barriers and designated agency; and,
- replace existing brokerage agreements by entering into new written designated brokerage agreements with sellers and buyers.
Do I need to have an audit from RECA prior to implementing designated agency?
No. Brokers, at their option, can request a courtesy audit from RECA. RECA will provide whatever information or assistance it can to brokers who wish to implement designated agency in their brokerage, but a formal audit is not a requirement.
Does a brokerage have to advise consumers that it operates as a designated agency brokerage?
Yes. Industry members must explain to their clients how their brokerage operates. It is important for consumers to understand the basic differences between a traditional (common law) brokerage and a designated agency brokerage. Consumers would also be interested in knowing the benefits of this type of relationship.
Who can take care of my listings if I am sick or away on holidays?
The brokerage, in consultation with the seller, would designate another industry member within the brokerage to act on the seller’s behalf for the period of time you are away or otherwise unavailable. This can be accomplished through an amendment to the original seller brokerage agreement (listing contract). Alternatively, an additional industry member(s) may also be designated as an agent in the seller brokerage agreement at the time of listing the property.
What is my requirement if we have two competing buyers represented by the same brokerage, but different industry members?
Each buyer would have a separate designated agency agreement with their respective buyer’s agent. Each designated agent would maintain the confidentiality of their client’s information, act solely in their clients best interests and provide full agency representation. This illustrates another benefit of designated agency. In designated agency brokerages, this is not a conflict of interest and should not be a concern for either the clients or the industry members representing them.