Agent Fails to Protect Client (Discipline)

By Brian Madigan LL.B.

(Ontario Real estate Source)

A sales representative takes a listing from a bank. Because the property is being sold “power of sale”, it is a rock bottom price and it generates some interest in the real estate community.

In fact, the bank requested that all offers be submitted on a certain date, namely 31 May 2006. In fact, eight offers in total had been submitted by that time. So, an assistant to the lawyer at the law firm acting for the bank sent the following communication to the listing agent by fax:

“disclose the contents of the highest offer to all of the persons making an offer” and asked that “any resubmissions be made…by 3:30” of that same day.

This presented a problem for the listing agent who was disciplined by the Real Estate Council of Ontario.

However, this still caused a concern for another agent in the brokerage. Why?

Mildred was the listing agent for the bank. She told a colleague at the brokerage that she had this “hot listing”. Blanche had already signed up Mary Jones to a Buyer Representation Agreement known as a BRA. Mary was a client, and Blanche as well as ABC Brokerage owed her the highest fiduciary duties.

Blanche went to see the property with Mary. It looked like a bargain. Mary decided to submit an offer at $356,000 open until 31 May (the offer date).

Blanche then told Mary that there were 7 other offers. At $356,000, perhaps Mary should reconsider. So, Mary submitted another offer, also open until 31 May, but this time at the increased price of $360,600.

Now, this is where things get muddy. Both Mildred and Blanche work for the same brokerage. The brokerage is the agent for both the bank and Mary.

There is a disclosure requirement at this point. Both the bank and Mary need to know where the brokerage’s loyalty lies. If they are content with multiple representation and the consequent conflict of interest, then so be it. At least they can make an informed decision.

One little problem! Mildred told the seven other bidders that one bid was $360,600. This must have caused a problem for Blanche, because there was no evidence that Mary knew about it. This was a time when Mary should have had another opportunity to increase her offer, this time, attempting to outbid anyone who increased their offer to outbid her.

And, someone did. They proposed a closing date, two days earlier than Mary, and outbid Mary by $900. As you can probably imagine, Mary would have been furious when she found out about all of this. First, they disclosed the contents of her offer, contrary to law and second, they didn’t provide her with the opportunity to submit a third and better offer.

Here’s a provision in the Code of Ethics that applies:

Nature of Relationship

17. If a registrant represents or provides services to more than one buyer or seller in respect of the same trade in real estate, the registrant shall, in writing, at the earliest practicable opportunity and before any offer is made, inform all buyers and sellers involved in that trade of the nature of the registrant’s relationship to each buyer and seller.

As mentioned, this document was never signed.

Unfortunately, the complaint resulted in a compromise settlement, so full particulars were not disclosed.

Another matter is the obligation of Blanche to Mary. There are two specific duties that the Discipline Committee examined:

Best Interests

4. A registrant shall promote and protect the best interests of the registrant’s clients.

Conscientious and Competent Service, etc.

5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.

As you can appreciate, Mary’s interest certainly was not protected. Her offer was disclosed and she was not provided with a further opportunity to compete. As a consequence, she lost the deal, when she had been the highest bidder, before the law was broken.

When it comes to the brokerage, it does not get off scott-free. It also broke the rules, through Mildred and Blanche. The illegal disclosure and the lack of documentation were both issues. Both matters result in vicarious liability on the part of the brokerage.

In addition, the brokerage broke another rule on its own:

Duty to Ensure Compliance

41. (1) A brokerage shall ensure that every salesperson and broker that the brokerage employs is carrying out their duties in compliance with this Regulation.

The Discipline Committee negotiated a fine with the brokerage for $2,000, and with Blanche for $7,000. Mildred agreed to a penalty of $5,000.

Comment

A slight problem arises because there was not a full discussion of the facts. The brokerage appears to have paid a modest fine. This was a rather serious breach. The client who was the highest bidder did not end up with the deal.

That could have further implications civilly.

The Committee obviously weighed the disclosure and the breach of privacy as a serious matter. Yet, even more serious is the failure to act appropriately and in the best interests of the client.

It is nevertheless difficult to draw specific conclusions, without a full recitation of the facts. Was Blanche aware of the transgression? Did Blanche try to cover up the illegal disclosure. Clearly, Blanche failed to step up to the plate and protect her own client’s interest when it was her legal obligation to do so.

In similar circumstances, consumers would be well advised to seek legal advice from their own lawyers at the earliest possible opportunity.

As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com