Chapter 12: Law of Agency

Agency law governs how real estate licensees interact with consumers and defines the duties, disclosures, and boundaries of those relationships. In this episode of The Real Estate Debrief, host Celine Li is joined by Devin Kanhai, Executive Director of the UBC Sauder Real Estate Division, to unpack Chapter 12: The Law of Agency and explain why it is foundational to ethical and lawful practice.

The episode explores how agency relationships are created, the risks of implied agency, and the importance of disclosures and informed consent. Listeners will learn how designated agency works in British Columbia, why dual agency is largely prohibited, and how fiduciary duties — such as loyalty, confidentiality, and managing conflicts of interest — apply in real‑world scenarios like open houses and working with unrepresented buyers.

Transcript

SPEAKER_01 0:07

Welcome to the Real Estate Debrief, a podcast where we break down the Real Estate Trading Services licensing course in British Columbia, help you master key concepts in the course, and link your knowledge to real-world scenarios. I'm your host, Celine Lee, and in this episode, we're exploring Chapter 12, the Law of Agency. Now, before we dive into the chapter, I will note that this podcast is for general educational purposes only, and is not intended to provide and does not constitute legal, accounting, or other professional advice. Chapter 12 is quite a lengthy chapter. There is a lot to unpack. To help us do that, I am joined today by subject matter expert and executive director of the UBC SODR Real Estate Division, Devin Canheim. Before joining UBC to lead the real estate division's licensing programs in BC, Saskatchewan, and Alberta, Devin practiced corporate law. Currently, he also teaches law within the BC licensing programs and in the accounting program at UBC SODDR. Welcome, Devin.

SPEAKER_00 1:05

Hi, Celine. Thanks for having me.

SPEAKER_01 1:07

Let's get right into the fundamentals. What exactly is agency?

SPEAKER_00 1:11

Agency is fundamentally a legal relationship where you have one person acting on behalf of another. The parties here are an agent and a principal. Agency relationships exist in many different places in our society. But in real estate, the agent, who is also the licensee, represents their client's interests in dealing with others. The client could be a buyer, a seller, a landlord, or even a tenant.

SPEAKER_01 1:39

And why is an understanding of agency law so important for real estate licensees?

SPEAKER_00 1:45

Well, agency is truly at the heart of almost everything a real estate licensee will do in their practice. Real estate agents serve people, and knowing what's involved in these relationships is critical. Licensees will run into issues all the time that test their understanding of agency. For example, what if you're representing a seller client and at your open house, an unrepresented buyer comes in and wants your help in making an offer? What if a potential buyer for this property is a former client? Does that change anything? And what if the two buyer clients of yours want to make an offer on the same property? And finally, what if a seller client wants you and someone at a different brokerage to work together to list their property for sale? How a licensee responds in all of these situations in many ways boils down to the basics of agency duties owed to clients.

SPEAKER_01 2:37

I can see how understanding agency law directly impacts how real estate agents interact with clients and non-clients, whether they are sellers or buyers right from the outset. So, given the importance of agency relationships, can you tell us a little bit about how they are created?

SPEAKER_00 2:55

Sure. Chapter 12 discusses the three ways that an agency relationship can be created. But the most common way is when the relationship is created expressly, and that can be done either orally or in writing.

SPEAKER_01 3:09

Interesting. Many people don't know that agency can be created orally. Typically, you'd think it has to be done in writing.

SPEAKER_00 3:15

Well, they're partly right. At common law, agency can certainly be created orally. But on top of the common law, we have the real estate services rules, which require a written service agreement, sometimes known as an agency contract, when acting for a seller, unless the seller waives that requirement. The express written service agreement is really what creates the agency relationship between the parties.

SPEAKER_01 3:41

Do the rules similarly require a written service agreement when acting for a buyer?

SPEAKER_00 3:46

No, they don't. But I would say that a best practice is to have one in place with all clients, even including buyers. You want to make sure that you're starting the relationship off on the right foot, where the expectations on each side are clearly laid out in writing.

SPEAKER_01 4:01

And licensees need to also provide a disclosure form to clients before entering into an agency agreement with them.

SPEAKER_00 4:08

Yes, in most cases, licensees are required to provide consumers, whether they will be in an agency relationship with them or not, a certain disclosure form, which is designed to educate the consumer on the type of relationship that the licensee is proposing they will have together.

SPEAKER_01 4:24

And that is called the Dortz form, right?

SPEAKER_00 4:27

Yes. The full name is the disclosure of representation in trading services form. And the goal of the forum is really to educate the consumer about what it means to work with a real estate licensee and obtain their informed consent to being either a client of the licensee or an unrepresented party who is just receiving limited services from the licensee. The Dortz form helps ensure that the licensee has this very important conversation with the consumer before providing them with any trading services.

SPEAKER_01 5:02

Can agency be created in ways other than through express agreement?

SPEAKER_00 5:07

It can. There is also implied agency that licensees need to be aware of.

SPEAKER_01 5:12

Tell me more about implied agency.

SPEAKER_00 5:14

Okay. Implied agency occurs when someone acts as if they are your agent or in a way that's consistent with an agency relationship, even though you haven't expressly agreed to an agency relationship with them. Now, this is dangerous for the licensee because becoming an agent comes with having to fulfill a lot of duties to that other person. And if that relationship is implied, neither party may actually be aware that it's been created. So it's really hard to fulfill agency duties if you don't even know you're an agent in the first place.

SPEAKER_01 5:49

That's true. How can this be mitigated?

SPEAKER_00 5:52

Licensees need to make sure that if they want to act as an agent for someone, they're clear about that with the other person. And if they're not wanting to be in an agency relationship with someone, they don't act in a way that suggests that they are.

SPEAKER_01 6:07

Can you give a couple of examples of what a licensee could do for an unrepresented buyer that might cross the line and create implied agency?

SPEAKER_00 6:16

Sure. Some examples are giving the unrepresented buyer advice, like what they should offer on the property, negotiating on the unrepresented buyer's behalf, or disclosing confidential information about their seller client to the unrepresented buyer.

SPEAKER_01 6:31

I think it's pretty clear now that it is critical for licensees to ensure that the right expectations are set with the consumer at the outset.

SPEAKER_00 6:39

Absolutely. Creating the agency relationship is important, but knowing about the scope of authority is crucial too.

SPEAKER_01 6:47

Right. Tell me more about scope of authority.

SPEAKER_00 6:50

Well, scope of authority is basically what you as an agent are empowered or authorized to do on behalf of your client, the principal. An agent never wants to be in a position where the principal accuses them of acting outside of their scope of authority. Therefore, the best course of action for the agent is to make sure that the agency agreement is clear about what can and what cannot be done by the agent in the relationship. If the agent is asked to do additional things after the agency agreement is entered into, the agent should confirm that the scope of authority has changed in writing, typically through an email or it could even be done in a text message.

SPEAKER_01 7:31

That's great advice and information to keep in mind. Let's move on and talk about agency and BC, specifically designated agency. Devin, can you share more on this?

SPEAKER_00 7:42

Sure. Since 2012, the industry has generally operated under an agency model called designated agency.

SPEAKER_01 7:49

Okay, and before going any further, what model did we have before 2012?

SPEAKER_00 7:54

It was called brokerage agency. Under brokerage agency, when a client hired the brokerage, they were entering into an agency relationship with the brokerage, and also each and every licensee within that brokerage. What this meant is that every licensee owed fiduciary duties like loyalty, full disclosure, and confidentiality to the client. Now, in the modern era where brokerages can sometimes have hundreds of licensees, this doesn't really make much sense because the client is often only dealing with one or two licensees. And all of the other licensees at the brokerage have no real relationship with that client. The client doesn't really expect every single agent within the brokerage to be their agents and owe them fiduciary duties.

SPEAKER_01 8:42

Interesting. So how does designated agency change that?

SPEAKER_00 8:46

Well, under designated agency, the brokerage appoints one or more licensees as the client's designated agents. These are the agents that owe fiduciary duties to the client, but not the other licensees of the brokerage. The other licensees don't have access to the client information or file and are welcome to work with their own clients.

SPEAKER_01 9:09

So if I'm the designated agent, I'm the one with the big responsibilities.

SPEAKER_00 9:14

Exactly. You are the client's advocate and you put them first. You must act in their best interests at all times, even if that means advising them against a decision that might benefit you personally.

SPEAKER_01 9:26

Right. And it's important to remember that it is the designated agent that owes fiduciary duties to the client, not the brokerage or the brokerage's other licensees.

SPEAKER_00 9:35

Absolutely. And I will also mention that one thing has remained the same before and after 2012, and that's that the Real Estate Services Act requires the agency agreement or services agreement to be between the client and the brokerage, not the client and the individual licensee.

SPEAKER_01 9:53

Great. So we've talked about brokerage agency and designated agency. What about dual agency? We hear about this concept in the industry. Can you explain it a bit?

SPEAKER_00 10:03

Dual agency really occurs in two cases. First, when a single licensee represents both a buyer and a seller in the same transaction. Second, when a single licensee represents two different buyers who are interested in the same property. As you might imagine, there are inherent difficulties when acting in this way. If your job as an agent is to put your client's interests first, how do you do that if you have two clients with opposite interests? For example, how do you get the highest price for your seller client if you're also acting for the buyer and trying to get them the lowest price?

SPEAKER_01 10:42

Yes, that's true. Dual agency introduces a major conflict of interest for the licensee, doesn't it?

SPEAKER_00 10:48

It does. And since 2018, dual agency is banned in BC in all but the rarest of situations.

SPEAKER_01 10:56

Okay, let's go back to fiduciary duties and zoom in. Can you tell me more?

SPEAKER_00 11:01

Sure. Fiduciary duties arise in fiduciary relationships. And these are relationships where one person puts their trust and confidence in another person, and that person has the power to significantly impact the interests of the other. The word fiduciary actually comes from the word fiducia, which is Latin for trust. The one who is trusting the other is known as the beneficiary, and they are vulnerable to the actions of the other, who is known as the fiduciary. Real estate agency relationships are generally viewed as fiduciary relationships. And fiduciary duties were developed to ensure that fiduciaries fulfill their role for the beneficiary in a responsible manner. There's a famous comic book phrase: with great power comes great responsibility. I sometimes think of that when I think of fiduciary duties.

SPEAKER_01 11:53

Indeed. With great power comes great responsibility. That's a great connection. Let's get into the power and responsibilities of fiduciary duties. What are they?

SPEAKER_00 12:03

The primary duty is loyalty, and that's always putting your clients' interests first. This means putting their interests ahead of all others, even your own. I often call this the umbrella fiduciary duty, because all of the other fiduciary duties that are discussed in the chapter, they're simply examples of the duty of loyalty.

SPEAKER_01 12:24

Interesting. Can you give me an example of the duty of loyalty in action?

SPEAKER_00 12:28

Sure. As a licensee, your primary personal motivation in a relationship with a client is the fact that you will earn compensation if a real estate transaction is entered into by your client. Therefore, your interest is in having the client enter into a deal. Imagine that you're working with a buyer and you showed them a lot of properties, but you finally found one that checks most boxes on their wish list. You might experience the motivation to nudge them to make an offer because you've worked many hours with the client and you really feel like you deserve a commission.

SPEAKER_01 13:02

Right, or it's possible that you might know of other properties that could potentially check more boxes on the client's wish list, but you're heading on vacation in a few days and want to get things wrapped up quickly.

SPEAKER_00 13:14

Absolutely. And another motivator could be that the property seller may even be offering a higher than average commission split. In any case, a fiduciary cannot let these external motivations guide their conduct. They must always put the interests of their client first and ensure that their advice aligns with the client's best interests. It may not be in the client's best interest to make an offer on this property at this time, because there are other potentially more suitable properties on the market that the parties have yet to see.

SPEAKER_01 13:45

That's a great example. All right, so the umbrella duty is the duty of loyalty. What are the other fiduciary duties?

SPEAKER_00 13:52

There is the duty to avoid conflicts of interest, the duty of confidentiality, the duty of full disclosure, and the duty to obey lawful instructions. These are common law fiduciary duties, but I want to mention that they are also found in section 30 of the rules. What this means is that breaching your fiduciary duties could lead to both lawsuits by your clients and disciplinary action by BCFSA. And I think this really highlights the importance of and the seriousness that licensees need to take when fulfilling their fiduciary duties.

SPEAKER_01 14:28

We hear a lot about conflict of interest in real estate sales, and I know the chapter does delve into the topic quite a bit. Can you give us a 10,000-foot view on the concept?

SPEAKER_00 14:38

Sure. And you're right, it's quite a big topic and sometimes nuanced as well. So I suggest listeners really take their time with this topic in the chapter. At the highest level, a conflict of interest arises when you, as a licensee, find yourself in a position where there's a substantial risk that your ability to act in the best interest of your client could be influenced by outside factors, such as your own personal interests or the interests of someone else, like another client.

SPEAKER_01 15:08

Okay, what's an example of where a conflict of interest might arise?

SPEAKER_00 15:13

One of the simplest examples is when you have a seller client, and while you're marketing their property for sale, a buyer client of yours becomes interested in that same property. Your ability to act in the best interest of your seller client could be influenced by the duty of loyalty to your buyer client to find them the best property at the lowest price. A conflict would also arise if you have two buyer clients and they become interested in purchasing the same property. And maybe on a more personal level, imagine one of your siblings learned about one of your listings and wanted to submit an offer. What if you were selling your own property and one of your buyer clients wanted to make an offer on it? All of these are conflicts of interest.

SPEAKER_01 15:57

Right, I can see all the conflicts there and some of the issues they can cause.

SPEAKER_00 16:01

Yes, but it's important to remember that while the concept sounds negative and may suggest that something improper has been done, it's actually neutral and doesn't imply wrongdoing.

SPEAKER_01 16:13

That makes sense. For instance, in the first example that you gave, if a buyer client becomes interested in a seller client's property, the client hasn't actually done anything wrong.

SPEAKER_00 16:23

Exactly. Some conflicts, like that one, are inevitable. The duty to avoid conflicts of interest requires you to avoid the conflicts when you can, but if a conflict does arise, to deal with it or manage it appropriately.

SPEAKER_01 16:37

So how does the licensee manage a conflict if it arises?

SPEAKER_00 16:41

The licensee must disclose the conflict and obtain the consent of the client on how to act. This engages another fiduciary duty, which is the duty of full disclosure, which is all about being open and transparent with your client when a conflict does arise.

SPEAKER_01 16:57

You mentioned disclosure there. I know that the chapter ends with a pretty big discussion on agency disclosure in BC. Does this discussion expand on the fiduciary duty of full disclosure?

SPEAKER_00 17:09

Yes and no. Some of these disclosures must be made to clients and help the licensee fulfill their fiduciary duties. But there are other disclosures that are made to non-clients. Remember that licensees do not owe fiduciary duties to non-clients. So these disclosures are more about transparency in general and ensuring the public believes in the integrity of the industry.

SPEAKER_01 17:33

Alright, let's shift gears and apply agency to real life. We've got a couple of scenarios to ask Devin about. Imagine that James is a licensee and is hosting an open house, and an interested buyer asks James if he is able to help them write an offer on the property. How should James respond?

SPEAKER_00 17:52

Well, the first question I always ask is, who is the client? And I'll assume that, as a licensee hosting the open house, the client is the seller. In the scenario that you laid out, the licensee who is in an agency relationship with the seller must make it clear to the unrepresented buyer who is seeking their assistance that the client is the seller and their loyalty is to the seller. The real estate services rules require two disclosures to help the buyer understand this.

SPEAKER_01 18:24

What are these two disclosures?

SPEAKER_00 18:26

Well, the first is the disclosure of representation in trading services form, or the Dortz form, and we talked about this one earlier. The second is the disclosure of risks to unrepresented parties form. Both must be made by the licensee to the buyer before performing any services for them.

SPEAKER_01 18:44

And I'm assuming that after the buyer receives these disclosures, they have a choice to make.

SPEAKER_00 18:50

Yes. At this point, the buyer has to make a choice between one of two key options. The first key option is to seek the assistance of another licensee to help them instead.

SPEAKER_01 19:01

Can this other licensee be a different agent within the same brokerage as the listing licensee because of designated agency or a licensee at a different brokerage?

SPEAKER_00 19:12

Yes, licensees will typically have referral networks for these situations. The second key option is for the buyer to continue to seek the help of the listing licensee to write the offer, after understanding, through the right disclosures, of course, that the relationship with the listing licensee will be a no-agency relationship, and that the services that can be provided are quite limited. The buyer in this case would be known as an unrepresented party.

SPEAKER_01 19:40

And if the buyer chooses no agency, what are the limited services that James, the listing licensee, can provide?

SPEAKER_00 19:48

James can assist them with administrative tasks like giving them general market information, filling out standard forms like the contract of purchase and sale, and presenting the contract to their own client, the seller. The key thing to remember here is that James cannot provide the buyer with any advice, such as what price they should offer, what types of terms they should be including in the offer, and what the best negotiation strategy might be. Doing any of these things crosses the line and it starts to suggest to the buyer that the licensee is acting on their behalf, which remember is agency. Specifically, it would be implied agency.

SPEAKER_01 20:26

And we know from earlier that implied agency is risky.

SPEAKER_00 20:29

Right. There are two key risks here. The first is that James could be sued for breach of fiduciary duties by both the buyer and the seller. But second, James could also be disciplined by BCFSA for practicing dual agency.

SPEAKER_01 20:44

Okay, beware of implied agency. So if James can't provide the buyer with any advice, why would the buyer want this relationship?

SPEAKER_00 20:53

You've got a good point, Celine. Most consumers want the licensee working for them to provide them with advice. There are some cases where buyers don't need it or want it. They may be a sophisticated person, like a lawyer or a real estate developer, who doesn't feel like they need the advice. They know what they want to offer on the property, they know what terms they want in the deal, and they just need help from the listing licensee to put it all together. But you are right, in most cases, this no agency relationship won't be ideal for the buyer.

SPEAKER_01 21:26

Most buyers will probably seek out a different licensee for assistance.

SPEAKER_00 21:30

That's the likely outcome. The final point on this that I want to make is that licensees always need to be clear what the legal relationship is with the consumer so that they can act accordingly. They should understand the relationship and they should make sure that the consumer understands it as well. That's all part of this concept called informed consent, which the chapter discusses.

SPEAKER_01 21:53

Got it. Great point. How about one more scenario?

SPEAKER_00 21:56

Sure.

SPEAKER_01 21:57

Great. For this next scenario, We have Annie, another licensee, who has two buyer clients become interested in the same property, and both are considering making an offer on it. How does this work in the context of agency?

SPEAKER_00 22:12

Great example. In this case, Annie has run up against a conflict of interest between current clients. Going back to fiduciary duties, it's impossible to fulfill the duties to both clients simultaneously if they both want to buy that same property. Further, continuing to act for both would be engaging in dual agency, which is generally prohibited.

SPEAKER_01 22:34

So with the conflict of interest in mind, where should Annie go from here?

SPEAKER_00 22:39

Well, the simplest course of action is to address the conflict by telling both buyers that if they both want to make offers on the property, rather than favoring one over another, she will step back and ask the buyers to seek representation from other licensees. Annie may provide the buyers with a list of other potential licensees that have the expertise to assist them.

SPEAKER_01 23:00

But in a commission-based industry, that doesn't sound great for Annie, though.

SPEAKER_00 23:04

No, it certainly doesn't. But remember, licensees are fiduciaries for their clients first, and this might mean that Annie has to put her interests in earning a commission secondary to her clients' interests in receiving full and unbiased advice and support. But the real estate services rules do provide Annie with another way to resolve the conflict. If both buyer clients agree in writing by signing an agreement regarding conflict of interest between clients, Annie can continue representing one buyer client and release the other client. If both don't agree, Annie cannot represent either.

SPEAKER_01 23:42

How does Annie choose which client stays and which will be released?

SPEAKER_00 23:46

Wow, that that's a great question. And the shorter answer is, I don't know. There aren't any rules around that. So Annie needs to make a business decision, and it may not be easy. However, licensees like Annie can certainly lessen the shock of these conflicts popping up by having a conversation about the possibility of conflicts arising at the beginning of the relationship with the clients, so that the right expectations are set.

SPEAKER_01 24:12

So the message here is that setting the right expectations on a variety of matters is important when establishing a new relationship with the client.

SPEAKER_00 24:20

Absolutely, that's a great point.

SPEAKER_01 24:22

One more thing. Even if one client is released in this situation, does confidentiality still apply?

SPEAKER_00 24:29

It certainly does. The duty of confidentiality essentially lasts forever. Now, this is unique because all other fiduciary duties end when the relationship ends. So confidential information about Annie's released client cannot be shared with the client that Annie continues to represent. That includes things like price limits and motivations of the released client. And one final thing. If one of Annie's buyer clients later decides not to buy that specific property, the conflict would no longer exist for Annie, and it would be possible for her to continue working with both buyers again.

SPEAKER_01 25:05

Okay, thanks. I think our discussion about these scenarios helps listeners understand how important the content in this chapter is to a licensee's practice. Now let's pivot a bit and talk about how this chapter connects to the rest of the course. Devin, could you share more information on this?

SPEAKER_00 25:21

I think it's quite obvious to listeners that agency is at the heart of everything a licensee does. So it naturally connects to many chapters in the course in one shape or form. How a licensee acts for their clients, the services they provide, and the advice that they give all build off the basics of agency.

SPEAKER_01 25:41

Indeed. To conclude our discussion, I always ask our guests to provide the top three takeaways for each chapter. Devin, what are they for chapter 12?

SPEAKER_00 25:51

Okay. First, I would say that agency relationships are foundational to the real estate services provided by licensees to clients. They're all about trust and confidence. It is crucial that agents observe their fiduciary duties when acting for their clients, not only for the protection of consumers, but also for the integrity of the industry. A discussion of the roles and responsibilities should take place with the consumer, whether they will be in an agency relationship or not, before agreeing to provide them with real estate services. Second, the governing legislation in BC for real estate licensees sets out a number of requirements and guardrails to ensure that real estate agency is practiced in a way that protects the public. It touches on topics such as designated agency, the prohibition on dual agency, duties to clients, and disclosures. Finally, disclosures are critical to ensure transparency and confidence. They deal with things like representation, risk, remuneration, and conflicts. Licensees need to understand when each disclosure is required, along with why a particular disclosure is necessary. They need to be able to explain each disclosure to the consumer. The chapter provides a great summary table that contains much of this information.

SPEAKER_01 27:13

Well said, those are great takeaways. And that concludes our overview of chapter 12, Law of Agency. Thank you for joining us, Devin. In our next episode, we'll explore another chapter from the licensing course manual. Until then, good luck, everyone, as you make your way through the course.