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Consumer Guide to Conflict of Interest
This FAQ outlines the duties owed to you by your agent when it comes to conflicts of interest that may impact you. It also provides you with information on how conflicts may be addressed and the options available to you.
A conflict of interest happens when your real estate professional’s duty to act in your best interest may be at risk from their duties to another client, former client or third party. The significance of the risk depends on the situation but can have serious implications when they are not avoided or dealt with appropriately.
Conflicts of interest can be actual and perceived. An actual conflict may be recognized by all parties, for example if your real estate professional is representing multiple clients with competing interests in a transaction. A perceived conflict may be where a conflict does not exist, but a reasonable person may think it does. Be prepared to work with your real estate professional to ensure conflicts are addressed and your best interests are represented.
What duties are owed to me, the client?
The Real Estate Services Act is the governing legislation that dictates what all real estate professionals in BC must do in order to protect you during a real estate transaction. These duties require your real estate professional to:
- act in your best interest;
- act in accordance with your lawful instructions;
- act only within the scope of the authority given by you;
- advise you to seek independent professional advice on matters outside of the expertise of the real estate professional;
- maintain the confidentiality of information respecting you;
- disclose to you all known material information respecting the real estate services, and the real estate and the trade in real estate to which the services relate;
- communicate all offers to you in a timely, objective and unbiased manner;
- use reasonable efforts to discover relevant facts respecting any real estate that you are considering acquiring;
- take reasonable steps to avoid any conflict of interest; and
- if a conflict of interest does exist, promptly and fully disclose the conflict to you.
What is a conflict of interest?
Conflicts of interest occur when your real estate professional is unable to fulfill their obligations to provide to you all the duties noted above because of the competing interests of another party.
This can happen in real estate sales, or rental property and strata management. Below are just some of the ways this can occur:
- If you are selling a home and the buyer wants to be represented by your real estate professional.
- This is called limited dual agency and is only ever permitted in rare circumstances when certain criteria are met. Limited dual agency is discussed further below.
- A variation of this can occur where two buyers represented by the same real estate professional are looking to put offers in on the same property. In this case it would be impossible to act in the best interest of both buyers since their interests compete.
- If you want to buy a property owned by your real estate professional while they represent you.
- It is an indefensible conflict for a real estate professional to represent you as a buyer in the purchase of a property they own or to act as a buyer and purchase a property they have listed for sale.
- The real estate professional would be unable to put your needs ahead of their own desire to sell their property for as much as possible or purchase a property for the lowest price.
- If you want a rental property manager to manage your strata unit and but the real estate professional also acts as the strata manager for the complex.
- Part of a strata manager’s duties is to enforce the bylaws of the strata complex. This can contrast with the needs of a strata lot owner who may wish to rent their unit in violation of one or more of those bylaws.
- In this situation you may allow your rental property manager to reduce the duties owed to you, while providing all duties owed to the strata corporations.
- If you want to buy a property and discover that you were a former client of the listing real estate professional.
- The listing real estate professional has confidential information about you, so a conflict arises because they must maintain confidentiality and respect your personal information. At the same time, they are expected to give the seller all the information they have to assist them in getting the highest price for the property.
While these are just a few examples of conflicts you and your real estate professional may encounter, it becomes clear in each scenario that the real estate professional would be unable to act in your best interest or the best interest of the other client in the transaction without disadvantaging one of you.
When a conflict is identified by your real estate professional, they must immediately notify you of the conflict and provide you with potential solutions to address it. Ideally you would have a conversation about potential conflicts that could arise at the outset of your agency relationship.
How can I deal with a conflict when it is identified?
There may be situations where you determine the benefits of continuing with the representation, despite a conflict, outweigh the risks it poses. In such cases, you and your real estate professional can modify and limit the duties owed to you in your service agreement (contract), or disclosure of representation, to address the conflict. This may mean that you agree the real estate professional will not provide you any advice or information that may disadvantage their other client and vice versa. You may also agree that only the duties owed to you will be reduced while all duties remain intact for the other client. All clients of the real estate professional must agree in writing to modify the duties owed to them before a modification is permitted.
Another way to deal with a conflict of interest is to find a different real estate professional to represent you. This is often simplest way to ensure that your needs and interests are put first.
The final way to address a potential conflict is to act as an unrepresented party in the transaction. This essentially means that you have no real estate professional acting on your behalf. There are several risks in choosing this option and the real estate professional representing the other side of the transaction will provide you with a form outlining some of them. It is always advisable to get independent legal advice if you are choosing to represent yourself to ensure you understand the risks involved.
Why is limited dual agency prohibited in most cases?
While modifying the duties owed to you by your real estate professional is a legitimate way to deal with many conflicts, limited dual agency is one area where the legislation prohibits the conflict except in very specific circumstances.
As the name implies, limited dual agency is the act of limiting the duties owed to you when a real estate professional is representing clients with competing interests in the same transaction, or, depending on a real estate brokerage business model, two real estate professionals at the same brokerage represent clients with competing interests. This can occur during real estate sales, rental property management, and strata management.
Because this conflict creates a greater risk for consumers, the practice is only be permitted in circumstances where the location of the property is under-served and remote. In other words, unless the property is in an area of BC where it would be extremely difficult for you to locate an independent real estate professional to represent you, dual agency is not permitted. If the property in question meets the requirements to allow for the exception, you and your real estate professional will review a disclosure document and the process that must be followed before entering a limited dual agency relationship.
Where can I get more information?
Talking to your real estate professional is the best way to have all information explained in detail. Real estate professionals go through extensive training and follow a set of laws created to protect you and can provide you with documents outlining everything you need to know relating to different conflicts. Your real estate professional will also be able to make suggestions based on your specific circumstances and explain the advantages and risks of the different options.
Should you have additional questions and/or concerns, you may also choose to call a Practice Standards Advisor at BCFSA.
This content was developed with financial support from the Real Estate Foundation of BC.