A Critique of the British Columbia Residential Real Estate Brokerage Industry's Use of Dual Agency

AuthorMichael Drouillard
PositionIs a third year law student at the University of Victoria, the author of Landlording in Canada (International Self-Counsel Press, 2008), and a professional member of the Real Estate Institute of British Columbia
Pages84-100
ARTICLE
A CRITIQUE OF THE BRITISH COLUMBIA
RESIDENTIAL REAL ESTATE BROKERAGE
INDUSTRY’S USE OF DUAL AGENCY
By Michael Drouillard*
CITED: (2011) 16 Appeal 84-100
I. INTRODUCTION
Many of us purchase homes and deal with real estate agents in the process. Furthermore,
the purchase of a home is oen one of the most substantial investments a person makes.
In light of this, real estate agency ought to be of tremendous concern to anyone interested
in consumer protection law and reform. Surprisingly, reform in this area appears to have
been le largely up to regulators and real estate industry representatives who engage in a
private dialogue that tends to be inaccessible to the public. e intention of this article is
to expose the public to this dialogue and spur further academic discussion into the work-
ings of this industry.
is article critiques the current practice of dual agency in British Columbia. Dual agency
is a subject of considerable controversy in the residential real estate brokerage industry.
It is commonly criticized for the inherent conict of interest it creates when an agent
concurrently represents a vendor and purchaser, parties who hold adversarial-like aims
in a transaction.
However, this article contends that there are three additional issues with dual agency that
tend to be neglected by commentators and that are perhaps of even greater concern. First,
in the typical residential real estate transaction, consent to dual agency is, arguably, neither
informed nor truly obtained; rather, consent tends to be compulsory due to the workings
of the residential real estate brokerage industry whose members routinely enter dual agency
relationships with their clients through the use of standardized forms. Second, dual agency
suers from increased risk of a particular form of conict of interest known as “principal-
agent incentive misalignment”where the real estate agent furthers his or her nancial in-
terest at the expense of one or both clients. Finally, real estate agents tend to lack the
training required to undertake a dual agency role in a competent manner.
84 wAPPEAL VOLUME 16
* Michael Drouillard is a third year law student at the University of Victoria, the author of Landlording in Canada
(International Self-Counsel Press, 2008), and a professional member of the Real Estate Institute of British Co-
lumbia. Before entering law school, Michael worked for nearly seven years as a real estate agent and this article
is informed by that experience. Michael would like to thank supervising instructor Deborah Curran and Appeal
editor Cody Olson for their invaluable input.
1. The use of this term is adopted from Vrinda Kadiyali, Jeffrey Prince & Daniel Simon, “Is Dual Agency in Real Es-
tate Transactions a Cause for Concern?” (2008) Johnson School Research Paper Series No 08-07.
is article begins with a brief overview of a typical real estate transaction. It next reviews
the law of real estate agency as it applies to the creation of a dual agency relationship and
potential corresponding duciary duties, so that the problems with dual agency may be
better understood in their legal context. Some of the many problems associated with dual
agency are then identied. e article concludes with a critical evaluation of the real estate
industry’s proposed solutions to the problems of dual agency. e article also suggests pos-
sible additional solutions that directly address the issues of informed consent and princi-
pal-agent incentive misalignment.
II. ANATOMY OF A TYPICAL RESIDENTIAL REAL ESTATE
TRANSACTION
An individual wishing to sell his or her home with the assistance of a real estate agenttyp-
ically enters into a Multiple Listing Service (“MLS”) listing agreement. is agreement is
a contract between the homeowner (also known as the “vendor”) and the real estate agent’s
brokerage. Among other things, it gives the brokerage the exclusive right to market the
property during a dened period, the right to receive a commission upon a successful sale,
and the right to advertise the property through the MLS. A separate agreement between the
real estate agent and his or her brokerage typically delegates the task of selling the listed
property to the real estate agent and gives him or her the right to receive the commission
that the vendor pays to the brokerage. Once an MLS contract is signed, the real estate agent
responsible for the listing of the property is commonly known as a “listing agent.
e MLS is both a database of information about homes listed for sale by real estate agents
and a system of cooperation which allows real estate agents to share information about
listings and to assist each other with connecting buyers and vendors. Only real estate agents
have direct access to the MLS, which is a form of intellectual property. e Canadian Real
Estate Association (“CREA”), a membership-based group that represents real estate agents
across Canada, holds the MLS trademark, and grants rights of use to provincial real estate
associations, real estate boards, and individual real estate agents across Canada.
Pursuant to the MLS system, listing agents may share information about homes they are
listing for sale. Real estate agents who represent buyers, known as “buyers’ agents” or “co-
operating agents,” may show their clients properties listed by other real estate agents and
may assist clients with preparing oers to purchase. Cooperating agents may have a writ-
ten agreement with their buyer clients to provide real estate services, but it is still common
for no written agreement to exist. In the latter case, an “implied agency” agreement exists
between the cooperating agent and his or her client.
Upon a successful sale, the listing agent is required to share a portion of his or her com-
mission with the cooperating agent. e requirement to share a commission is imposed by
APPEAL VOLUME 16 w85
2. It is important to note that use of the term “real estate agent” is not universal. For example, pursuant to British
Columbia legislation, “real estate agents” may be known as “representatives,” “associate brokers” or “manag-
ing brokers.” The term “real estate agent” is used throughout this paper as a widely understood generic term.
3. See Part IV-B, below, for more on this topic.
4. See The Canadian Real Estate Association, Who We Are, online: The Canadian Real Estate Association
. In addition to the term “MLS”, the CREA also has trade-
marked the term “Realtor”.
5. For information about how implied agency relationships are created, see generally William F Foster, Real Estate
Agency Law in Canada, 2nd ed (Scarborough: Carswell Thomson Professional Publishing, 1994) [Foster, Real
Estate Agency Law] at 83-85. See also Part IV-C, below, for more on this topic.

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