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Client Versus Customer

Client Versus Customer

Author: Tracy Ruddell

Author
Sep 19th 16

Many people don't realize that there are two definitions of patrons working with Real Estate brokerages in Ontario. Whether it’s with one of our Toronto REALTORS® or another team, you should understand the different types of customer agreements before you sign with an agent.

If you’re thinking of selling a home or you’re a buyer who wants to start viewing houses for sale in Toronto or other parts of Ontario, here’s why we recommend that you sign on as a client versus a customer.

 

Client Versus Customer: What's the Difference?

The first thing to understand is that there are two legal definitions of a buyer or seller working with a licensed Real Estate brokerage in Ontario: there's a "client" and a "customer". Most buyers and sellers are clients but some people opt to sign a different type of agreement that makes them a customer of a brokerage which has a different legal definition and a different set of obligations. 

A client has signed a representation agreement (a Buyer's Representation Agreement if they’re buying and/or a Listings Agreement is they’re selling) that makes them a client of the REALTOR'S® brokerage. A customer instead signs a Customer Service Agreement which is a different legal document.

Both are legally-binding contracts but what's the difference? The differences lie in the brokerage’s obligations to you.

 

Brokerage Obligations to a Client Versus a Customer

As a client, the brokerage has a legal obligation called "fiduciary duty" which essentially means that they must act in your best interests at all times. As a customer, there is no fiduciary duty. Instead, there's agreement to treat the customer fairly, with honesty, and to provide a competent service. This may not seem like a big difference at first blush but it does rely on more know-how on the customer's end.

The other difference lies in the Code of Ethics and how far the REALTOR® has to go to discover information about a property. This is particularly important for buyers. If you're a buyer and a client, the REALTOR® has to disclose all material facts about the property and take reasonable steps to find that information out.

For example, if a property was a former grow-op or if there is a major mechanical or structural issue that the REALTOR® suspects upon viewing the property, your REALTOR® must express his or her concerns to you whether or not the seller's agent has disclosed this information or not. If the REALTOR® has heard tidbits of a backstory in the rumor mill, for example, they have a duty to their client to let them know this and to investigate it further.

For a customer, however, this disclosure requirement doesn't go quite as far. The Realtor® only has to disclose information about a property that they've specifically been made aware of–i.e. if the REALTOR® on the other side of the transaction has proactively brought an issue to their attention.

So, in our grow-op example, if the seller has disclosed that the property was a former grow-op, they have a legal and ethical duty to inform their customer / buyer. However, there's no requirement on the Realtor's® behalf to go beyond this, taking further, reasonable steps to determine if there is any damage due to its previous use or if there’s anything wrong with the property beyond this that hasn't been openly disclosed to them throughout the process.

Again, it may seem like a fine point but it is a significant one.

In the case of a seller who’s a customer, if your Realtor® gets an offer for your home that they present to you but suspects there may be a better offer waiting in the wings, they don’t legally have to tip you off to this if that offer hasn’t been presented yet in writing. As a client, however, they do have to (and also to explain to you that a verbal offer is not an offer; the Realtor has a duty to encourage the second bidder to formalize their offer in writing before the first offer expires).

For clients, REALTORS® have a fiduciary responsibility to get the highest price possible and put the client’s best interests above all else–and that includes not just closing a deal fast if it’s not the best deal they can get for you (unless, of course, they’ve presented you with all options and you opt for the “quick deal” for whatever reason).

 

Is a Customer Service Agreement a Bad Thing?

There is elevated consumer protection in a client agreement so why would anyone ever sign on with a brokerage as a customer?

The benefit that some people see in signing as a customer versus a client is that its terms are usually looser and therefore easier to break or walk away from should you want to switch REALTORS® (e.g. they often have a shorter timeframe so expire sooner).

Real Estate transactions are far more complicated than many people realize, however. In the vast majority of cases, if you’re using a REALTOR®, it doesn’t make sense to sign what’s arguably a “half way” agreement where you end up shouldering part of the responsibility that a REALTOR® is trained to carry for you. What you should focus on instead is interviewing several REALTORS® so that you hire the best REALTOR® for you from the outset.

When is it acceptable? If you've bought and sold many times before and you understand the local market, then buying (or selling) as a customer is fairly low-risk but if you're a first time buyer, you're buying in a hot market where you may have to waive a home inspection and/or you're not an expert on the local real estate market yourself, signing up with a Real Estate brokerage as a client is the way to go.

In short, signing on as a customer versus a client is not inherently a bad thing but my advice is that it's best left to the most seasoned of buyers and sellers. And don’t be surprised if you have trouble finding a good REALTOR® who’s willing to sign you as a customer.

 

BRAs Protect Both Sides

REALTORS® much prefer a Buyer Representation Agreement (BRA) for their own protection as well.

There are many cases with customer agreements where people will have a REALTOR® show them countless homes for months on end or put together a formal marketing presentation, valuate their home for sale, etc., only to wait for the agreement to terminate and then use that information to broker their own private deal or pull in a family-friend REALTOR® to close the deal that the first Realtor® worked towards without getting paid.

The BRA came into play to protect both parties–the client and the REALTOR®–and is the reason why we recommend all of our Property.ca patrons sign on as clients with us. It ensures your REALTOR® is acting in your best interests at all times as a true advocate and in return ensures that they are fairly treated and compensated for services rendered.

 

Ready to Hire a REALTOR?

Have a read of our post on how to find and hire a REALTOR® where we include search tips and our top, recommended interview questions to find your best Realty match.

 

Lead image: © Africa Studio from Shutterstock.