What is Designated Agency, and why did Liv Real Estate switch?

Technology changes, consumer demands change and so do regulations. We've seen a lot of change in the past year:

  • we switched to a new brand that is more representative of our values and leadership position after 20 years as a top company for an international franchise.
  • we introduced third party verified consumer ratings for all of our agents on our website.
  • we switched email platforms from a Microsoft exchange server to Gmail Apps for Business.
  • we built and moved into a new office, that offer our mobile agents phenomenal training space, meeting rooms and social spaces (and no rent-a-desks).

Every change we have made is about offering better value to our customers and giving an edge to our agents.

Today we make yet another change. This one is to serve our clients in the manner they expect to be served as we switch from a Common Law Brokerage to a Designated Agency Brokerage.

Background on Designated Agency

Designated agency became an option in Alberta in 2007 when I was on the Real Estate council of Alberta. Adoption had been slow in the province until some changes have made it more palatable for some brokerages to make the switch.

Under Common Law, if I was representing a buyer, and someone else in my brokerage was representing the sellers in the same transaction, there was a conflict of interest because of the concept in law of “deemed knowledge.” Deemed knowledge simply meant that I was expected to know what everyone in my office knew about every property the brokerage had for sale, and also what they knew about their clients. 

This concept doesn't reflect the reality that REALTORS® are extremely protective of their clients, and don't share information that could be harmful to their clients or that was private. The concept conflicts with the reality that REALTORS® want to protect their clients' interests.

For the most part it has not been a big issue for us, but this summer I had a situation in my office where my associates could not do what was best for their clients under the Common Law Brokerage model. I had an agent who had a property listed for sale, and two other agents in my office had offers on the property from clients they were representing. Both buyers' agents had to make their clients customers in order to proceed, and the buyers could not have full representation. Under Designated Agency this conflict does not occur, and all three clients could have had full representation from different agents in our office. This would've been more satisfying to all of our clients.

Designated Agency F.A.Q.'s

Q. What is the biggest difference between a Common Law Brokerage and a Designated Agency Brokerage?

Under Common Law, if an agent writes an offer for a buyer on a home listed by another agent at the same brokerage, and neither client wants to be treated as a customer, then transaction brokerage applies (commonly known as dual agency). In the same situation under Designated Agency, both agents could fully represent their clients. In brokerages with hundreds of agents, this is a very common scenario.

Q. How do you know the difference between a Common Law Brokerage and a Designated Agency Brokerage?

A. You won't unless you ask, or it is explained to you. The client relationship forms are different (they say "Common Law" or "Designated Agency" in the title). Otherwise the difference would only be noticed in situations where a representation conflict occurs (see above answer for the difference). In these situations one or both parties will not have full fiduciary representation under Common Law and can have it under Designated Agency.

Q. Why aren’t all brokerages in Alberta designated agency brokerages?

A. Not every brokerage can be for a variety of reasons. Size is one criteria.

Q. Is it better to use a Designated Agency brokerage?

A. I would like to think so, otherwise we would not have made the change. Again you would only notice a difference if a situation arose that there was a conflict in representing you and another party.

Q. Where can I find more information about Designated Agency or Common Law brokerages?

A. www.RECA.ca

Q. What conflicts arise when a brokerage represents two clients with competing interests?

A. Many conflicts can arise. I owe my clients the fiduciary duties of undivided loyalty, full disclosure and confidentiality. So if I owe my client those duties, and someone in my brokerage owes the same duties to another client in the same transaction, a conflict occurs in a Common Law brokerage. How can we both give full disclosure and confidentiality when we are both deemed to know everything about both clients? For example, if my clients are divorcing, the other agent owes a duty of full disclosure to his client and they are deemed to know what I know, this could put my sellers at a disadvantage from a negotiation perspective. Under Designated Agency, I can't share any information about my clients with any other agents, so there is no "deemed knowledge," so we can each fully represent our clients. 

Q. Can transaction brokerage (formerly known as dual agency) still occur in a Designated Agency brokerage. 

A. Yes, but only when one agent represents different parties in a transaction. Under Common Law, transaction brokerage applies when one agent represents different parties, and when two agents for the same brokerage represent different parties in a transaction.

There are a lot of details and scenarios we have left out of this article, but we wanted to keep it as short as possible. In the end, we've made this change because it will be better for our clients. We will discuss Designated Agency further in other blog posts. Please feel free to contact us if you have any questions.

About 

Sheldon is very familiar with the ins and outs of real estate; he has been licensed to sell Real Estate in Alberta for over 20 years. Sheldon has served on the Real Estate Council of Alberta, the Real Estate Insurance Exchange and the REALTORS® Association of Edmonton. Find Sheldon on Twitter @edmontonsheldon.

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4 Responses to “What is Designated Agency, and why did Liv Real Estate switch?”

  1. David RichardsonNo Gravatar 09. Dec, 2013 at 7:21 am #

    It is a challenging task of upgrading to a designated agency and the way you have done this is really appreciable. I was a bit confused about this concept before but you helped a lot. Thanks!

  2. TarazNo Gravatar 17. Dec, 2013 at 4:06 pm #

    I’m curious; are there any Realtors that just work for an hourly rate (and give up the buyer’s agent commission)? For instance, when I bought my condo, I knew exactly which complex I wanted to purchase in. She showed me 4 condos in less than an hour and I put in an offer. It would have been way better for me if I had just paid her an hourly rate.

    Alternatively, I’ve put in some lowball offers on trashy fixer uppers. It seems to me that agents in that situation should be happy to be paid an hourly rate (as the chance of a deal is low, and it’s a lot of paperwork for them). Instead, they didn’t make anything.

    • Sara MacLennanNo Gravatar 27. Dec, 2013 at 12:13 pm #

      Yes, there are agents that will work on an hourly rate, or with some sort of deposit/rebate system. It would work out a lot better for us when we show 20 or 30 properties to a client, and never get a deal together, and in countless other situations if we were paid an hourly rate as well. Our experience is that buyers are not willing to pay up front for something they can get someone else to do for free. With that said, this is not related in any way to the article so please contact us directly if you have any further questions on this subject.

  3. DanNo Gravatar 23. Dec, 2013 at 2:18 am #

    My congratulations! Well done! In a common law agency brokerage, all Industry Members engaged by the brokerage are representatives of clients whose contracts are held by the brokerage. In a designated agency brokerage, representation is by the Industry Member(s) specified in the Brokerage Agreement (designated agent), not all Industry Members engaged by the brokerage. In a designated agency situation, a seller and a buyer can continue to receive the full benefit of agency representation, complete with the undivided loyalty, advice and advocacy of their respective Industry Members, while the brokerage remains impartial. I agree with Taraz “… when I bought my condo, I knew exactly which complex I wanted to purchase in. She showed me 4 condos in less than an hour and I put in an offer. It would have been way better for me if I had just paid her an hourly rate…” the same situation happened to my friend and he also said that it would be better to pay hourly rate.