3 Obligation to disclose any conflict of interest
The real estate broker must avoid placing himself in a conflict of interest in all circumstances and at all times.1 A conflict of interest exists when one's own interests (financial or other) are at odds with those of the represented party.
It’s only in exceptional cases that a real estate broker may find himself in a conflict-of-interest situation, since as soon as he faces a potential conflict-of-interest situation, he must actively take steps to avoid it.
The law provides that in these exceptional cases, i.e. when the broker cannot avoid placing himself in a conflict-of-interest situation, he is required to disclose it to the parties involved.2
It is important to note that the law does not give the broker the choice between avoiding or disclosing a conflict of interest; the licensee must avoid any conflict of interest at all times.
The obligation to disclose is not an option or an opportunity for the licence holder. It is not meant to provide a loophole that prevents the licence holder from committing an ethical breach.
Even if a conflict of interest has been disclosed by the broker, he remains in a conflict-of-interest situation. The licensee has an obligation to disclose any conflict of interest in order to protect the parties involved, by informing them of the fact that his judgment, advice and actions could be influenced, even unconsciously, by personal considerations that are to their disadvantage.
When a broker finds himself in a conflict of interest, not only must he disclose it, but he must also inform his client of the latter’s right to terminate the brokerage contract or mandate with him and seek representation by another broker of his choice. The client must be able to completely trust the real estate broker he has chosen. In fact, even if a conflict is disclosed, the client may feel less comfortable or more concerned. This is why he must be given the option to terminate his relationship with the real estate broker who is in a conflict of interest.
The conflict-of-interest disclosure must be done in writing without delay. The purpose of these two obligations is to provide better public protection.
1-2 Section 2 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising
For the purpose of disclosing a conflict of interest that a licensee cannot avoid, the information must be provided in writing to the parties involved, including:
- the broker’s name and licence number;
- the name and contact information of the seller/buyer placing the broker in a conflict of interest;
- the object of the brokerage contract (address of the immovable, company name, contract number);
- a description of the conflict of interest;
- the reasons why the broker is unable to avoid the conflict of interest.
*No particular format is required by the OACIQ to disclose a conflict of interest. The important thing is that the disclosure be made in writing and without delay, as prescribed by the Act (S. 2 RBR). A proof of receipt or signature by the client of the disclosure must be kept in the broker’s record.
Some real estate brokers use the Disclosure notice of the real estate broker or agency (Purchase-Sale-Exchange) form with certain adaptations to disclose a conflict of interest. However, this form was designed to disclose the licensee status (valid or suspended licence) of the broker or agency and the nature of his interest in the transaction, when he is himself directly or indirectly involved financially in a real estate transaction and not to disclose a conflict of interest.
The duty to disclose a conflict of interest must not be confused with the duty to disclose the status of the licensee involved in a transaction. In the latter case, the licensee is not in a conflict of interest if he does not represent the party with whom he is dealing.
EXAMPLE 1
A major client with whom a real estate broker has made several purchase transactions in the past wants to purchase an immovable on which the same broker has a brokerage contract to sell. The real estate broker could be tempted to favour this important client, both for the client’s benefit and also because of the business relationship that he has an interest in maintaining and developing. The real estate broker could not have foreseen that the buyer would be interested in this listing before signing the brokerage contract to sell. He cannot therefore be blamed for having agreed to act for the seller.
What the broker must do in this situation
- To ensure that the real estate broker can objectively protect and promote the interests of his selling client and also give his “regular” client the benefit of being properly advised and represented, he must recommend that the latter seek representation by another real estate broker. Both parties to the transaction will then be able to trust that they benefit from independent advice.
- Also, in order to ensure transparency and honesty, the real estate broker must inform his selling client not only that he knows the buyer, but also that the latter is one of his regular clients. The broker must therefore give his selling client the option of either terminating or maintaining the brokerage contract, being fully apprised of the facts.
EXAMPLE 2
Two buyers are represented by the same broker and want to make an offer to purchase the same property. This situation was not foreseeable at the beginning since the brokerage contracts to purchase were not related to a specific property. These brokerage contracts described the buyers' needs and criteria.
What the broker must do in this situation
- To avoid placing himself in a conflict of interest and to remain independent, objective and loyal, he must inform the second buyer who wishes to make an offer to purchase on the same property that he cannot represent him because he already represents a buyer who made an offer to purchase the same property.
- To respect his duty of loyalty and to ensure the confidentiality of the strategies toward each of the buyers bound by a brokerage contract to purchase, he shall refer the buyer to another broker to represent his interests as part of an offer to purchase on the property in question.
EXAMPLE 3
A seller represented by a broker accepted an offer to purchase from an unrepresented buyer with a condition to sell his own property (R2.1). The buyer wishes to sign a brokerage contract to sell his own home with the seller's broker ( to fulfill the condition R2.1).
Questions to ask yourself in such situations
- To which party to the transaction should a real estate broker's loyalty be directed? In other words, who is his real client?
- How does the seller feel about his broker also representing the buyer for the sale of his home, knowing that the broker must protect the seller's interests?
- Can the broker remain neutral toward both the seller and the buyer throughout the transaction while holding strategic information on both parties?
- Does the buyer understand why the seller's broker cannot give him any advice in this transaction because of his loyalty to the seller?
- What happens if the seller receives a second promise to purchase? Could the broker be inclined to push the buyer to sell his own property at an unfavourable price in order to fulfil the condition R2.1? Or would he tend to favour the second promise to purchase? How would this be perceived?
The seller's broker cannot represent the buyer in the sale of his immovable because…
- The buyer's interests could conflict with those of his selling client and the REBA prohibits brokers from placing themselves in a conflict of interest or appearance of a conflict of interest.
- The broker would have strategic information from both parties involved in the same transaction. Having strategic, personal or confidential information about both parties to the same transaction places the broker in a conflict of interest.
- The buyer's two transactions (sale of his own property and purchase of the seller's property) are interconnected. This may give the impression that the judgement and loyalty of the broker to his selling client are compromised.
- The broker cannot be completely loyal to his selling client because the interests of both parties are conflicting.
- It will be difficult for the broker to remain objective toward the selling client who wants to get the best price.
- The seller's broker must treat the buyer fairly. He cannot advise the buyer by representing him in the sale of his own property, since he is only protecting the seller's interests.
Although clients can give their consent, the conflict of interest remains prohibited and does not relieve the broker of his obligation to avoid placing himself in a such a situation.
What the broker must do in this situation
- Be proactive and avoid placing himself in a conflict of interest.
- To avoid placing himself in a conflict of interest and to remain independent, objective and loyal to his selling client, the broker may not represent the buyer. He must advise the buyer to seek representation by another broker for the sale of his home. Indeed, the broker cannot represent the interests of both parties since he would not be able to fulfil his obligations of loyalty and of confidentiality of the personal and strategic information of each party.
- Explain to the buyer what his ethical obligations are and why he cannot represent him for the sale of his property in this specific situation.
- Reference number
- 208713
- Last update
- October 28, 2024