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Insight: REIBC blog > New Business Models, New Legal Risks

New Business Models, New Legal Risks

posted on 12:27 PM, March 27, 2020
Credit: PeopleImages/iStock

As with any new way of doing business, technology-focused business models introduce new types or levels of risk. In real estate, these risks centre on realtors’ fiduciary responsibilities to their clients.

“[Fiduciary] obligations … impose a standard of conduct upon realtors in favour of their clients. These standards of conduct in effect open up realtors—and, by extension, brokerages—to liabilities arising from misrepresentation, incorrect valuation, or even the failure to adhere to disclosure obligations,” write’s Input’s John McLachlan, RI, and Dixon Sunthoram in “Ask a Lawyer.”

While this is the case for any real estate business model where realtors represent buyers and sellers, technology introduces the element of scale. McLachlan explains: “For a business model that utilizes technology to achieve economies of scale to provide real estate services, taking on a greater volume of clients includes more exposure to risk.”

The potential for misrepresentation, for example, is a risk issue arising from multiple factors and is one faced particularly by discount brokerages.

“A contract for the purchase and sale of a residential property requires the same level of accuracy regardless of the sale price or the compensation given to the realtor. Given that realtors at discount brokerages are tied to a fixed commission, there may be a natural incentive to complete more transactions,” say McLachlan and Sunthoram. “Realtors may not be incentivized or be able to accurately document and represent the property to a potential buyer. As a result of increased volume, realtors may not be capable of devoting the time necessary to analyse and document all material aspects of the property.”

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Read more about other new legal risks in “Ask a Lawyer” in the Fall 2019 edition of Input. Download Fall 2019

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