5. Performance and sale guarantees
5.1 Performance guarantee
5.2 Guarantee of sale
5.1 Performance guarantee
Licensees have an ethical obligation to promote and protect the interests of their clients, to act with loyalty toward them and to avoid placing themselves in a conflict of interest at all times. However, offering "performance guarantees" to their clients may lead them to violate these basic ethical obligations, especially since what does or does not give the right to the "performance guarantee" can be the subject of disagreement if the "triggers" of the guarantee are understood differently by the client and the broker.
For example, a licensee's ethical compliance may be questioned when he offers his selling client a remuneration reduction if the property is not sold within 90 days. Indeed, several questions may arise:
- Has the broker made sure that the property is marketed and visible to the largest number of buyers or does he want to favour his own buying clients who might be interested?
- Did the broker advise his selling client to ask for a lower price to speed up the sale?
- Did the broker advise his client to favour one offer over the other based primarily on the time frame for fulfilling the conditions or even because of the absence of conditions in the offer to purchase?
- Etc.
5.2 Guarantee of sale
A licensee who goes so far as to guarantee the sale of the property and promises the seller that he will buy it at the end of the brokerage contract places himself in an apparent conflict of interest. As the ethical issues are too many and significant, such a practice is prohibited. Once again, basic questions arise:
- Did the broker market the property in such a way as to allow as many potential buyers as possible to make an offer, or did he favour his own interests by limiting his efforts to get his hands on the property?
- Would the broker be able to meet his obligation to buy all unsold properties if he has several brokerage contracts that include this same guarantee?
- What financial guarantees does the broker offer his client regarding his ability to pay for the property?
- At what price, under what conditions and on what date does the broker undertake to purchase the property?
- How will the selling price be determined?
- Etc.
Given the many ethical pitfalls associated with this practice, offering such performance guarantees is prohibited.
