Real Estate EssentialsChapter 2 · 36 practice questions

Chapter 2: TRESA and the Code of Ethics

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RECO Code of Ethics – Chapter Overview

This chapter examines the professional and ethical framework that governs real estate professionals in Ontario, as established by the Code of Ethics under the Real Estate and Business Brokers Act, 2002. The Code sets out mandatory standards of conduct that apply to all registrants—brokers, salespersons, and brokerages—whenever they engage in real estate activities, including transactions for their own account. The chapter covers fundamental duties owed to clients, customers, and the public, as well as specific rules regarding conflicts of interest, disclosure, confidentiality, advertising, and reporting misconduct. Mastery of these provisions is essential for ethical practice and for avoiding disciplinary action.

Reporting Misconduct to RECO Reporting Misconduct to RECO Code of Ethics — Duty to Report (s. 11) — Ontario/Canada TRIGGER A registrant has reasonable grounds to believe that another registrant has committed: a fraudulent act IMPERATIVE DUTY Report to RECO immediately, as soon as he becomes aware of the facts. an illegal act contrary to the Code REAL ESTATE COUNCIL OF ONTARIO (RECO) The regulatory body receives and processes reports WHY THIS DUTY IS ESSENTIAL • This duty overrides the reluctance to report a colleague — public protection takes precedence over professional solidarity. • It is essential to maintaining public confidence in real estate professionals and the integrity of the profession. FAILURES — DISCIPLINARY SANCTIONS Disciplinary hearing Fines License suspension Revocation of registration KEY PRINCIPLES TO REMEMBER ✓ The duty to report applies to ALL registrants ✓ Reporting must be done as soon as reasonable grounds exist ✓ RECO protects the integrity of the profession ✓ Non-disclosure = violation of the Code Professional training — Real Estate Brokerage Quebec/Canada — RECO Code of Ethics

Key Concepts in the RECO Code of Ethics

RECO Code of Ethics — Module ON-REAL1 CORE PRINCIPLES Integrity • Honesty • Fair Dealing DUTY TO CLIENTS DUTY TO PUBLIC DUTY TO REALTORS • Protect & promote client interests • Obey all legal instructions • Full disclosure of material facts • No discrimination (Human Rights) • Honest service to all • Accurate representation • Fair & honest dealing • No unauthorized practice • Cooperate professionally ENFORCEMENT MECHANISMS DISCIPLINE Fines • Suspension License revocation COMPLAINTS Public • Realtor Self-initiated EDUCATION Mandatory courses Code updates MEDIATION Dispute resolution Arbitration KEY TAKEAWAY The Code protects consumers and maintains trust in the real estate profession

1. The Duty of Fair Dealing, Honesty, and Integrity

The cornerstone of the Code is the requirement that every registrant deal fairly, honestly, and with integrity with all persons involved in a transaction. This includes clients, potential clients, other parties, and other real estate professionals.

  • Fair dealing does not mean equal treatment of all parties. Rather, it requires ethical conduct and transparency toward everyone, while recognizing that the agent’s fiduciary duty to their client takes precedence in terms of loyalty and advocacy.
  • Honesty prohibits any form of misrepresentation, concealment, or deception. An agent cannot knowingly allow a false impression to persist, even if the client requests it.
  • Integrity means acting in a manner consistent with the public trust, avoiding situations that could undermine confidence in the profession.

2. Fiduciary Duty to the Client

When an agent represents a client (buyer or seller), they assume a fiduciary relationship. This imposes several specific duties:

  • Duty of loyalty: The agent must put the client’s interests above their own and above the interests of third parties, while still complying with the duty of fair dealing toward others.
  • Duty of confidentiality: All confidential information obtained from a client—such as financial situation, motivation, or maximum budget—must be protected. This duty survives the end of the agency relationship and cannot be used to benefit another client or to harm the former client.
  • Duty of care: The agent must exercise the skill, knowledge, and judgment reasonably expected of a competent professional. This includes providing well-supported market value estimates, conducting thorough due diligence, and advising on risks. The duty of care does not guarantee a specific outcome (e.g., a certain sale price), but it does require diligent effort.
  • Duty to obey lawful instructions: The agent must follow the client’s lawful directions. However, the agent must refuse any instruction that would involve fraud, misrepresentation, or illegal activity.
  • Duty to disclose material information: The agent must promptly inform the client of all material facts that could affect the transaction, including changes in the other party’s circumstances (e.g., loss of financing) and known defects in the property.

3. Conflicts of Interest and Dual Agency

Conflicts of Interest and Dual Agency Conflicts of Interest and Dual Agency Code of Ethics — Real Estate Brokerage License (Quebec/Canada) SCENARIO 1 — Personal purchase Agent mandated to sell a property Personal interest of the agent detected ✓ Written disclosure of interest to the seller ✓ Written consent of the seller required → Purchase permitted if full transparency SCENARIO 2 — Dual agency Agent represents the buyer AND the seller Conflict of interest potential Explain: total impartiality required Explain: limited confidentiality → Informed and written consent of both parties COMMON OBLIGATIONS AFTER CONSENT Act with fairness — favor no one Transmit offers promptly Protect confidential information Disclose any known major defect Respect the law and the Code Report any fraudulent behavior

a) Self-dealing (agent purchasing own listing)

An agent may buy a property they are mandated to sell, but only after making full disclosure of their personal interest and obtaining the seller’s written consent. Failure to do so constitutes a conflict of interest and a breach of fiduciary duty.

b) Dual agency / multiple representation

Representing both the buyer and the seller in the same transaction is permitted only when:

  • The agent explains the consequences, including the loss of full confidentiality and the obligation to remain impartial.
  • Both parties give informed written consent.
  • The agent must thereafter treat both parties fairly, but cannot advocate for one over the other on key terms such as price.

c) Using confidential information for personal gain

An agent cannot use confidential information from one client to benefit another client or themselves. For example, knowing a seller’s financial distress cannot be used to pressure a lower price when representing a buyer, even after the agency ends.

4. Disclosure Obligations

The Code imposes extensive duties to disclose:

  • Material defects: An agent must disclose any significant defect or issue known to them that could affect the value or a reasonable buyer’s decision, even if the seller has not mentioned it. This includes past problems such as repeated flooding.
Disclosure Obligations Disclosure Obligations AGENT KNOWN MATERIAL DEFECTS ✓ Even if the seller does not mention them ✓ Past problems included: repeated flooding ✓ No concealment allowed fraudulently ⚠ CHANGES IN CIRCUMSTANCES ✓ After acceptance of an offer ✓ E.g.: job loss affecting financing ✓ Notification required to the other party promptly ⏱ AGENT SELLING OWN PROPERTY ✓ Must disclose license holder status ✓ To any unrepresented buyer ✓ Full transparency required 🏠 UNDERLYING PRINCIPLES Honesty Integrity Transparency Fairness Code of Ethics — Real Estate Brokerage Permit (Quebec/Canada)
  • Change in circumstances: If, after an offer is accepted, the agent learns that their buyer client can no longer complete the transaction (e.g., job loss affecting financing), the agent must promptly notify the other party.
  • Agent’s own interest: When selling property they own, the agent must disclose their licensed status to any unrepresented buyer and act with the same honesty and integrity as in any client transaction.

5. Handling Offers and Deposits

  • Presenting all offers: An agent must present every written offer or counter‑offer to the client promptly and objectively, regardless of whether it is below asking price or seems unlikely to be accepted. The decision to accept, reject, or counter belongs solely to the client.
Handling Offers and Deposits Handling Offers and Deposits 1. Transmission of Offers 1 Any written offer or counter-offer must be transmitted promptly. 2 Objective transmission: present the facts without bias. 3 Even if the offer is below the asking price, it must be delivered to the client. The decision belongs to the client alone 2. Deposits in Trust Deposit held in trust by the agent Release only according to: Terms of the contract Mutual written consent ✗ Never unilateral release by the agent Key Takeaways ✓ The agent must transmit all offers, even those below the asking price ✓ The client makes the decision to accept or refuse — never the agent on their behalf ✓ The deposit in trust is released according to the purchase contract (generally at closing) ✓ Mutual written consent required — the agent can never release funds alone Code of Ethics — Professional obligations of the real estate broker
  • Trust account / deposits: A deposit held in trust can only be released in accordance with the terms of the purchase agreement—typically at closing or upon mutual written consent of all parties. An agent cannot unilaterally decide to release funds or follow one party’s instruction without proper authorization.

6. Advertising and Market Value Estimates

Advertising and Market Value Estimates ADVERTISING AND MARKET VALUE ESTIMATES Code of Ethics — Rules of Professional Conduct Context: Real Estate Act (REBBA) · OACIQ Code of Ethics · Real Estate Brokerage Permit — Quebec/Canada 📢 ADVERTISING — ACCURATE AND VERIFIABLE All advertising must be: ✓ Accurate · ✓ Verifiable · ✓ Not misleading COVERS ALL MEDIA • Online listings (MLS, websites) • Social media · Print · Any communication EXAMPLES OF CLAIMS TO VERIFY “Cheapest property in the neighborhood” ✗ Verifiable? “Potential rental income of $5,000/month” → Must justify “Sold in 3 days” (another property's ad) ✗ Misleading PROHIBITED: creating a false impression or using false information 🏠 MARKET VALUE ESTIMATE Must be based on: Solid analysis · Relevant comparables · Professional judgment COMPONENTS OF A SOLID ANALYSIS ✓ Relevant comparable sales (same area, recent period, similarity) ✓ Justified adjustments (size, condition, floor) ✓ Current market conditions DELIBERATE PROHIBITIONS ✗ Exaggeration of value (inflation) ✗ Deliberate undervaluation (deflation) Lack of competence = violation of the Code Penalties: fines, suspension, revocation OACIQ · Code of Ethics · Duty of competence and diligence · Accurate and verifiable advertising
  • Advertising: All advertising must be accurate, not false, misleading, or likely to create a wrong impression. Claims must be verifiable. This applies to all media, including online listings and social media.
  • Market value estimates: When providing an estimate of a property’s value, the agent must base it on sound analysis, relevant comparable sales, and professional judgment. Deliberate exaggeration or undervaluation is prohibited.

7. Reporting Misconduct

The Code requires that a registrant who has reasonable grounds to believe that another licensee has committed a fraudulent, illegal, or Code‑violating act must report the matter to RECO. This duty overrides any reluctance to report a colleague and is essential for maintaining public trust.

8. Competence and Continuing Obligations

The duty of care extends beyond initial advice. An agent must stay informed about relevant laws, market conditions, and professional standards. Incompetence—such as providing an unsupported value or failing to detect a known issue—can lead to discipline.

Important Regulations and Procedures

Scope of the Code

The Code of Ethics applies to all registrants whenever they engage in “real estate activities,” including:

  • Transactions for their own account (e.g., selling their personal residence).
  • Activities outside of regular business hours.
  • Actions that involve unrepresented parties.

Enforcement and Sanctions

Breaches of the Code can result in:

  • Discipline hearings before RECO
  • Fines, suspension, or revocation of registration
  • Requirement to complete additional education
  • Civil liability to affected parties

Informed Consent Requirements

Written consent is mandatory in the following situations:

  • Agent acquiring the client’s property
  • Multiple representation (dual agency)
  • Release of deposit before closing contrary to agreement terms
  • Disclosure of client’s confidential information to a third party

Record Keeping

Agents must keep records of all transactions, including signed consents, offers, counter‑offers, and trust account statements, for the period required by regulations.

Common Relationships Between Concepts

ConceptRelated PrinciplePractical ImplicationFair dealingFiduciary dutyAgent must be honest with all parties butloyal only to client.ConfidentialityDual agencyIn a dual‑agency situation, fullconfidentiality is limited; both partiesmust agree.Disclosure of defectsDuty of honestyEven if seller conceals, agent cannotparticipate in deception.Reporting misconductProfessional integrityReporting a colleague is required, notoptional.Trust account handlingDeposit termsRelease only per agreement or mutual writtenconsent.Duty of careCompetenceAgent must have necessary skills; not aguarantor of results.Agent’s own property saleScope of CodeCode applies fully; must disclose licensestatus to unrepresented buyer.

Summary of Core Ethical Duties

  1. To all persons: Deal fairly, honestly, with integrity.
  2. To clients: Fiduciary loyalty, confidentiality, care, disclosure, and obedience to lawful instructions.
  3. To other registrants: Report misconduct; do not engage in false or misleading advertising.
  4. To the public: Maintain trust; avoid conflicts of interest; ensure transparency in all dealings.

Understanding and applying these principles is not optional—it is a legal requirement that defines the profession and protects consumers.

Practice this chapter

Reinforce TRESA and the Code of Ethics with 36 licensing exam–style practice questions, matched to your weak areas.

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