By definition, an agency relationship or Representation is created when one person, known as the “principal”, asks another person the “agent”, to act for and behalf of the principal. The principal defines the nature and extent of the relationship by directing the agent on how to act.
In real estate transactions, agency relationships are created when buyers or sellers ask Realtors to act on their behalf in real estate transactions.  As a matter of law, an agent representing a principal owes that principal the highest duty of “utmost good faith”. This means representing the principal’s best interests at all times, while owing a duty of confidentiality regarding information about the principal. Usually in a real estate transaction, there are two parties.
A  Seller who owns the property and a Buyer who wants to buy the property. The job of the Realtors is to bring together willing Sellers and willing Buyers in successful real estate transactions.
When a Seller engages a Realtor to act on its behalf in the sale of a property, this Realtor is known as the Listing Broker. The Seller and the Listing Broker will enter into a listing agreement whereby the “agency” of the 
Listing Broker is confirmed, and the Seller agrees to compensate the Listing Broker for its efforts. The compensation is typically known as commission and takes the form of a fee or payment from the Seller upon successful completion of the real estate transaction. In most cases the Listing broker places the property for sale on an MLS (Multiple Listing Service) system, offering the property for sale to all other Co-operating Brokers, and inviting them to bring a buyer and share the commission, being paid by the Seller.
 
Just as with the Seller, the Buyer of real estate will often engage a Realtor to help them buy a property. However, it is important to understand that by contacting a Realtor, it does not necessarily mean that the Buyer has established an agency relationship with that Realtor. Although there are several types of relationships which may exist between a Buyer and Realtor (the Co-operating Broker) in a real estate transaction, typically, the Realtor would be either a sub-agent of the Seller or a Buyer Broker for the Buyer. 

In the old days, that is prior to January of 1995, sub-agency was the norm in Ontario. The hard reality was that even though your “agent” may have presented your offer on your behalf, he(she) was actually working for the Seller. The agent’s fiduciary responsibility would have been to the Seller, the person compensating them. Let’s say that the asking price for the property you hoped to purchase was $500,000. You then instructed the Realtor to offer $470,000 but you also let the Realtor know that you would actually go up to $485,000. Your Realtor acting as a sub-agent to the Seller would have been obligated to inform the Seller, that even though you were offering a lesser amount, you the buyer, would be willing to go up to $485,000. 
 Today most Buyers engage Buyer Brokers or “Buyer Representation”. The agency relationship is typically established through a Buyer’s Representation Agreement and the Realtor is clearly only the agent of the Buyer through what is known as a “client” relationship. Whatever the Buyer instructs the Buyer’s representative to do remains strictly confidential. In fact, in March 2002, it became a requirement under The Real Estate Council of Ontario for the “Buyer’s Agent” to be documented in a written agency representation agreement.

 
It is possible that on a particular real estate transaction both the Seller and Buyer are represented by the same Broker. This is now known as “multiple representation” and there is effectively only one agent in a situation where there are two principals. In this case, duties to principals can become conflicting.
 
When it is time to make your real estate move through an offer regarding the sale of a property, at the earliest practical point in time, find out who is working on your behalf, and have it disclosed in writing.
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