BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Real estate licensees are authorized by California law to act as dual agents. In all dual agency situations, the agent(s) involved must, at all times, be aware of his or her fiduciary duties owed to both parties.
This fiduciary duty is in addition to the three duties that agents owe to all parties to the transaction, regardless of agency (see the Agency Disclosure form):
- Diligent exercise of reasonable skill and care in the performance of duties;
- Honest and fair dealing and good faith; and
- A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties. An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.
A. TYPES OF DUAL AGENCY: Dual agency can occur in a number of scenarios:
- Dual agency can be
two agents within the same brokerage with one representing the buyer and another representing the seller.
- Single Agent Dual Agency is when one agent is representing both parties. The law does not distinguish between a dual agency involving two agents in the same brokerage and a single-agent dual agency. However, from a client perspective, the single-agent dual agency carries more risk, because of the PERCEPTION that one agent cannot serve both masters, and may appear to be favoring one client over the other. For this reason, a single-agent dual agency should be handled carefully, and supervised closely by managers and brokers.
- Another form of dual agency is created when the brokerage is representing two competing buyers for the same property or two sellers whose properties are presumably competing for the same set of buyers. In the CAR listing agreement forms, there is language that the seller acknowledges the brokerage may be representing the buyer and that listing broker may represent competing properties for sale, and seller consents to that representation. Also, the CAR “Possible Representation of One or More Buyer or Seller” (zipForms form PRBS) covers the scenario where the brokerage may be representing more than one buyer competing for the same property. All CAR purchase agreement forms require that all Sellers and Buyers acknowledge receiving the PRBS form when they sign the purchase Agreement.
- A dual agency can be created when an agent represents one buyer for a property and then later presents the same property to a different buyer without a cancellation of the prior agency relationship.
- A dual agency is also created when an agent is representing more than one seller or buyer for a property. For example, if an agent is representing multiple sellers, divorcing sellers, or multiple buyers.
- EIGHT RULES: Here are eight rules to stay out of trouble as a dual agent:
- DO NOT become an Undisclosed Dual Agent: An agent can become an undisclosed dual agent in a number of situations. For example: (a) representing a buyer only on an FSBO and giving advice to seller; (b) representing a seller only when the buyer is unrepresented and giving advice to the buyer; or (c) giving advice to another agent’s client. The consequences of undisclosed dual agency can be severe:
- Either party may be able to cancel the contract.
- The seller may be able to refuse to pay a commission.
- Either party can sue for damages.
- The DRE may file a complaint for acting as an undisclosed dual agent. B&P Code 10176(d)
- An Ethics complaint may be filed against the agent and broker.
- DO NOT Disclose to Seller that Buyer will Pay More or to Buyer that Seller will Take Less.
The law specifically states that a dual agent representing buyer and seller has no duty to disclose to the other party that the buyer will pay more, or that the seller will take less. If asked, you should state that you cannot divulge that information because of the duty of confidentiality to the other party.
- DO NOT disclose confidential information of one client to the other.
The California Agency Statute (Civil Code Sections 2079.13 -.24) has expanded what must be kept confidential by the dual agent (the changed language is shown below in bold, red print):
“In representing both Seller and Buyer, a dual agent may not, without the express permission
of the respective party, disclose to the other party confidential information, including, but
not limited to, facts relating to either the Buyer’s or Seller’s financial position, motivations,
bargaining position, or other personal information that may impact price, including
the Seller’s willingness to accept a price less than the listing price or the Buyer’s willingness to
pay a price greater than the price offered.”
NOTE: This topic is covered in more detail in the Tip “Agency Disclosure Issues -Part 3”
- DO NOT Write Two Offers on the Same Property for Two Buyers at the Same Time.
The problem is that, if you are doing this without the permission of both buyers, each could allege that you were not protecting and representing them. Unlike the situation where two different agents in one company are presenting offers on behalf of two buyers, you KNOW what the other buyer is offering. Unlike the situation above, where you represent the buyer and seller, the statute does not protect you if one party were to ask what the other party is offering. So, you are torn between your fiduciary duty to the asking party, and your duty of confidentiality to the other. Also, the buyer prospect who is not the successful buyer will often allege that you favored the other buyer over them, thus violating your fiduciary duty to that unsuccessful buyer. This is a difficult case to win. Because this is a lose-lose situation, it is best to refer one buyer to another agent or your manager in the office until there is a ratified contract.
- DO NOT Write Two Offers for the Same Buyer on Two Properties at the Same Time.
The problem here is that your buyer may end up in contract on two properties. If buyers intend to buy only one, they will want to terminate one of the contracts. If seller finds out that the buyer is actually cancelling, because they are buying a different property, seller could allege bad faith on the part of the buyers, and seek damages. Also, there is the obligation of honesty and fair dealing that you, as buyer’s agent, owe to seller. Seller could allege breach of this duty if you do not disclose to seller both offers on behalf of your buyers. This may also constitute an unfair business practice. If you do disclose both offers, seller may not be willing to take your buyer’s offer. Again, a lose-lose situation.
- DO NOT Represent a Second Buyer on the Same Property until the Agency with the First Buyer is Terminated.
If you represent a buyer for a property and then a second buyer expresses an interest in the same property, the first buyer could allege a breach of your fiduciary duty to them if they still have an interest in the property which gets sold to the second buyer for whom you write an offer.
Before you proceed with the second buyer, contact the first buyer to whom you showed the property to determine if they are still interested. If they are still interested in that property, advise the second buyers that you cannot represent them on that property. If the first buyer states that they are not interested, confirm their statement in writing before proceeding with the second buyer.
- DO NOT Handle Your Own Offer in a Multiple Offer Situation
As a listing agent, it is dangerous to represent your own buyer’s offer in a listing presentation where there are one or more other offers. You open yourself up to the allegation that you somehow rigged the presentation and counter-offers, if any, so that your client got the property – and you got both ends of the commission.
If you act as listing agent advising seller, and also as buyer’s agent advising your buyer (at a time when you have full knowledge of the other offers and counter-offers) you expose yourself to the claim that you had an unfair advantage over the other buyers and their agents. Both seller and the unsuccessful buyer(s) can claim that they were not treated fairly.
When faced with this situation, ask your manager or another agent to handle either the seller or your buyer during the presentation and ratification of the offer. That way, you have a second set of eyes who can attest that both seller and your in-house buyer received separate consultations. If your buyer is successful in ratifying the purchase agreement, you may then step into the dual agent relationship, since the danger created by this multiple offer situation has passed.
Also, be wary of the desire to cut your total commission in this situation, if your buyer is the successful buyer, thus increasing the net dollar amount to the seller. This creates a “dual-variable” commission which must be disclosed to all buyers and their agents in the MLS. That, of course, is impossible if you, as listing agent, is making this offer to seller during the presentation of multiple offers.
NOTE: This topic is covered in more detail in the Tip “Agency Disclosure Issues -Part 5”
- DO NOT Demonstrate Bias in Favor of One Client over the Other Client
Remember that under California law, all clients and all transactions belong to the broker. In all dual agency situations, it is essential to remember that all the above duties are owed equally to both parties by all agents (and managers) – even that other party you don’t like very much. Stay neutral and don’t show bias for or against either party.
So, if you are working with a buyer who you know well and like, and the seller who you do not know and/or do not like is represented by another agent in your office, you owe full fiduciary duties to both. Also, favoring one spouse over another in a divorcing situation or one seller over another when there are multiple sellers.
Examples of demonstrating bias:
- Seller’s agent emails the buyer’s agent in the same office, “My seller and I believe that your buyer is in breach of the contract and seller will seek damages.”
- Buyer’s agent sends a text to seller’s agent in the same office: “Your buyer is acting in bad faith.”
- Communicating with one of your clients, but not the other (i.e. communicating with the wife, but not the husband when a property is being sold pursuant to a divorce.)
Such communications are discoverable by subpoena during litigation. They will be used to show that the agent’s did not understand dual agency by using “my seller” and “your buyer” and were demonstrating bias toward one party and against the other, breaching their fiduciary to both parties.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is an attorney-client privileged communication for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices