BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Q: Under the prior agency statute when a broker served as a dual agent, I understood that the agents could not disclose how much a seller will accept or how much a buyer will pay for a property. I just noticed that the Agency Disclosure form has expanded what cannot be disclosed. Can you provide us with guidance on the changes?
A: The statutorily required Disclosure Regarding Real Estate Agency Relationship (CAR form AD or the PRDS® READ form) includes the requirements for what dual agents must keep confidential.
The original version of agency law stated that dual agents could not “without the express permission of the respective party, disclose to the other party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered.”
The 2020 revised agency statute (Civil Code Sections 2079.13 -.24) has expanded what must be kept confidential by the dual agent (the added language is shown below in bold 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 aprice greater than the price offered.”
Examples of Information That Would Be Confidential
Seller’s agents are often made privy to confidential information about the reason that sellers want to sell, such as a change in job status, a growing family, the need to relocate or the possibility of a divorce. These factors contribute to a seller’s motivation and impacts his/her bargaining position. This is the type of seller information that the dual agent must keep confidential UNLESS the seller gives the agent written authorization to reveal those motivations.
Buyer’s agents are often made aware of the reason buyer want to buy, such as a job transfer, the need to enroll their child into a particular school, or that the buyer is buying up multiple properties in the neighborhood for future development. The buyer’s motivation to buy, especially if there is a timing issue, is a factor that can change the buyer’s bargaining position. This is the type of buyer information that the dual agent must keep confidential UNLESS the buyer gives the agent written authorization to reveal those motivations.
Examples of Sellers’ Information That is NOT Confidential
If the Seller’s motivation to sell is due to specific issues with the property, such as issues with the condition of the property or with a neighbor or the neighborhood, this would not be deemed “confidential information” and must be disclosed to the buyer.
If the seller’s motivation to sell is because of a pending legal action that can impact how the transaction is to be handled or which might require court approval, such as bankruptcy, probate, or divorce actions could impact the buyer’s ability to buy or, at a minimum, delay the close of escrow. Legal proceedings become “of public record” when the action is filed and thus are not truly personal confidential information. As such, that type of information would probably need to be disclosed to the Buyer.
If the seller’s motivation to sell is because of a pending foreclosure action, the existence of a Notice of Default, or the need to secure short sale approval, these are issues, which impact the buyer’s ability to acquire the property and/or impacts the type of documentation that must be used in the transaction. As such, the existence of these impediments to the sale of the property needs to be disclosed to the buyer.
Examples of Buyers’ Information That is NOT Confidential – Any information that would violate the agent’s duty of honesty and fair dealing and good faith to the seller (remember, agents, have obligations of good faith and fairness toward the other party even if they are not representing them), such as:
- Buyer’s agent is aware that the buyer is in contract on two properties and intends to close escrow on only one property;
- Buyer’s agent is aware that the buyer’s financial information provided to the seller, on which the seller is relying, is materially inaccurate; and
- Buyer is misrepresenting whether the buyer intends to occupy the property as a personal residence.
REALITY CHECK: The same information that the dual agent must keep confidential regarding the clients’ motivations and willingness to accept certain price reductions should also be kept confidential when an agent is only representing the seller or only representing the buyer, because a part of an agent’s fiduciary duty to their client is confidentiality.
PRACTICE TIPS:
1. A client’s confidential, personal information about finances, pricing, motivations, or bargaining position should not be disclosed to anyone, regardless of the agency relationships, unless the client has given written permission to disclose that confidential information.
2. A form is not needed to secure the client’s authorization to disclose confidential, personal information — instead prepare a simple email confirming that the client “authorizes [insert name of agent] to disclose [insert the information].
3. Clients cannot instruct agents to perpetrate a fraud by concealing material facts about the Property or the transaction. Do not conspire with sellers to withhold material information from a buyer; and
4. If there is any question as to whether specific information must be disclosed or kept confidential, Sales Associates should discuss the issue with their Broker/Manager who can then contact Broker Risk Management for additional guidance.
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.