BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Listing Agent With Own Offer in a Multiple Offer Situation
Q: I am a listing agent and my buyer asked me to write an offer on my listing. At about that same time I was informed that two other offers would be coming in shortly. I have been told that our company does not allow me to represent my own buyer on my listing when there are one or more other offers. Why is that?
A. Basically, that is a good policy for a brokerage to have. While not illegal, it certainly raises some troublesome agency obligation issues.
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. The seller may claim that you acted in a way that benefitted you (to double-end the sale) and your buyer, thus breaching your fiduciary duty to the seller to get the seller the best price and terms.
When faced with this situation, hand off either the seller or your buyer to a fellow agent or manager for handling during presentation and ratification. That way, you have a second set of eyes who can attest that both seller and your in-house buyer received separate consultation. 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 “as soon as practical.” NAR Code of Ethics, Standard of Practice 3-4.
That, of course, is impossible if you, as listing agent, are making this offer to seller during the presentation of multiple offers.
PRACTICE TIPS
1. As soon as you learn that there will be one or more other offers on your listing when you are representing a buyer on that listing, advise your manager or broker. It is best to turn over your buyer to another agent or manager during the negotiation period up to contract acceptance.
2. If your buyer is the successful bidder, you may then step back in to represent the buyer and seller; all within your company’s policies, of course. As a single-agent with dual agency, it is wise to keep management involved in the escrow proceedings because this type of agency is the most dangerous due to the more obvious potential for conflict of interest.
3. Be sure to disclose to your seller the arrangement with the agent or manager in this situation so that your seller is aware that you will be representing your buyer should they be the successful bidder.
4. If you are compensating that agent for representing the buyer during the bidding process, be sure to also disclose that to your seller – in writing, of course, as with all disclosures.
5. Sometimes buyers will approach a listing agent to write their offer on the belief that they will have a better chance to get the property if there are multiple offers. Remember, that as listing agent you cannot compromise your obligation to seller in order to favor your buyer over other bidders. This can be alleged to be a breach of your fiduciary duty to seller.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is 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.
© Copyright Broker Risk Management 2014 9/26/14