BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Terminate Agency Duties with a First Buyer Before
Representing a Second Buyer on the Same Property
Q: I wrote an offer for my buyer on a beautiful home which I had recently listed. My sellers countered at a higher price just below the list price. I talked to my buyer who stated that he wasn’t interested at that price and wanted to start looking at other properties. Then, two days later I called another buyer-client whom I knew was perfect for this house. I showed her the home and she fell in love with it. “I must have this home,” she exclaimed. I told her the sellers’ counter-offer price and she signed an offer the next day at that price. The first counter-offer having expired, the sellers promptly signed this offer with no counter at all. Then, the very next day my first buyer-client called and said they had reconsidered and wanted the home. I told him what had transpired and he was furious stating that I had violated my fiduciary duty to work with him to get that house since I was still his agent. He says he is going to talk to his attorney. Did I do anything wrong?
A: This situation can occur frequently in a market with many buyers and little inventory, but can occur in any market.
The rules as to when agency relationships and/or agency duties end are often unclear. For example, an agency with a seller terminates when the listing expires. Also, agency terminates upon the sale of the property (Civil Code 2355(b). But, even the NAR Code of Ethics recognizes that certain elements of that relationship continue after termination.
Standard of Practice 1-9 states that, after the termination of the agency relationship, REALTORS® must preserve the confidentiality of information received from clients during the agency relationship, and may not use such information to the detriment of the client or to the advantage of the REALTOR® or others.
A basic rule of agency is that you should never write two offers for two buyers on the same property at the same time.
See Weekly Practice Tip “Dual Agency Issues” for more on dual agency conflicts
But it is less clear when you write an offer for the first buyer and then a second buyer asks you to write an offer on that same property. For this reason, it is wise to err on the side of caution.
The concerns raised in your situation are: first, that the attorney for Buyer 1 could allege that you breached your fiduciary duty to that buyer by taking steps to allow another of your buyers to purchase the property before you had definitely confirmed that Buyer 1 had no further interest in the property.
Second, the sellers might also claim a breach of fiduciary duty to them based on your disclosure to Buyer 2 of the counter-offer price to Buyer 1. Sellers may feel that the enthusiastic Buyer 2 might have paid more if you had not disclosed the sellers’ counter-offer price to the first buyer without their permission.
Of course, proving these types of allegations are very fact-specific and the outcome is by no means certain, but even the costs of defending such claims can be expensive and time- consuming.
PRACTICE TIPS: When you have written an offer for one buyer and then a second buyer wishes to write an offer on the same property:
1. Tell Buyer 2 that you had previously written an offer for another buyer on the same property and must confirm that that agency has been terminated, at least with respect to this property, before proceeding.
2. If Buyer 2 objects to you contacting Buyer 1 for this purpose, then you should refer Buyer 2 to another agent for purposes of writing an offer on this property.
3. If Buyer 1 confirms no further interest in that property, or if your agency relationship with Buyer 1 is terminating at that point, confirm that in writing such as sending an e-mail message and by placing that e-mail message in the broker file.
4. If Buyer 1 states a continuing interest in that property, inform Buyer 2 and refer them to another agent for handling with respect to this property.
5. As a dual agent, do not disclose to others that a seller will accept less than the listing price, nor that a buyer will pay more than the offering price without the client’s written permission. Such an improper disclosure is prohibited by Civil Code 2079.21.
6. In fact, all discussions with your clients as to how much your seller will accept or how much your buyer will pay, even in non-dual agency situations, should always be considered to be confidential information within your fiduciary duties to that client.
WEEKLY PRACTICE TIP: 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 2013 08/02/13