Q: I wrote an offer for a Buyer on one of my listings. The Sellers countered at a higher price (that was still below list price) and the Buyer was not willing to pay that much. The Buyer simply let the Counter Offer expire and started looking at other properties. Two days later I showed the listing to another client who instantly fell in love with it. I told her the Sellers’ Counter Offer price to the first Buyer and she had me prepare an Offer at that same price which the Sellers promptly signed with no Counter Offer at all.
Immediately after escrow was set up, the first Buyer called and said he had reconsidered and wanted to buy the Property on the terms in the Sellers’ Counter Offer. I told him what had transpired and he was furious. He claims 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. Do I have any potential liability exposure?
A: This situation can frequently occur in a market where there is limited inventory and too many Buyers but this can and does occur in any type of market. Creating safe agency relationships and terminating agency relationships safely is one of the best ways to avoid liability exposure in these types of scenarios.
The best practice to create safe agency relationships is to provide the requisite Agency Disclosure forms to Buyers BEFORE showing Buyers any properties. Those 2 Agency forms are the Disclosure Regarding Real estate Agency Relationship form required by Civil Code § 2079.13 et seq and the Possible Representation of More Than On Buyer or Seller Disclosure and Consent form which allows a Broker and its Sales Associates to represent Buyers who may be competing to buy the same Property. If a real estate licensee does not have this documentation in place before showing properties to potentially competing Buyers there is a possible dual agency issue.
See Weekly Practice Tip “Dual Agency Issues” for more on dual agency conflicts
The rules as to when agency relationships and/or agency duties terminate are often unclear. For example, an agency relationship with a Seller terminates when the Listing expires; all agency relationships terminate with the principals as a matter of California law at the Close of Escrow. However, N.A.R. 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.
Therefore, in situations where a real estate licensee is preparing an Offer for the first Buyer and then a second Buyer requests the same licensee prepare an offer on that same property, the best practice is to err on the side of caution and proceed as outlined below in the Practice Tips. Absent written confirmation from the First Buyer that he was no longer interested in the Property, that Buyer could make a valid ethics claim and/or claim that there was a Breach of Fiduciary Duty.
However, the bigger and unstated concern in the situation described above, is that without having written authorization from the Sellers to divulge the information in their Counter Offer to the first Buyer, that information should not have been revealed to the second Buyer regardless of whether or not the agency relationship with the First Buyer had been properly terminated.
Whether or not potential ethical and legal claims can be proved is dependent upon the facts of any given situation and the outcome is by no means certain. Note: Whether or not there is actual liability exposure, the costs of defending such claims can be expensive and time-consuming; thus, the best practice is to avoid these situations and manage one’s risks.
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 the following steps should be taken:
- Make certain that you have a copy of the signed Agency Disclosure forms in place.
- Advise Buyer #2 that you had previously written an Offer for another buyer on the same Property and you must confirm that that agency relationship has been terminated, at least with respect to this property, before proceeding. To do that you must contact Buyer #1.
- If Buyer #2 objects to you contacting Buyer #1, then you should refer Buyer #2 to another real estate licensee for purposes of writing an offer on that Property.
- If Buyer #2 authorizes you (preferably in writing such as in an email) to contact Buyer #1 then you can contact Buyer #1. If Buyer #1 has no further interest in the Property, then confirm in writing, such as an email to Buyer #1 that Buyer #1 is no longer interested in that Property and put all of that documentation into the Broker file.
- If Buyer #1 states even a possible interest in that Property, inform Buyer #2 that you need to refer Buyer #2 to another real estate licensee to prepare an Offer on that Property.
- As a dual agent, you are not to disclose to anyone 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 authorization to do so. That type of disclosure is expressly prohibited by Civil Code §2079.21 (which is on the reverse side of the Agency Disclosure form).
- Regardless of whether or not you are a dual agent, all discussions with anyone as to how much the Seller will accept or how much the Buyer will pay, should always be treated as 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 2018 05/25/18