RISK MANAGEMENT TIP
Agents frequently want to hold open homes that are listed by agents licensed with other brokers. They view it as an opportunity to potentially gain new buyer clients. Listing agents, particularly, busy ones, may not have time to hold open all of the homes they have listed, or they want exposure to agents in other brokerages.
Not only is this practice prohibited by the Department of Real Estate (“DRE”), but it creates a significant risk to the agents and brokers.
Scenario No. 1
Agent from Broker 1 holds open a home for agent from Broker 2. A neighbor visits the open house and tells the agent that there is a sex offender living next door. The agent gets distracted and forgets to tell the listing agent. Home sells and the buyer is not told about the neighbor’s comment. After the close of escrow, the neighbor repeats the comments to the buyers. The new buyers sue the sellers, listing agent and selling agent for rescission of the contract. Listing broker then sues the agent who held the home open and her broker for indemnity. The insurance company for Broker 1 declines coverage, because the work was outside the scope of the agency relationship with the broker.
Scenario No. 2
Agent from Broker 1 holds open a home for agent from Broker 2. Prospective buyer enters the home, trips on a raised brick in the backyard, and falls knocking out all of her teeth. She sues the owner, both brokers, and both agents.
Agents should refrain from this practice.
- DRE prohibits agents from one brokerage holding homes open for agents from another brokerage.
The DRE Commissioner recently stated his opinion that agents from one brokerage may not engage in licensed activity for another broker; and that this prohibition includes agents holding homes open for agents licensed with another broker. The primary concern of the DRE is that the broker of the listing agent has no ability to supervise agents who are not under their license, and the broker of the agent holding open the other broker’s listing cannot supervise that agent either.
- There is an Agency Issue with this Practice
The Seller’s Broker has a written agreement with the Seller to market and sell their Property; everyone in that brokerage has a fiduciary duty to the Seller as their Agent. Another broker’s agent holding an open house for that Seller has not provided the Seller with any agency disclosure forms, has not entered into an agreement with the Seller to act on their behalf, and, in fact, has no formal agency relationship with that Seller. In other words, if another broker’s agent is conducting an open house for the Seller’s Agent, that Agent has no legal right to say or do anything which would constitute agency duties on behalf of that Seller.
Some Agents may ask: “Can’t the outside broker’s agent simply act as an unlicensed agent or open house host/hostess?” The answer is: no. If another broker’s Agent is holding an open house for the purpose of finding buyer prospects, from a practical and logical standpoint, that Agent cannot be deemed to be acting as an unlicensed person. Showing the Property is deemed to be licensed activity. Then, at some point after they “show” the open house property, the outside brokerage Agent will attempt to solicit that visitor to work with that Agent; solicitation is also a licensed activity. It is difficult to imagine the open house Agent not saying anything about the Property (truly acting in an unlicensed capacity) and then, without qualifying the visitor about their interest in the house being held open, start talking to the buyer prospect about working with them. The line is too easy to cross between being a host/hostess and conducting licensed activities.
- LIABILITY — As indicated above, if a Seller’s Broker allows another broker’s Agents to conduct open houses at their listings, Seller’s Brokerage will have liability for acts and omissions by the other broker’s Agent. Also, the broker of the agent holding the open house could have liability if, while holding open the property, makes a misrepresentation
- INSURANCE — It is quite likely that the outside broker’s E&O carrier will deny coverage since that listed property is not a part of that broker’s business; if a broker is not legally representing the Seller, then actions to market that Seller’s property may not be covered. In addition, the Seller’s Broker’s E&O carrier would likely deny coverage for any act or omission of the outside broker’s agent since that agent is not a named “insured” under the E&O policy.
RISK MANAGEMENT TIP
- For good reason, the DRE has taken the position that it is illegal for agents from one brokerage to hold open properties listed with other brokerages.
- The way of avoiding this restriction and associated risk is to enter a Co-Listing Agreement with the Seller and other broker.
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