BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Q: I am a listing agent and my buyer asked me to write an offer on my listing. At about the 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 without a manager’s involvement. Why is that?
- That is a good policy for a brokerage to have. While not illegal, representing a buyer on an agent’s listing with multiple other offers raises some troublesome agency obligation issues.
As a listing agent, it is risky to represent your own buyer’s offer in a listing presentation where there are one or more other offers. You subject 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 a listing agent advising the 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 the 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 benefited you and your buyer (to double-end the sale) thus breaching your fiduciary duty to the seller to obtain the best price and terms for the seller.
BROKERAGE POLICY: When this situation arises, ensure you understand and follow your broker’s policy. Your broker may require that you:
- Have your broker or manager participate and oversee the offer presentation, counseling the seller as to their options, preparation of counter-offers if any, and choosing the successful bidder.
- Have your broker, manager or a colleague represent either the seller or your buyer during the presentation process through ratification of the contract. If your buyer is successful in ratifying the purchase agreement, you may return to the dual agent relationship, since the risk created by this multiple offer situation has passed.
DUAL-VARIABLE DISCLOSURE: Be wary of the desire to reduce your total commission in this situation if your buyer is the successful buyer thus increasing the net dollar amount to the seller. For example, some listing agents in this situation will be tempted to tell the seller that if the seller accepts their buyer’s offer they will cut their commission. 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 dual-variable commission offer to seller during the presentation of multiple offers.
PRACTICE TIPS
- 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 and follow their instructions.
- If your buyer is the successful bidder, you may then return to represent the buyer and seller; all with the knowledge of the seller and within your company’s policies. As a single-agent with a dual agency, it is wise to keep management involved in the escrow proceedings, because this type of agency is risky due to the more obvious potential for conflict of interest.
- Ensure 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.
- If you are compensating that agent for representing the buyer during the bidding process, ensure to also disclose that to your seller – in writing, as with all disclosures.
- Sometimes buyers will approach a listing agent to write their offer with the belief that they will have a better chance at being the successful purchaser of the property if there are multiple offers. Remember, that as the listing agent you cannot compromise your fiduciary duties to seller in order to favor your buyer over other bidders.
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.