BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Broker Risk Management (“BRM”) has received numerous calls regarding the handling of listings when two agents from different brokerages are listing a property together. Brokers and agents generally inquire as to what documents are required. Consider the following scenarios:
SCENARIO NO. 1: Agent from Broker A is co-listing a property with an agent from Broker B. They sign a listing agreement, but disputes arise as to whose name will be in the Multiple Listing Service, who will receive what portion of the commission, and which agent or brokerage pays the marketing expenses.
RECOMMENDATION: It is recommended that when entering co-listing arrangements, agents use a listing agreement, BRM’s Co-Listing Agreement, Additional Broker Acknowledgment, and Addendum (form ABA on zipForms). Using these forms, the agents will avoid disputes in the future.
SCENARIO NO. 2: Agents co-list a property for sale and it closes without any issues. A year later, a buyer sues both agents and brokerages, alleging non-disclosures and misrepresentations by the seller and listing agents. Agent A was responsible for working with the seller to complete disclosures whereas Agent B was responsible for marketing and showing the property. Both agents and brokerages were sued. Because the agents did not have an agreement regarding the allocation of liability or responsibilities, both agents’ brokers were forced to defend the case and argue about which brokerage was responsible for the alleged non-disclosure.
RECOMMENDATION: As indicated in response to Scenario No. 1, it is recommended that BRM’s Co-Listing Agreement be used when agents from different brokerages are co-listing a property. As part of the negotiation for the listing, agents’ responsibilities need to be differentiated and clarified. Agents should also ensure with their broker, owner, or manager that the errors and omissions insurance policy will cover the transaction.
NOTE: In residential 1-4 properties, both co-listing agents must conduct and inspection of the property and report their findings in an AVID.
SCENARIO NO. 3: Agents from brokers A and B co-list a property. Broker A has Errors & Omissions (“E&O”) insurance, but broker B does not. After the close of escrow, the buyers sues the seller, the agents, and brokers for non-disclosure. Broker A tenders the claim to her insurance company. Broker B files for bankruptcy because Broker B has no insurance and cannot afford to defend the claim. Unfortunately, Broker A is forced to pay a higher allocation of liability than was legally attributed to her because Broker B was in bankruptcy. Further, the agent for Broker B was required to pay for an attorney and damages because Broker B was not available to assist or support the agent financially.
RECOMMENDATION: Brokerages should always have E&O and general liability insurance. Brokers should not co-list properties with brokers who do not maintain this insurance.
NOTE: BRM is currently working with Austin & Austin and Palomar Insurance to offer E&O insurance to its clients with a reduced retention/deductible.
SCENARIO NO. 4: Agent A is co-listing a property with Agent B. Agent B shows a property to a buyer. The buyer requests that Agent B represent the buyer in the transaction. The seller has advised the agents that the seller does not want a dual-agency situation in this transaction. How should the situation be handled?
RESPONSE: An addendum to the listing and co-listing agreements removing Broker B as a listing agent for the limited purpose of this transaction should be prepared. However, the addendum should be specific to this buyer. Agents are cautioned to limit that change to account for the possibility of the buyer canceling the escrow and the agent from Broker B, thereafter, returning as a co-listing agent.
PRACTICE TIPS:
- If agents are working together to co-list properties, it is recommended that they use a listing agreement, BRM’s co-listing agreement, Additional Broker Acknowledgment, and Agency Disclosure.
- Before entering a co-listing agreement, agents should negotiate all the terms of that agreement including, but not limited to the following: which agent will handle what work (i.e., advertising, marketing, showing properties, handling open homes); which agent is paying for marketing and advertising and whether those expenses will be reimbursed to that agent; the commission splits; and which agent is the lead for purposes of the Multiple Listing Service (most Multiple Listing Services will only allow one agent to take the lead).
- Agents should not co-list properties with agents from brokerages which do not have E&O and property liability insurance.
DO NOT FORWARD TO SELLERS OR BUYERS. 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.