13-Dual Agency-Agency Law Protecting Your Clients

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Dual Agencyhands-shaking

Depending on state regulation, many agents are familiar with the term dual agent and understand that a dual agent represents both a seller and a buyer. In a dual agency, an agent has the fiduciary and statutory responsibility to both of the principals. When the principals have conflicting interests, this can be a difficult task to manage. Consider the following scenario: Jack flips residential properties for a living and has just listed one of his properties with a listing agent named Darrel in a small community with few houses for sale. Darrell has now become Jack’s listing agent. As it turns out, Darrell was already serving as a buyer’s agent for a young couple interested in purchasing a home that is almost within Jack’s selling price range. Now, Darrell has the awkward and difficult responsibility of representing the buyer’s interest in purchasing a property at a minimal cost while simultaneously representing a seller who is obviously interested in receiving the highest possible price for his property. Regarding dual agency, NAR® has said, “The buyer and seller do not have the full range of representation.”

NOTE: In those states that do allow dual agency, in order to help reduce or eliminate the conflict of interest, both the seller and the buyer must be told about the agency to establish informed consent.
Quick Quiz

Fill in the Blank:
Depending on state , many agents are familiar with the term dual agent and understand that a dual agent represents both a and a buyer.

FACTS:

The broker represents the seller. An offer was submitted to the seller wherein the broker would become a dual agent (first offer). The broker has another offer coming in (second offer). The seller instructed the broker to disclose to the second buyer’s agent the amount of the first offer.

ISSUE:

Can the broker disclose to the second buyer’s agent the amount of the first offer when she is a dual agent in the first offer?

ANSWER:

No. With regard to dual agency, the Consent to Limited Representation (Consent) states that the broker cannot represent the interests of one party to the exclusion or detriment of the other party. (See consent at lines 9-10.) Here, if the broker advises the second buyer’s agent of the amount of the first offer, it would be to the detriment of the potential buyer who submitted the first offer. Therefore, the broker should not disclose the amount of the first offer.

Arizona REALTOR® Magazine – November 2013 | Agency

ISSUE:

A broker had a listing agreement with the seller to sell the seller’s home. The broker subsequently represented a buyer and presented the seller with the buyer’s offer, along with a Consent to Limited Representation form (“Consent”). The seller refused to sign the Consent. Did the broker breach her fiduciary duty to the seller by representing the buyer before procuring the Consent?

ANSWER:

Yes. Arizona law permits a real estate licensee to represent both the buyer and the seller in a transaction, provided that both the buyer and seller consent to the dual representation. Therefore, the broker should have obtained the Consent from the seller before representing the buyer.

Arizona REALTOR® Digest March 2002; Revised May 2004

Unintentional Dual Agency

Unintentional Dual Agency – Accidental or unintentional dual agencies are frequently formed and later blamed for damages incurred by buyers and sellers. As a result, these occurrences result in costly and time-consuming cases being tried in state and federal courtrooms all too frequently. These agencies are often formed when the actions or words used by an agent implied an agency relationship when one was not intended. To avoid the possibility of such a relationship forming, seller agents should make a concerted effort to inform buyers of their duty to the seller, and then act in accordance with this statement by avoiding any activity that would suggest they represent the buyer. Judgments handed down by courts have determined that an agency relationship was formed or a duty to a buyer was established without the acknowledgment of an agency relationship.

FACTS:                    

A licensee lists her house for sale. She decides to hold an open house to try and procure a buyer for the property.

ISSUE:                      

Can a licensee hold an open house to procure a buyer for her personal property?

ANSWER:                

See Discussion.

DISCUSSION:         

First, there is nothing that would preclude the licensee from holding an open house if the licensee is clear that she does not represent any buyer that enters the open house. An agency discussion should be held as soon as possible to clarify agency.

Dual agency imposes restrictions on the conduct of a licensee, such as not favoring one party over another, nor disclosing confidential information. See Haymes v. Rogers, 70 Ariz. 408, 222 P.2d 789 (1950). Ordinarily, dual agency is not a problem.  In fact, dual agency is authorized by Arizona law with the written consent of both parties. See A.A.C. R4-28-1101(F). However, in some circumstances, dual agency, and representation is improper. The Arizona Court of Appeals states that, while the dual agency is permitted by Arizona law, judicial skepticism of this arrangement exists. See Marmis v. Solot Co., 117 Ariz. 499, 503, 573 P.2d 899, 903 (App.  1977).

Here, the licensee should be aware that the law of agency prohibits dual agency when a licensee has an ownership interest, as it violates a licensee’s fiduciary duty to the client. The agent’s ownership presents an un-waivable conflict, and the licensee cannot agree to represent herself, and the buyer, equally. For these reasons, an agent should not represent a buyer as a dual agent when the licensee has an ownership interest in the property being conveyed.

Single Agency

Single agency brokers may represent a seller or a buyer; however, they must not be represented simultaneously. This means the agent owes fiduciary duties or statutory duties to only one principal in a given transaction.

Quick Quiz

Fill in the Blank:
This means the agent fiduciary duties or statutory duties to only one principal in a  transaction. 

 

 

house-keys-hands

Sub Agency

A sub-agency is established when a contracted agent acquires the services of another agent in order to fulfill a principal’s interests.

Non-Agency

Only a limited number of states allow non-agents. In these states, a broker or salesperson may conduct services for either the buyer or the seller, with no or limited fiduciary duty to either party (unless these functions are included in a formal no agency service agreement). In most cases, non-agents assist either principal with formalities and the buyer and the seller work among themselves to identify the sale without formal representation. Non-agents must disclose known property defects, and they must honor confidentiality between the buyer and the seller.

Quick Quiz

Fill in the Blank:
A sub- is established when a contracted agent acquires the services of   agent in order to fulfill a principal’s interests.

Procuring Cause & Buyer Agency (Source: Arizona Association of REALTORS®)

 The Scene: You meet Buyer Betty at a party and she tells you that she’s getting ready to write an offer on a house she saw last weekend. You ask her if she’s represented by an agent and she says the only one she talked to was the listing agent. You tell her that it would be a good idea for her to be represented and you offer to write the offer for her.
Question: 
Will you be guaranteed to be paid the MLS cooperating commission by the listing broker because you’ll be the buyer’s agent?What was your answer? Did you think that establishing a buyer agency relationship with Buyer Betty would ensure that you’d get paid because of all the good representation you would give her by writing the contract and seeing her through the escrow? Or were you one of those who said you wouldn’t get a commission from the listing broker as the procuring cause of the sale because you weren’t responsible for Betty’s choosing to write an offer on this property?

This scenario is happening more and more these days. The issue is whether an agency relationship with Betty, in and of itself, would guarantee that you’d be determined to be the procuring cause of the sale of the property Betty mentioned at the party. There are many factors to be considered when the procuring cause of a sale is in dispute. One that should not be the sole determining factor is whether one of the disputing parties is the buyer’s agent. Many other factors should considered, such as:

  • Who introduced the buyer to the property?
  • Who provided the details about the property to the buyer?
  • Which broker began a series of events that led to the sale without a break in continuity?
  • Which broker could be left out of the transaction and have it still go together?

Wouldn’t all of the answers to these questions in the example above be the listing broker Betty had talked to before she met you? Hadn’t Betty already decided to write an offer on that property before she met you?

There is rarely just one factor that’s the determining one in a procuring cause case. I think it’s clear, based on the facts in the Betty scenario and absent any new developments, that the first broker — not you — would be the procuring cause of this sale. Representation and entitlement to compensation are separate issues.

You say, “how can that be? I would be the buyer’s exclusive agent and I would write the contract? I would take care of Betty!”

Yes, you would take care of her, but in this scenario, you wouldn’t be responsible for causing Betty to buy that property; she was ready to buy it when she met you. Now, if Betty wanted to pay you to represent her in this transaction, that’s another matter. But that kind of arrangement still wouldn’t make you the procuring cause of this sale and entitle you to be paid the cooperating commission from the listing broker. [Note: The MLS rules state that the listing broker must pay the compensation offered in an MLS listing to the procuring cause of the sale. [See NAR MLS Policy, Part 1, Section 1.2].

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