Salesperson Ignored Duty to Client

December 1, 2001

Q. A year ago, in a dual agency, I represented the buyers of a home, and a coworker represented the seller. At the end of escrow, we created a 90-day holdback amount for uncompleted work. The funds were to be given to the seller after the work was done. If the work wasn’t finished in 90 days, the funds were to go to the buyer.

A few weeks ago, the seller’s rep sent the buyers a letter requesting release of the funds to the seller, though the work wasn’t done. I received a copy of the letter. Even though it’s dual agency, is this unethical conduct?

A. First, make sure this is dual agency. If your state doesn’t use designated agency, it most likely is. As dual agents, you both represent the buyer and the seller. Unless the state specifies otherwise, a dual agent can legally contact either client, as the buyer and the seller are the clients of either agent.

The contact isn’t a violation of the Code of Ethics, but it’s problematic nonetheless. If the work wasn’t done, it was wrong to ask the buyer to release the funds to the seller. Therefore, the seller’s rep breached a duty to protect the buyer client and is in a dual agency conflict of interest.

If this were designated agency, the seller’s rep would have no agency relationship with the buyer. In that case, Standard of Practice 16-13 of the Code of Ethics says a seller’s rep shouldn’t contact a buyer without the buyer’s rep’s consent.

Q. A salesperson in my office made an offer on a listing of mine. The sellers accepted, and the house was put under contract in the MLS. The buyer provided a prequalification letter from the lender subject to certain conditions, but sale of a property wasn’t listed as a condition.

Two weeks later, the salesperson told me the buyer wouldn’t qualify because she had to sell her condo. The salesperson had previously assured me that wouldn’t happen.

In the meantime, the sellers had made an offer on their next house and set a closing date to coincide with the sale of their current house. The sellers had to make a bridge loan and liquidate stock to close the purchase.

The buyer and her salesperson requested release of the contract and return of the deposit. My clients aren’t willing to return the deposit because it cost them a lot more to make the bridge loan and liquidate stock.

We believe the salesperson caused the additional expenses and handled the situation unethically. Do you agree?

A. Not necessarily. This case highlights problems with prequalification letters or preapproval letters. Often, these documents aren’t commitments by a lender to lend money but merely statements of whether a buyer would qualify for a loan. The buyer’s rep may be liable if he stated that the document was a commitment or that there was no problem with the buyer.

I’d also need to know whether you gave the seller advice about accepting a contract on this type of loan assurance. Did you and the seller talk about risks? Did you ask whether the buyer had to sell her condo to buy the house or just assume it wasn’t an issue?

You should look at the contract’s financing contingency to see what contractual remedies are available to the seller. And in the future, watch out for pre-qualification or preapproval traps.

Bruce Aydt
columnist

Attorney Bruce Aydt, ABR, CRB, SRS, is a national real estate educator, a Missouri real estate broker, and past chair of the National Association of REALTORS® Professional Standards Committee.

Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.

Related