Lynn Madison, ABR®, GRI, is an author and trainer specializing in legal and ethical issues. She heads up Lynn Madison Seminars in Palatine, Ill. Madison was named 2000 Illinois Educator of Year by the Association of Illinois Real Estate Educators. You can reach her at 847/359-1604.
Duties in conflict
July 1, 2003
Representing the buyer and the seller in the same transaction, also known as disclosed dual agency, gives you the flexibility to assist both parties and can reduce the adversarial atmosphere of negotiations. On the other hand, it means full representation isn’t available to either the buyer or seller. And because dual agency isn’t always fully understood by salespeople or consumers, it can lead to misunderstandings and liability.
Because of the potential for conflicts of interest inherent in the disclosed dual agency relationship, buyers and sellers must understand its implications and give their informed consent to the relationship.
For salespeople who practice dual agency, one of the biggest challenges is keeping price and motivation confidential on both sides of the transaction so that neither buyers nor sellers lose their bargaining position.
Disclosed dual agency is legal in most states. However, nondisclosure or improper handling of dual agency can result in substantial legal liability, such as the $200,000 settlement in a 2002 Alaska case in which the salesperson didn’t properly disclose a dual agency relationship (Columbus v. Mehner).
Even with proper disclosure, many dual agents find themselves in complex situations in which it’s difficult to know how best to serve both the buyer and the seller. Consider these familiar scenarios, and recommendations for dealing with them:
You attend the home inspection with your buyer and even though you let the inspector lead the way, you overhear the buyer saying things like, “That’s fine; I can take care of that myself” or, “No problem; my brother’s a carpenter.” The buyer and his attorney list those same items as repairs they want the seller to make, but you know the buyer probably doesn’t really need the repairs.
Recommendation: Although the buyer may be using the repairs as a negotiating ploy, as a dual agent you really have no choice but to relay the buyer’s repair demands to the seller.
You receive an offer from a buyer client on your own listing. When you present it to your seller, he asks about the other buyers who looked at the property in the last few days: “Please call all their agents to see if their buyers are interested.” The seller won’t move forward with the offer until you do. Your buyer really wants this house and has asked you to let him know if there are any other offers. Yet the seller has instructed you not to tell the buyer if another offer comes in for fear it will cause him to walk away.
Recommendation: The savvy dual agent can head off this type of situation by learning early on how the seller wants to handle multiple offers. Then, make sure to inform your buyer of the seller’s plan for addressing multiple buyers up front, before the buyer makes an offer.
You have two sets of buyers interested in your listing. You sign an agency agreement with the first set but refer the second set of buyers to another agent. The buyers you referred say they don’t want to work with another agent because they feel the first buyers would have a negotiating advantage working with you.
Recommendation: You may hate to lose both sides of the sale, but the best alternative is to refer both buyers to other salespeople and represent only the seller in the transaction.
The only sure way to avoid conflicts arising from disclosed dual agency is to not practice this form of agency. However, there are steps you can take to protect yourself and lessen potential conflicts.
- Give buyers information about the property.
- Disclose all material defects.
- Help the buyers compare financing alternatives.
- Provide information on comparable properties so that both parties may make educated decisions on the price.
- Disclose confidential information about either client without permission.
- Recommend or suggest a price to either party. Do a comparative market analysis and let the parties decide for themselves.
- Disclose the lowest price the seller will take for the property or the seller’s financial position without permission.
- Disclose the highest price the buyer will pay for the property or the buyer’s financial position without permission. (May not apply in Arizona. Check with your local counsel.)
Following these simple rules won’t guarantee that you’ll never get caught in a disagreement between buyers and sellers in a disclosed dual agency relationship. But it’ll give you the protection of knowing you did your utmost to serve both parties fairly.
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