Brad J. Boyd, an attorney with Thomsen & Nybeck, P.A., in Edina, Minn., has a background in both law and real estate brokerage. He and his firm represent various REALTOR® associations and real estate companies. Contact him at firstname.lastname@example.org.
Avoid Dual Agency Pitfalls
April 1, 2007
Wouldn’t it be nice if life were clear-cut? Often in residential real estate it is: The most common legal arrangement in the business is for a listing agent from one company to represent the seller and a buyer’s agent from another company to represent the buyer in a transaction. The advantage to this scenario is that when negotiations arise or the parties are sending counteroffers back and forth, the two sides have a relatively balanced opportunity to obtain guidance and strategy from their own representative. But dual agency creates relationships with clients and customers that aren’t clear-cut.
For example, Rita Real Estate Broker is the listing agent holding an open house for her client, Sam Seller. Barb Buyer asks Rita details about the property during the open house, tells Rita she isn’t working with an agent, and asks Rita’s help in preparing an offer for Sam’s house. Rita has to stop, ask Barb if she’s asking for representation, and decide if she wants to enter into a dual agency relationship.
First Rita must resolve whether her state’s laws and her brokerage’s policies permit dual agency. Next, she must determine whether Sam Seller has agreed to let her act as a dual agent in the transaction and obtain his full, written consent to Rita’s new role. She must also disclose the limitations the dual agency will place on her ability to assist Barb and Sam. Only then will Rita have done everything necessary to create disclosed dual agency.
If she does enter into a disclosed dual agency relationship, Rita must observe her state’s dual agency laws, which probably require her to keep some types of information from each party confidential. In a dual agency relationship, Rita’s fiduciary duties to her clients are much more limited. She can no longer be an advocate for either party because each client has opposite goals.
Designated Dual Agency
Dual agency relationships occur not only when one agent represents two parties but also when two agents from the same company represent two parties in the transaction. If Rita’s friend Alice Agent, who works out of a different office of the same brokerage Rita is affiliated with, comes to Rita’s open house with her buyer clients, Bill and Betty Buyers, and the Buyers later make an offer, once again, a dual agency relationship may be created.
In some states, there’s another option, designated dual agency. In these cases, the broker of Alice’s and Rita’s brokerage could designate one agent to represent the buyer-client and another to represent the seller-client. The broker would screen off some transaction information so that neither agent has access to the confidential information of the other party.
Although designated dual agency can work well, it poses the same general challenges as a typical dual agency arrangement. Designated agency still places significant responsibilities on each agent and on the brokerage to follow strict management policies to avoid compromising the integrity of the transaction.
Avoiding Dual Agency Traps
In a few states — Colorado, Florida, and Kansas — dual agency is prohibited. This prohibition ensures that the real estate practitioner isn’t put in the difficult position of trying to satisfy both parties and risking that one or both parties may walk away feeling they didn’t receive the focused and thorough representation they expected. That dissatisfaction could lead to legal action, especially if there are problems with the transaction.
However, if dual agency is legal in your state and you want to make it a part of your business model, be sure to take these steps to ensure that both clients are treated fairly.
- Review your state’s laws (consult with an attorney if necessary) to determine if dual agency is legal and what disclosures and procedures you must follow.
- Review your brokerage company’s policy to see if dual agency is permitted and exactly what actions you as a dual agent may not perform for each party.
- Disclose the dual agency and what it means to all clients in writing, and obtain their timely, written consent to the relationship. Be sure to explain how dual agency limits your ability to fully represent each party.
- Review and discuss with your client any state-mandated agency disclosure forms. Some states also have statutory language that must be included in all dual agency agreements. Failing to properly disclose dual agency is illegal.
- Recommend that both parties retain attorneys to advise them regarding the purchase agreement, contingencies, price, earnest money, or other negotiated issues. This can be a win-win for all parties involved since the client will be adequately represented and the attorneys’ participation will take pressure and liability off of the sales associate.
If you’re careful in informing all parties about the requirements of a dual agency relationship, acting as an agent for both can be a viable way to close deals. Just don’t let your desire to get the deal done lead you to inadvertently overstep the limitations dual agency imposes.