Why this matters: As buyer representation evolves professionally in California, dual agency provides a workaround for improper brokerage practice and excess fees. Prudent brokers will conform their behavior to the now mandated and long-standing public policy when a buyer without a broker seeks information on a property offered for sale.
Dual agency scenario of an apex predator
Consider a homebuyer who is not represented by a broker. The buyer attends an open house and engages the seller agent in conversation concerning the property. The buyer starts to query the agent about the condition of the roof, cost of utilities and neighborhood issues.
The seller agent asks whether the buyer has a broker they are working with. The buyer informs the seller agent they do not. The seller agent says they will not be able to provide the buyer with information and help them acquire the property unless the buyer signs a buyer representation agreement with the agent’s broker, also known as a BRA. [See RPI Form 103.1 and 103.2]
Does the buyer need to first employ the broker who offers a property for sale by entering into a buyer representation agreement before the seller broker may release property information?
No! The seller broker, as well as their agents, have a special duty owed the seller-client to provide a prospective buyer with details about the property offered for sale — the marketing package — when asked for more than generic promotional information. A buyer’s inquiry into additional property information is the seller agent’s indication the buyer is interested in possibly acquiring the property, the first step in negotiations.
Continuing with this scenario, the buyer agrees to sign a buyer representation agreement with the agent’s broker. The agent prepares a buyer representation agreement which the buyer signs, and the agent hands the buyer a marketing package disclosing property information.
Does the broker become a dual agent on entering into a representation agreement with a buyer who has expressed an interest in a property the broker offers for sale on behalf of a seller?
Yes! The seller broker offering the property for sale is now also the buyer broker to review and advise the buyer on property conditions which may adversely affect the buyer’s use and ownership of the property. Thus, the broker and their agent(s) become dual agents, involved in negotiations for the purpose of a transaction on the property. One client of the broker offers the property for sale, the other client is a prospect interested in acquiring the property.
Here, the seller agent discloses the dual agency at the moment the buyer agrees to be represented by the broker. A dual agency is a conflict of interest — of the most basic variety. Thus, the broker needs written consent from both the seller and the buyer before the broker or their agents may further act on behalf of either the seller- or buyer-client regarding any aspect of a property transaction. [Calif. Civil Code §2079.13(d); See RPI Form 117]
No fishing to double end and bar other brokers
When a broker and their agents negotiate a transaction, and only the broker’s clients enter into it, the broker is a dual agent and has double ended the transaction. When representation agreements or unwritten fiduciary conduct toward both the seller and buyer indicates an agency relationship, and no other broker is involved, the broker collects fees for both sides of the transaction, say, a total fee of 4 to 6%.
However, by requiring the buyer to enter into a buyer representation agreement as a prerequisite to receiving information on the property the broker offered for sale, the broker violated their duty owed to their seller-client to locate and negotiate a sale of the property to a buyer — whether represented by a broker or not. Here, the failure to fully disclose the conditions of the property to the inquiring buyer by first demanding the buyer retain the broker as their representative is improper brokerage practice. When challenged, the fee is not collectible, and when received, must be returned.
The seller broker has a duty to their seller-client to deliver property information to each prospective buyer of a property or a buyer agent on request, and ultimately, to assist the seller in closing a deal with a buyer. This duty to the seller-client bars the broker from conditioning their disclosure of property information to the prospective buyer on the buyer first entering into a representation agreement with the broker offering the property for sale. The unlawful act occurred when the seller broker refused to provide the buyer with information on property the broker offered for sale, unless the buyer first became their client (or retains another buyer broker).
The broker prioritized their own interests (receiving a fee) ahead of the interests of their client (selling or leasing a property). The broker did not uphold their fiduciary duties owed to the seller-client.
Dual agency is outlawed in some states, but not in California. A dual agency situation may naturally arise in the course of assisting buyers and sellers.
Our above scenario did not evolve naturally. It resulted from, well, a forced error by the agent of the broker. However, the nature of dual agency as a conflict of interest compels disclosure to all involved as soon as possible (ASAP) on becoming a dual agent.
Further, a broker as a dual agent by consent of the buyer and seller, and thus the broker’s agents, is barred from relaying any confidential pricing information about what price their buyer-client might offer, or their seller-client might accept for the property. [CC §2079.21]
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Dual agency, in general
Dual agency arises naturally from a series of common brokerage events and is proper brokerage practice, though it’s a risk-prone activity.
The failure of the broker to promptly disclose the dual agency conflict subjects the broker to:
- inability to collect their broker fee;
- liability for money losses incurred by the buyer- and seller-clients; and
- disciplinary action by the Department of Real Estate (DRE) on receipt of a complaint. [Calif. Business and Professions Code §10176(d)]
A broker owes a client, buyer or seller, the duty to pursue the best business advantage legally and ethically obtainable. However, a broker as a dual agent and their agents are prevented from actively achieving this advantage for either client.
Critically for dual agents, they may not take sides with one or the other during negotiations concerning pricing. A natural inability exists for dual agents to negotiate the highest and best price for the seller, and at the same time, negotiate the lowest and best price for the buyer.
Clients of a dual agent do not receive the full range of benefits available from an exclusive agent, an agency relationship always disclosed in any purchase agreement when not acting as a dual agent. The benefits are diminished even when different agents employed by the same broker separately work with the seller or the buyer in the same transaction.
Typically, in dual agency situations, one agent employed by the broker enters into a seller representation agreement with a property owner to market property and locate a buyer. Another agent employed by the broker enters into a buyer representation agreement with a buyer to locate qualifying properties available for sale in the market.
Here, the broker employing the two agents becomes a dual agent the moment one agent’s buyer-client inquires further into the conditions of a property another agent of the broker representing a seller-client offers for sale.
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