Office Hours with Professor Bill is a multimedia learning experience covering fundamental real estate concepts.
In Episode 5, Professor Bill responds to questions about:
- dual agents and dual agency;
- subagency; and
- dual agency and subagency under a multiple listing service (MLS).
What is a dual agent?
A dual agent is a broker or agent who simultaneously represents the best interest of opposing parties in a transaction, e.g., both the buyer and the seller.
It is a situation that arises naturally in the course of representing buyers and sellers.
However, the existence of a dual agency is to be promptly disclosed to each client.
A broker who fails to promptly disclose their dual agency at the moment it arises is subject to:
- the loss of their brokerage fee.
- liability for their principals’ money losses; and
- disciplinary action by the Department of Real Estate (DRE).
What are the rules and restrictions of a dual agent?
When a dual agency is established in a one-to-four-unit residential sales transaction, and both parties are represented by the same broker or agent, the licensee may not pass on confidential pricing information to the opposing parties.
For example, when the broker is a dual agent, the broker and their agents may not tell the seller the price the buyer is willing to pay or tell the buyer the price the seller is willing to accept.
A broker owes their client the duty to pursue the best business advantage legally and ethically obtainable.
However, by nature, the dual agent is prevented from actively achieving this advantage for either client.
The dual agent cannot take sides with one or the other during negotiations.
A natural inability exists to negotiate the highest and best price for the seller, and at the same time, negotiate the lowest and best price for the buyer.
Generally, clients of a dual agent do not receive the full range of benefits available from an exclusive agent.
This holds true even if different agents employed by the same broker each work with different parties to the same transaction.
In-house transactions which involve the broker as a dual agent make it particularly difficult for the broker to oversee and supervise dual agency negotiations.
Typically, one agent employed by the broker enters into an exclusive sales listing with a property owner.
At the same time, another agent in the broker’s employment works separately with a buyer to locate qualifying properties, providing information on properties listed with other brokers.
The broker becomes a dual agent the moment this buyer is exposed to a property that is the subject of an in-house listing.
When is a subagency established?
A seller’s listing agreement authorizes the listing broker to cooperate with other brokers.
Thus, the seller’s broker may share property information with other brokers and share any brokerage fee due from the seller.
However, this authorization is certainly limited. Recognize that listing agreements do not authorize the seller’s broker to delegate to other brokers
the authority to also act on behalf of the seller to locate buyers and obtain offers to purchase as the seller’s agent.
No, only the seller’s exclusive broker can do this.
When another broker acts on behalf of a seller at the request of the seller’s broker, a subagency with the seller has been established by the brokers.
With authority, the seller’s broker, acting on behalf of the seller, may employ another brokerage office as a subagent to also act on behalf of the seller to market the property.
Now, the agency relationship of the buyer’s broker is determined by the conduct of the brokers and their agents.
It is not by the seller’s payment of a broker fee to the broker. Nor is it determined by splitting the fee received by the seller’s broker.
Neither a subagency duty owed the seller, nor a dual agency relationship with the buyer and seller, is imposed on the buyer’s broker simply because the seller pays the buyer’s broker a fee.
This fee-agency rule applies whether the seller pays the fee directly to the buyer’s broker, or indirectly when the seller’s broker initially receives the entire fee.
In this way, brokers and agents working for buyers to locate suitable property are not considered agents of the seller simply because they show their buyers properties listed with other brokers.
What about dual agency or subagency in a multiple listing service (MLS)?
The membership of a buyer’s broker in a multiple listing service (MLS) is not conduct that creates a dual agency or subagency relationship with any seller whose property is listed for sale with another broker who is a member of the same MLS.
Agency, whatever the type, is created either by contract or by the conduct of a broker when interacting with a buyer or seller.
Agency is not established by entering into trade memberships or by receipt of a fee paid by the seller.
