Andrew Wetzel's Musings

March 22, 2019

Dual Agency: Does having two buyers interested in the same property qualify?

Filed under: Buying,Ethics,Hiring an agent,Multiple Offers,Price — awetzel @ 5:40 PM

In the NAR Code of Ethics and Standards of Practice, Article 1 requires that REALTORS “protect and promote the interests of their client” and says that this obligation is primary.  Further, we have 6 fiduciary duties owed to clients, meaning that we have a formal representation contract with them, which requires giving them our undivided loyalty, our disclosing all information concerning the transaction that might affect their decisions, our not revealing their confidential information and our protecting them from foreseeable risks or harm.  In most Real Estate transactions each party has their own exclusive agent making these responsibilities easier to understand although conflicts still arise.

According to RELRA, the Real Estate Licensing and Registration Act of 1980, Chapter 2 defines “dual agency” as occurring when an agent represents both the buyer and seller in the same transaction.  In Chapter 6, Duties of Licensees, Section 606d, it states that a licensee may only act as a “dual agent” with the full disclosure and written consent of both parties to the transaction.  Further, it states that the agent may not take any action that is adverse or detrimental to either party’s interest.

The PA Consumer Notice states that as a “dual agent”, the licensee works for both the buyer and seller.

The concept of “dual agency” can be complicated enough when you have two parties trying to do business with each other and perhaps at the expense of the other, meaning that a buyer and seller are not always equally happy with the outcome even though a deed may have transferred from one to the other.  Many agents question how an agent can properly represent two parties with potentially opposite goals.  Some refuse to be “dual agents” which is perfectly legal in PA.

However, while not considered “dual agency” in PA, what happens when one agent represents two or more buyers each interested in purchasing the same property?  I respectfully suggest that this is more like “dual agency” than not in terms of its practical application.  Most of us will never have an opportunity to confront this and when I discuss it in my classes many agents admit that they never really thought about.  Let me explore this.

Let’s start with my having one buyer interested in a house and assume they have made an offer and heard a “counter-offer” from the seller.  It is reasonable to assume that our fiduciary duties preclude us from disclosing their interest, including the amount of their offer, to anyone else (think of the fiduciary duties of loyalty, confidentiality and reasonable care) as well as letting anyone else know how a seller countered their offer as doing that could harm my buyer’s position.  So, what happens when I either have two buyers interested in the same or similar properties?  Let’s keep it simple:  whether 2 or 200 makes no difference although it gets geometrically more complicated as the number rises.  While RELRA may not see this as “dual agency”, I think it in the best interests of all involved to treat it as if it were.  Let’s look at two general examples.

First example.  I am working with two buyers, each looking at different price ranges.  One is looking up to $200k; the other up to $190k.  The $200k buyer makes a $180k offer on a $200k listing which the $190k buyer considered out of their price range.  What would happen if I informed the $190k buyer that the $200k seller countered at $195k?  From the seller’s standpoint, since I have no fiduciary duty to them, I would think they have no recourse for my disclosing their counter-offer although how a seller counters an individual buyer does not establish what they might accept from another and, presumably, it is in the seller’s best interests to have more than one interested party.  The real question is how would my $200k buyer feel if they knew that I shared something about their negotiating that might generate competition for them which could end up causing them to have to pay more to get a house or, perhaps even worse, cause them to lose the bidding?  This sounds like a problem even if we do not call it “dual agency”.  How would you feel if this happened to you?

Second example.  Two of my buyers-clients express interest in seeing the same property.  Aside from the planning it might take to manage the process of showing and perhaps writing offers and negotiating them for two different buyers, what is their expectation for how I keep the two processes separate?  As clients, they both signed the Consumer Notice and either accepted or declined “dual agency” and, since they signed a representation contract with me, they accepted the fact that I may be working with other buyers who share the same goals in terms of what they are looking to buy.  If either declined “dual agency”, how would that influence my performance with the second buyer, if at all?  Does the agency selection of either have any impact on whether I can add clients with a similar goal to my list of clients?  We all know that people change their plans from time to time and a buyer may decide to look at houses that I am already showing to someone else.  Of course if I failed to properly manage the process I have no one to blame but myself.

Again I mention the potential conflict and add to that.  In discussing this concept with other agents, I have heard some startling opinions.  Some feel it only “fair” to let both buyers know that they have competition.  One agent even stated that they would stop representing both, allowing their broker to designate a new agent for each, and that they would let both know exactly why.  Perhaps I look at this differently from others but, were I working with a buyer’s agent, I would be appalled to learn that they advised another of their clients about MY interest in a specific property.  Even if we take for granted that the details of my offer are confidential regardless of whether or not the relationship constitutes “dual agency”, advising another of my interest could harm me either in terms of my cost to acquire the property or, even worse, result in my losing the chance to own it.  In this scenario one of us will lose and that person may well have wished to know they had competition but the very act of raising the stakes most certainly seems to only benefit the seller unless neither buyer acted differently.

The last analogy I will use relates to how a listing agent is allowed/ expected to answer an inquiry about the existence of other offers or interest.  It is expressly understood that their ability to answer is dictated by their seller client.  While I would not suggest that a buyer agent’s informing a pair of buyer-clients about the existence of the other’s interest is a violation of the seller’s interest since there is no fiduciary duty, I think that the buyers should dictate whether their buyer agent is in fact allowed to share the buyer’s interest in a specific property with another buyer client.

Agency is not always pretty and is not always easy to explain but it is expected in client relations and its misapplication can and will cause harm, which is the antithesis for our entering into such a one-to-one relationship in the first place.

There is no time for inexperience, empty promises of false expectations! 

Remember:  HIRE WISELY!  We are not all the same!

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