Dual Agency

Dual Agency

New for 2012 is Designated agency will be implemented in BC by July 2012.

Here is the New Working With a Realtor brochure.

What is Dual Agency? Let’s take an in depth look.

Acting for both Competing Clients

It is always a fundamental premise of both agency law and professional ethics that all professionals must avoid acting for two clients whose interests are in conflict.  A real estate professional’s role is to provide impartial expert advice.   It is difficult to give impartial advice to one client if another client is likely to be adversely affected.   If a professional is placed in a position of conflict between the interests of two clients, they should resolve the matter by declining to act for one, or in extreme cases, both of the clients.
Real estate brokers are particularly susceptible to this type of conflict because of the peculiar nature of the listing and selling process involved in most real estate transactions.  A prospective purchaser of a property will often look to a real estate agent for expert advice and may request disclosure of information about a property that an agent, as a representative of the seller, is not in a position to disclose.  For example, some information relating to a selling price is considered confidential.   A purchaser of a property may be keenly interested to know a seller’s financial status and any details which might reveal the lowest price at which a seller would be willing to sell.  Such details would undoubtedly be disclosed to the seller’s real estate agent in confidence and could not be disclosed to the purchaser without first obtaining the client’s consent.

Agency Laws

Prior to 1994, in British Columbia real estate agents worked as sub agents of the seller.  This agreement was called “Assumed Seller Sub-agency” and made it confusing for the typical buyer.  The buyers thought the buying agent helping them was working for them, but in fact, the agent was working for the seller.  In 1994 British Columbia changed the agreement to “Assumed Buyer Agency.”  Now, if the real estate agent is working with the buyer, it is assumed s/he is working for the buyer only (this is why we have Exclusive Buyer Agency agreements). This is the case unless the agent has consent from both the buyer and seller to work for both parties.

Limited Dual Agency Agreement

When the British Columbia real estate industry adopted Assumed Buyer Agency, the industry foresaw situations where the listing agency might also represent the buyer.

One example is when two different agents in the same brokerage work with the seller and buyer respectively.  In law, the seller lists (contracts) with the real estate brokerage, not with an individual real estate agent.  In a large office, one agent may have signed up the listing while another agent in the same office has been working with a buyer who wishes to present an offer.  Although both agents work for the listing brokerage, the agent working with the buyer is presumed, under Assumed Buyer Agency, to represent the purchaser.  However, the brokerage is clearly in conflict.

Another example is when the listing agent also brings a buyer to the transaction (a “double-ender”).  Typically, agents split the sales commission between the listing and selling ends of the transaction.  The listing agent gets paid for his/her work involved in listing the property.  The selling agent gets paid for his/her work in introducing the buyer to the property.  When the listing agent is the same agent who brings the buyer to the transaction, s/he receives all the commission.  On the face of it, a double ender is a clear conflict because the listing agent representing the seller is also assumed to act for the buyer.

To make the arrangement workable, the listing brokerage needs the seller and buyer to permit the brokerage to modify its relationship with both clients.  For example, rather than requiring the brokerage to fully disclose all matters to both sides, the seller and the buyer may allow the brokerage to limit its responsibilities in this area.  In these cases, the listing brokerage will intentionally ask the seller and the buyer for permission to represent both on a limited basis.

The brokerage uses a form of written agreement called a Limited Dual Agency Agreement.  Under this form of agreement the seller and the buyer agree that the brokerage shall represent both of them. Although the brokerage and its agent(s) are still required to deal impartially with both clients, the duty of full disclosure is modified to allow the agent to keep information confidential from one side against the other in three areas:

The price a client is willing to accept or pay
The motivation of either client
Either client’s personal information

Agents must still disclose all known defects of the property to a buyer.

If either client refuses to enter a Limited Dual Agency Agreement, the brokerage must withdraw from representing the buyer.  In that case, the brokerage will typically refer the buyer to another brokerage for separate representation, or the buyer will act for him or herself without any agency representation.

I had wished to present this matter in its entirety by quoting from the University of British Columbia text book “Real estate Trading Services Licensing Course Manual.”  However, UBC would not give me permission to use any quotes on the subject, so I have rewritten it in my own words without any prejudice.
Cheers

Scott Simmons

Up date February 1st 2013 The following is from BCREA;

Number 459, January 2013

LIMITED DUAL AGENCY AND INDEPENDENT ADVICE

Judicial consideration of the practice of limited dual agency continues to evolve. A recent court decision¹ considered whether a REALTOR® had a duty to refer their client for independent legal advice before the client entered into a Limited Dual Agency Agreement.

The plaintiff was a retired labourer with an elementary school education who, together with his wife, sought to relocate to the Okanagan. He became interested in a property and viewed it with the listing REALTOR®. He decided upon the amount he was prepared to offer for the property and the REALTOR® assisted him in the preparation of a formal offer.

The REALTOR® also had the plaintiff enter into a Limited Dual Agency Agreement. The offer and the Limited Dual Agency Agreement were then delivered to the seller. The offer was accepted and the transaction was completed. Sometime after completion the plaintiff became dissatisfied with a number of things about the property and sued the seller for misrepresentation and the REALTOR® for both misrepresentation and breach of fiduciary duty. The plaintiff was partially successful against the seller with respect to the claims of misrepresentation but unsuccessful against the REALTOR®.

The plaintiff first claimed that the REALTOR® was negligent in not confirming certain representations made by the seller. The court concluded that the duty of the REALTOR® was to check the completeness and accuracy of information which is usual and customary for REALTORS® to verify and all other information of which the REALTOR® is in doubt. The plaintiff did not adduce any expert evidence as to what information was usual or customary for a REALTOR® to verify. Absent any expert evidence the court was not prepared to conclude that it was customary or usual for a REALTOR® to inquire into or check the electrical system in a house or outbuilding nor was it customary or usual to examine the surrounding property.

With respect to the claim that the REALTOR® breached the fiduciary duties owed to the buyer the plaintiff claimed that, because the buyer may not have understood the nature of the Limited Dual Agency Agreement, the REALTOR® was obliged to afford the plaintiff the opportunity of getting independent legal advice before entering into it, that the REALTOR® failed to meet the obligations under the CREA REALTOR® Code and finally that the REALTOR® preferred the interests of the seller over the buyer. The court dismissed each claim.

The plaintiff argued that the requirement in the REALTOR® Code for a REALTOR® to “encourage parties to seek the advice of outside professionals where such advice is beyond the expertise of the [REALTOR®]” obligated the REALTOR® to refer the plaintiff for independent legal advice before the plaintiff entered into the Limited Dual Agency Agreement. The court did not agree. While concluding that there may be circumstances where such a referral was warranted, this was not one of them.

Having found that the REALTOR® had explained the document to the plaintiff, that the plaintiff had bought other houses before and had sold their previous property through limited dual agency and that there was no evidence to suggest that the plaintiff was incapable of understanding the document, the court concluded that the REALTOR® did not have an obligation to refer his client for independent legal advice. The plaintiff also tried to argue, with no success, that the fiduciary duties of the REALTOR® were not affected by the terms of the Limited Dual Agency Agreement.

Once again a BC court has recognized that “limited dual agency agreements are not uncommon in this province.” In this case the court confirmed that, except in extraordinary circumstances, a REALTOR® is not obligated to refer his client (even a client with limited education) for independent legal advice before entering into a Limited Dual Agency Agreement where the document has been explained to the client and there is no evidence to suggest that the client was incapable of understanding it.

Brian Taylor
Bull Housser LLP

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