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Dual Agency Smack-Down: Arizona Association of Realtors General Counsel Michelle Lind on Dual Agency . . .

The Arizona Association of Realtors has just published Arizona Real Estate: A Professional’s Guide to Law and Practice by Arizona Association of Realtors General Counsel Michelle Lind. I don’t know what is planned for this book, but it is comprehensive enough to be used as one of the texts in a pre-licensing or broker’s licensing class.

I got my copy today, and I thought I’d highlight the material on Dual Agency. This rendering is not hugely different from the material Lind has had on the AAR website, but I think the statute law makes it plain that, in Arizona, the parties to a Dual Agency can consent in writing to terms less stringent than those specified in the current “AAR Consent to Limited Dual Representation” disclosure. I haven’t gotten around to writing a disclosure that describes Dual Agency transactions as they actually occur — in part because I’ve been waiting for this book to be published — but I’ll put a form together and take to Lind to see how it flies.

Nota bene: This is interesting reading, but if you are not licensed in Arizona, it does not apply to you. Your local laws may be radically different.

 
DUAL REPRESENTATION (DUAL AGENCY)

Dual representation (dual agency) occurs when one broker individually, or two salespeople within the same brokerage firm, represent both the buyer and the seller in a real estate transaction. Dual representation is lawful with prior written consent. The ADRE Commissioner’s Rules provide that: “A licensee shall not . . . represent both parties to a transaction without the prior written consent of both parties.” See, R4-28-11O1(F). Consequently, the ADRE may sanction a licensee if the licensee has “[a]cted for more than one party in a transaction without the knowledge or consent of all parties to the transaction.” A.R.S. 32-2153(A)(2).

Dual representation involves inherent conflicts. Therefore, in most residential resale transactions in which a broker acts as a dual agent, the broker obtains the consent of the parties on the AAR Consent to Limited Representation (12/02) form. This form is not mandated by statute, but is helpful in explaining dual agency and its consequences to the buyer and the seller prior to obtaining the parties consent to the relationship.

In new home and commercial transactions, there is no standard form for obtaining the parties consent to dual agency. In new home sales, there is no standard form because there is less likelihood that the broker in the transaction will act as a dual agent. Most new home sales agents work directly for the seller who has developed the subdivision. In a commercial setting, the issue of agency may be addressed in the purchase contract or simply in a separate writing.

In general, a dual agent must:

  • exercise reasonable skill and care in the performance of the agent’s duties
  • deal honestly with both buyer and seller
  • disclose (in writing) to both buyer and seller:
    • any information that the seller is or may be unable to perform
    • any information that the buyer is or may be unable to perform
    • any material defect existing in the property being transferred and
    • the possible existence of a lien or encumbrance on the property being transferred See, R4-28-1101(B)

In general, a dual agent must not:

  • advocate or negotiate on behalf of either the buyer or the seller
  • disclose any confidential information that would place one party at an advantage over the other party (without the informed consent of the other party), such as:
    • the buyer is willing to pay more than the price offered
    • the seller is willing to accept less than the listing price
    • a party will agree to financing terms other than those offered
    • the repairs or improvements that a seller is willing to make or that the buyer is willing to forego
    • the confidential motivating factors of either party

    There are no easy answers when it comes to dual agency. In a dual-agency situation, the broker(s) attempts to serve two clients, both of whom have an interest in completing a real estate transaction on the best terms possible. Therefore, difficult questions often arise.

    Note: The following Q&As assume that the buyer and the seller have executed an AAR Consent to Limited Representation form.

    Question: May a dual agent point out to a buyer a negative characteristic of the property?
    Answer: A dual agent may point out a negative characteristic of the property only if that negative characteristic is a material fact that must be disclosed by law. Comments such as, “These large windows are impressive, but they may increase your utility bills,” should be avoided.

    Question: May a dual agent advise the non-breaching party of possible remedies if one of the parties is in default?
    Answer: The remedies in the event of a breach are generally addressed in the purchase contract (all AAR contracts address remedies) and a dual agent may point out these provisions in the contract to both parties. The dual agent should also point out the alternative dispute resolution provisions and advise the parties as to the information on dispute resolution available on the AAR Web site. Additionally, a dual agent would be wise to recommend independent legal counsel.

    [….]

    Consent to Limited Representation (Consent)

    The Consent form is designed to be used when there is an identified buyer, seller, and property in an in-house sale. The Consent should be used even if the parties have consented to dual agency on the READE form. The parties may not be truly informed enough to give consent to limited dual representation until a specific property has been identified.

    The Consent authorizes the broker to represent both the seller and the buyer in the transaction. The parties consent to the dual representation with the stated limitations of the broker’s duties. For example, the broker will not, without written authorization, disclose to the other party that the seller will accept a price or terms other than those stated in the listing or that the buyer will accept a price or terms other than offered. However, the broker is still obligated to exercise reasonable skill and care in the performance of the broker’s duties and is obligated to deal honestly with all parties at all times. The Consent also includes the stigmatized property notice, which is particularly important in a dual agency situation. The Consent terminates if the parties do not enter into a contract, if the transaction fails to close, or by agreement of the parties.

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  • 4 comments

    4 Comments so far

    1. Monika January 10th, 2007 9:01 pm

      Very similar to NH. Dual Agency is very common in my area. In fact in New Hampshire rather than joining the states that have banned or made the practice of disclosed dual agency illegal, N.H., has recently taken on changes that once approved would in fact make dual agency much easier to practice…much more in line with common practice here.

    2. Greg Swann January 10th, 2007 9:05 pm

      > changes that once approved would in fact make dual agency much easier to practice…much more in line with common practice here.

      Can you post the proposed changes? Thanks!

    3. Monika January 11th, 2007 7:59 am

      Good morning,

      Our Real Estate Commission made changes last year to our law governing Dual Agency and it became retroactive…interesting to me and my perspective only…is they gave us enough rope to hang ourselves. Now the commission has approved changes to our rules and they still need to go through JLCAR (joint legislative committee on administrative rules)…once that happens they will be fully approved.

      Our RSA (law) changes were approved as written below:

      331-A: 25-d Disclosed Dual Agent; Duties A licensee may act as a disclosed dual agent only with the written consent of all parties to the anticipated transaction at the time in which a dual agency relationship occurs, but no later than the preparation of a written offer for sale or lease.

      It used to say prior to the showing.

      The rules…which I consider the operator’s manual and the law which is like the owners manual will now reflect those changes.

      I’m not really happy with the language at all…but I seem to be in the minority about that.

      Monika

    4. […] Simply put, dual agency occurs when one agent represents both sides in a transaction, or when two agents working for the same broker each represent one side.  Greg's not a fan of it, partly because it raises behavioral dilemmas for agents. […]