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How to Avoid Real Estate Lawsuits when Working as a Dual Agent

Dual Agency, where the real estate agent is acting on behalf of both the buyers and sellers, can be very attractive to some agents. Not only does acting as a dual agent streamline the transaction process, but it can also be more lucrative when the agent keeps the entire commission. (Dual agency can also mean that the buyer and seller are represented by two separate agents who happen to work for the same brokerage. This is fairly common in smaller areas or when dealing with a large brokerage. And this is an area where special care must be taken.)

While there are benefits of a higher commission and fewer parties involved in the communication loop with dual agency transactions, they do carry a higher degree of risk than a traditional separate seller and buyer agent sale. If a clear definition of who does what and when isn’t disclosed in writing at the outset, problems can happen.

Google “dual agency” and a host of legal precedents tumble out. Situations where the seller sued the agent for withholding information, the buyer sued for breach of fiduciary duty—each case getting its own judgment, affected greatly by the state in which the transaction took place. With all of the potential claims risks multiplied by two in a dual agency real estate transaction, what can you do to protect yourself from a real estate lawsuit?

Know Your Dual Agency Responsibilities in Advance

Before agreeing to dual agency, identify any required documents, be sure you understand your legal responsibilities to each party, and know whether your Real Estate E&O insurance covers you in a dual agency activity. Some states require mandatory forms be submitted prior to a dual agency relationship and sale. Brokerage firms may also have their own forms or contract requirements, if they permit this type of sale in the first place. Before agreeing to dual agency, do the following:

  • Check with your real estate broker and your firm’s policies surrounding dual agency
  • Check with your state’s real estate laws surrounding dual agency
  • Call your CRES real estate legal advisor (included with your CRES E&O) to review common dual agency risk, and ask about special dual agency disclosure documents you should use

Know the Common Dual Agency Lawsuit Risks

These are the most common dual agent actions that result in seller and/or buyer filing a lawsuit against the dual agent:

    • Acting in the negotiating role when that is strictly prohibited in a dual agency transaction
    • Disclosing confidential information to one party or the other
    • Giving one party an advantage over the other

Get it in Writing

The essential first step when conducting a dual agency transaction is to have the buyers and sellers sign full disclosure agreements that show that they understand the benefits, limitations, and agent responsibilities of a dual agency transaction. You must also file these forms correctly. If a real estate lawsuit were to arise, these forms and their handling will be heavily scrutinized.

Legal Precedent

While dual agency seems like a simple definition at the outset (one agent representing a buyer and seller simultaneously), case law and legal precedent continues to unfold and evolve the definition.

On April 9, 2014 the Second District of the Appellate Court announced a decision in the case of Horiike v. Coldwell Banker Residential Brokerage Company, which led to a clearer understanding of the duties in a dual agency representation:

An “associate licensee” is a licensed real estate broker or salesperson “who is either licensed under a broker or is entered into a written contract with a broker to act as the broker’s agent in connection with acts requiring a real estate license and to function under the broker’s supervision in the capacity of an associate licensee.” (2079.13, (a)”

“Dual agent” means an agent acting, either directly (broker) or as an associate licensee (salesperson or broker licensed under another broker), as agent for both the seller and the buyer in a real property transaction. (2079.13 (b)

The duties of brokers and salespersons are regulated by a comprehensive statutory scheme, Civil Code Section 2079 and its subparts. In this scheme, an “agent” is a licensed real estate broker “under whose license a listing is executed or an offer to purchase is obtained” (2079.13). Therefore, dual agency exists where two agents, one representing the seller and one representing the buyer, are both licensed under the same broker. Read the full details of this case and our CRES attorney’s perspective on it being upheld in 2016.

Whether the agent is the only party acting as the “dual agent”, or each agent is acting fully or partially as an “associate licensee” under the direction of the same broker, both constitute a legal “dual agency” role, and so must abide by dual agency requirements. If a single agent is acting as “dual agent”, that agent has a fiduciary responsibility to both buyer and seller to act in each party’s best interests.

The key conclusion from this landmark lawsuit is this:

  • When two agents are involved, one representing the buyer and one representing the seller, and both agents are under the license of the same broker, both agents have a fiduciary responsibility to both buyer and seller, because the agents are acting on behalf of the same broker.

Moving Forward “Protected” as a Dual Agency

You may want to have any and all disclosure documents related to the dual agency sale checked by a real estate legal advisor. CRES uniquely offers this on-call legal advisory service as part of every E&O + ClaimPrevent® policy. If you’re not with CRES and your provider doesn’t have this, contact CRES today to get a quote for coverage that will help you prevent claims, not just cover them after the fact.

Have you conducted a dual agency transaction? What unexpected challenges came up and how did you handle them? Tell us in the comments below!

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