Building a Real Estate Team: The Legal Pitfalls of a Dual Agency

Building a real estate team is an excellent way to develop a successful and long-term real estate career. When you have a team, you can get more done, bring different types of expertise to the table and build a solid real estate career. However, there are issues like dual agency that you’ll need to address in order to develop a team effectively.

What Is Dual Agency?

Where there is no dual agency, the buyer’s agent is responsible for protecting the interests of the buyer, and the listing agent has the same responsibility for the seller. By definition, a real estate team usually consists of a few buyers agents, support staff, and listing agents. There will inevitably be times when one of your buyer’s agents is representing an individual who is interested in purchasing a home represented by one of your listing agents, and that’s where the term dual agency appears.

What Legal Problems May Arise in Dual Agency Situations?

The legal issues that arise typically relate to the communication of information between the two sides – the buyers and their agent, and the sellers and their agent. Here’s an example:

• A buyer attends an open house and tells the listing agent that they love the house and need a quick close. When the buyer submits an offer, the listing agent would work in the best interest of the sellers by letting them know that they won’t need to give much in negotiations because the buyers love the house and are in a hurry to move.
• Let’s say that same buyer stays quiet during the open house, then calls their own agent to write the offer. They tell their agent that they love the house, and their agent already knows they need a quick close. The buyer’s agent would work in the best interest of the buyers by keeping the buyer’s comments confidential and completing an effective negotiation.

That example shows how agency is supposed to work. Each agent is protecting the interests of their own client. That’s how dual agency should work, too.

Problems can arise when the agents exchange privileged information to the detriment of the buyer, seller or both. For example, assume that the buyer and listing agents in the scenario above work on the same team.

If the buyer’s agent tells the listing agent that the buyers love the house and are in a hurry to move, the buyer’s agent isn’t protecting the buyer. If the sale goes through, and the buyers discover that they were negotiating at a disadvantage due to their agent’s actions, the buyer’s agent is in legal trouble.

To complicate matters, consider the Horiike v. Coldwell Banker lawsuit that was settled in November, 2016 in the California Supreme Court. Here’s a simplified summary of that lawsuit:

• The buyer and seller in this lawsuit both worked with Coldwell Banker agents, and worked out of two different California Coldwell Banker offices.
• The lawsuit alleged that the listing agent provided inaccurate square foot information to the buyer.
• The listing agent’s response was that there was no agency between him and the buyer.
• After years of legal wrangling, the California Supreme Court decided that in cases of dual agency, both agents have a fiduciary responsibility to both the buyer and seller, and Coldwell Banker lost the lawsuit.

While this ruling has an impact on agents in California, it may be reasonable to assume that the precedent could be used in lawsuits in other states.

Protect your team by insisting on fair and open transactions that work toward a win-win outcome.

• Make sure you understand the dual agency laws in your state and follow them.
• Disclose any dual agency transactions to all concerned parties.
• Recommend that both parties retain attorneys to review the details of the transaction.

As your team grows, the demands of balancing lead generation, nurturing, communication, facilitation, reporting, and team management grow exponentially. Thankfully, Chime is built to solve those problems! Schedule your free demo today!