Limited Loyalty Flashcards
In the previous chapter, we looked at undivided loyalty, specifically as it pertains to real estate agency relationships. You now know that it manifests in two forms:
Single (exclusive) agency
Subagency
In this chapter, we’ll be shifting our focus primarily to the form of limited loyalty that is practiced in Arizona agency relationships: dual agency.
We’ll talk about why and when it might be used, including what might convince a client that this form of limited loyalty is the way to go.
Let’s get started.
Limited Loyalty
As you learned in the previous level, dual agency is an agency relationship wherein both the buyer and the seller are represented by the same broker in an in-house real estate transaction. (Sounds like the opposite of exclusive agency, right?)
A dual agent can be:
The designated broker (or an associated licensee) who works directly with both parties to the transaction, or
Two associated licensees (operating on behalf of the designated broker), each “exclusively” working with one of the two parties to the transaction
Remember that even in that second instance, both associated licensees are operating as subagents for the same designated broker and both parties to the transaction have an agency agreement with that same broker. So, while it looks a little like exclusive agency, it is still an in-house transaction and considered dual agency.
Bottom line: Two parties sharing the limited services and loyalty of one broker.
While many brokerages, for a number of reasons, prohibit dual agency, you need to understand that dual agency IS legal in Arizona. And because of the limited (compromised?) services rendered to the parties, it’s even more crucial than ever to disclose to the parties what dual agency entails.
Informed Consent
This is where the Arizona Real Estate Agency Disclosure and Election form comes into play. (You got a peek at this form in the previous level, remember?)
As soon as you have your first substantive contact with a prospect, this form should be shared and explained. And a written record of receipt should be obtained.
Dual Agency
Arizona does not mandate the use of promulgated forms and contracts but, instead, allows for the use of “standard language” or “boilerplate” forms. One such form is the Real Estate Agency Disclosure and Election form I showed you in the previous level.
Here’s its “standard language” regarding dual agency:
III. Broker Representing Both Seller and Buyer (Limited Representation). A broker, either acting directly or through one or more licensees within the same brokerage firm, can legally represent both the Seller and Buyer in a transaction, but only with the knowledge and informed consent of both the Seller and Buyer. The Broker then, acting through its licensee(s), represents both the Buyer and Seller, with limitations of the duties owed to the Buyer and Seller.
(a) The broker will not, without written authorization, disclose to the other party that the Seller will accept a price or terms other than stated in the listing, or that the Buyer will accept a price or terms other than offered.
(b) There will be conflicts in the duties of loyalty, obedience, disclosure, and confidentiality. Disclosure of confidential information may be made only with written authorization.
Compromised Service and Limited Loyalty
The takeaway here is that both parties need to understand that they are giving up something of importance when consenting to dual agency, which is exactly why both parties must consent to it prior to implementation.
Specifically, what is being given up is:
Full disclosure
Undivided loyalty
Disclose Don’ts
If full disclosure is being given up, then, obviously, some things are NOT to be disclosed, such as:
The price at which the other party is willing to sell/buy
The other party’s motivations
Terms that the other party are willing to accept
The financial condition of the other party (other than the ability to purchase or the right to sell)
An Exception to the Don’ts
As indicated by the above-referenced passage from the disclosure form, the items on this do-not-disclose list CAN be disclosed, but ONLY with written permission from the principal.
If you do this, record and save that written permission, Anthony!
Conflicts of Interest
If both parties to the transaction are represented by one licensee, that licensee is unable to pursue the best interests of either party whenever those interests are at cross purposes.
Understand that, while the parties share a common goal, they are not aligned on every aspect of the transaction — and that’s where the licensee’s hands are tied.
Here are a couple of examples of where alignment and conflict can exist between the parties in a transaction:
Sale vs. Price
Alignment: the sale/purchase of the property
Conflict: the price
Contract vs. Contingencies
Alignment: willingness to enter a sales contract
Conflict: contingencies or “escape clauses”
Scenario: Alana Consents to Dual Agency
Buyer Alana consents to dual agency because, as it turns out, the house she likes happens to be listed by her buyer’s broker, Neil.
As the transaction continues, Alana becomes frustrated with Neil’s non-answers to her questions.
Alana: “How much do you think the seller will take?”
Neil: “Well, that’s hard to say..”
Neil can’t really answer this question. He likely knows exactly how much the seller will take. (He is representing the seller, too.) But Neil can’t disclose that information and violate the fiduciary duties he owes to the seller.
Question
What was lacking in Alana and Neil’s agency relationship?
Answer
Undivided loyalty and full disclosure.
Dual Agency and the Arizona Disclosure Form
We robots love surprises, but not everyone does. Principals, in particular, usually don’t love surprises when it comes to real estate transactions. So, you need to proceed with caution in scenarios where dual agency can be created unintentionally.
Even in brokerages that allow for it, license holders don’t necessarily go into an agency relationship knowing dual agency will be required at some point down the road.
Sometimes it just happens after a single agency relationship is established, as you saw in some of the examples you just looked at.
Change in a Relationship
In fact, more often than not, dual agency relationships start off as single-agency relationships. But somewhere along the line, circumstances dictate a move to dual agency.
Whenever a change in agency is required, the agent needs to make their client aware of the shift immediately.
EXAMPLE
Darius is a buyer’s broker helping Chantel purchase a new home. Darius and Chantel look at various listings all across the city. Chantel likes several listings Darius shows her, but, in the end, she decides to purchase a house for which he is also the listing broker.
Once she makes that choice, Darius should disclose to Chantel that their agency relationship needs to shift from single agency to dual agency if they are to continue to work together.
Disclose, One More Time
Even if you try to avoid dual agency like the plague (or those gross anchovies they sometimes put on pizza), it can still come up. As soon as your single agency relationship becomes one of dual agency, disclose it and document it!
Even if advance consent to dual agency was previously given by your client in writing at the time the single agency agreement was signed, you should still inform all parties you’ll be moving forward according to dual agency procedures.
And get that consent in writing, yet, again.
Unexpected Dual Agency
Do you recall learning about the creation of implied agency in the previous level?
In case you don’t:
Implied agency is created when a person assumes a relationship based solely upon the actions, conduct, and words of either or both parties.
Implied dual agency has many of the same potential problems as does implied agency in general.
With implied dual agency, the words or actions of a license holder can make a customer mistakenly feel that the license holder is looking out for that customer’s best interests. But in reality, the license holder is actually representing another party.
Not Fair, Dude
This is unfair to the customer for a number of reasons.
The biggest concern, besides the absence of informed consent, is that implied dual agency places the customer in a situation where they might begin to share information that could be used against them in a negotiation with the party actually represented by the license holder.
Implied Dual Agency
The last thing you want (other than a plate of mushy liver or an expensive parking ticket) is to practice undisclosed dual agency.
Undisclosed dual agency is the term for when both parties to a real estate transaction are unknowingly represented by the same broker. The practice of undisclosed agency is a violation of fiduciary duties to both parties in the transaction.
Possible Consequences
As you probably know by this point in your life, Anthony, actions have consequences. Undisclosed dual agency is illegal and, as such, agents who knowingly practice undisclosed dual agency could:
Lose their license
Lose their commission
Have legal action taken against them
None of these consequences are fun ones. How about we agree to avoid undisclosed dual agency altogether, okay?
Undisclosed Dual Agency
An agent can obtain informed consent in advance to operate as a dual agent during their first substantive contact with a client.
In this scenario, the agent and the customer enter into a single agency relationship but agree to dual agency in the future, if needed.
What might the anticipated need be? The language of the Real Estate Agency Disclosure and Election form provides some clues.
For a buyer-client:
Show Buyer properties listed with Broker’s firm and Broker shall act as agent for both Buyer and Seller provided Seller consents to limited representation.
For a seller-client:
Show Seller’s property to Buyers represented by Broker’s firm and Broker shall act as agent for both Buyer and Seller provided Buyer consents to limited representation.
The reasoning here is that if a seller-client isn’t willing to enter into dual agency, the listing agent shouldn’t waste any time showing the property to buyer-clients. And if a buyer-client isn’t willing to enter into dual agency, the buyer’s agent shouldn’t waste time (and gas) driving that buyer to see properties listed by the brokerage.
In addition, if representing a buyer and the seller is listed with the same brokerage, the buyer’s agent can not even take the buyer to see the property unless both the seller and buyer have indicated on the agency disclosure that they are open to limited representation.
Get It Twice To Be Sure
It’s always a good idea to reconfirm informed consent from a client if the relationship actually does shift to dual agency. So what if you got it in advance! You will still want to get it a second time.
As soon as a relationship begins to morph into dual agency, disclose it even if advance consent was previously given.
A person holds a pen, signing a document on a clipboard.
Three Documents of Advance Consent to Dual Agency
Imagine that you begin a single-agency relationship with a buyer-client who also gives you advance consent to dual agency. Shortly after that, the same client chooses to purchase the home of a seller who also happens to be represented by your brokerage.
At that point, you would need to move them from single-agency to dual agency, right?
Here are three forms that you should have used to manage the agency relationship with that client:
The Real Estate Agency Disclosure and Election form in which the customer checks the box indicating (advance) consent to limited representation
An exclusive buyer-broker agreement in which a single-agency relationship is contractually established (an exclusive listing agreement would have been used for seller-client)
The Consent to Limited Representation (“Consent”) form, establishing a dual agency relationship
If the buyer-client had found a property to buy that was NOT represented by your brokerage, only the first two documents would have been needed to establish your agency relationship.
The third form would be added later, on an as-needed basis, but only if the buyer-client found a home listed by your brokerage.
Advance Consent to Dual Agency
In an effort to make dual agency more palatable for all parties involved, some brokers will attempt to reduce the degree of limited loyalty that it brings. They can accomplish this by assigning a different sponsored salesperson to each of the two parties to the transaction.
You might recall this diagram which shows the two ways in which dual agency can be handled within a brokerage:
A flowchart illustrating two ways dual agency can function: with two agents or with one.
Image description
In the arrangement shown above, both parties to an in-house transaction are represented by their own appointed licensee. The appointment of associated licensees to each of the parties to the transaction is made by the designated broker.
Both licensees are charged by the broker to provide the same level of service they would to a client in a single-agency relationship. Therefore, each party to the in-house transaction can receive something close to full disclosure and undivided loyalty from their appointed agent.
Where it falls a little short of true undivided loyalty lies in the fact that both appointed licensees are sponsored by the same broker. That makes the broker a dual agent for this transaction.
As such, the broker is unable to offer either appointed licensee any counsel that could be detrimental to the other party to the transaction.
Even with 2 agents, neither party can receive full representation as they are both clients of the broker - they still have the same agent. Neither party can be given an unfair advantage to the detriment of the other, even with their own agent.
Scenario: Terrance and Shawna
Terrance is a seller in a single-agency relationship and has Carl, an associated licensee from the DaBomb Brokerage, representing him.
Shawna is a buyer who meets Carl and expresses a desire to tour Terrance’s home.
Carl knows that Selena, his designated broker, doesn’t want just one salesperson working with both parties in a dual agency transaction, so Carl asks her what their options are.
Selena informs Carl that the transaction can still be handled in-house. She appoints Carl to work with Seller Terrance and appoints Carlotta, another associated licensee in the brokerage, to do the same for Buyer Shawna.
In the end:
Appointed Agent Carl provides fiduciary duties to Terrance.
Appointed Agent Carlotta provides fiduciary duties to Shawna.
Broker Selena operates as a dual agent as she oversees the activities of both associated licensees.
Dual Agency with Individual Attention
The practice of transaction brokerage with a customer is an exercise in no agency.
In the absence of an agency relationship with either party, the transaction broker does not represent the interests of one principal over the other. Instead, they fulfill ministerial acts to assist in the completion of the transaction.
EXAMPLE
Eric is a seller, and Manuela is a buyer. They are both pretty experienced in the world of real estate, as they’ve both owned and sold a number of properties in their lifetime. They don’t feel they need the one-on-one attention of single agency, so they seek an agent to serve as their transaction broker and oversee the transaction.
Clarise, an agent, takes on this no agency role for their transaction. She processes the closing documents, monitors the transfer of money, and fills out forms. Clarise does NOT show favoritism to either Eric or Manuela; she treats them both equally.
No Agency = No Fiduciary
Since the transaction broker will not be providing both parties with fiduciary duties, a customer service level of duties is expected, as outlined on the previous page.
Transaction brokers will remain fair and impartial, and they will advise both parties to seek expertise and/or legal representation if they so choose.
What Transaction Brokers Won’t Do
Transaction brokers are not allowed to represent the interests of either party over the other. That can sometimes be hard! You’re human, and humans tend to form biases, even when they don’t mean to.
A transaction broker is NOT expected to inspect the property on behalf of either party, vouch or verify the accuracy of statements made by either party, or do anything else of this nature.
These sorts of actions fall into the camp of fiduciary duties, which only come with agency relationships.
Gotta watch out for those requests that go beyond the scope of a transaction broker’s no agency relationship, Anthony.
An animation showing what a transaction broker will and will not do.
Image description
Disclosure Duties
Speaking of duties, let’s take a second to reiterate disclosure requirements for transaction brokers.
On their first substantive contact with the parties to the transaction, a transaction broker should:
Disclose their lack of agency relationship (in writing, please)
It’s important to make sure your clients know that, while you will be overseeing the transaction, you won’t be looking out for them in the same way a seller’s or buyer’s agent might.
Disclose everything, obtain informed consent, and keep records!
No Agency: Duties
