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2007-07-16 11:36:00

The Naked Truth About Dual Agency

Since July 1, 1995, the New Jersey Real Estate Commission has allowed buyer agency to thrive in our state.  That is good.  Once it became legal, buyer representation became the preferred way for real estate agents to work for buyers. Agents were empowered to offer full fiduciary duties to their buyers -- obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and diligence. 

Importantly, these duties are not the sole responsibility of a single agent working for the buyers. All agents in a brokerage owe the buyers the same fiduciary duties. For example, if Bob Broker is the broker/owner of BB Realty, then all of the licensed agents at BB Realty work for him, under his supervision. All of the buyers and sellers that his agents bring to the office are the legal province of the broker.  The agents are listing and selling in the name of BB Realty.  Betty, a buyer’s agent working with John and Amy Byers, is actually working for Bob Broker’s clients, and so are all the other agents that work for Bob Broker.  This means that Sandy, a seller’s agent in Bob’s office, who is listing 123 Market St, not only represents the sellers, but also Betty’s buyers.  And Betty also represents Sandy’s sellers.  The agency relationship is created with the broker of record.

 The result of the above example is that Bob Broker, and all his agents, represent all the buyers and all the sellers of his company.  And when there is a showing of one of the seller clients’ properties to one of the buyer clients, the result is dual representation, i.e., the brokerage represents both the buyers and the sellers.  The NJ Real Estate Commission allowed dual agency representation with July 1, 1995 enactment of 11:5-6.9 concerning the Consumer Information Statement.  However, the law imposes stringent requirements upon real estate practitioners.  They are:

1.  A consumer must sign written authorization giving informed consent for the company who represents the consumer in a transaction to also represent another consumer in the same transaction.

2.  The informed consent cannot be given solely through the distribution of the Consumer Information Statement and the consumer’s signature thereon.

3.  That informed consent can only be given after the company has disclosed all the material facts that might have an impact on whether the party consents or not, including all real conflicts of interest.

4.  That informed consent can only be given after the company explains the specific ways 3 of the 6 fiduciary duties, viz., loyalty, disclosure and confidentiality, are limited.

5.  That informed consent can only be given after the company explains the other business relationships legally available to the consumer but not available in the brokerage, and the consumer’s right to consult an attorney.

We can understand the fiduciary duty of loyalty better if we understand what it entails.  In most real estate textbooks loyalty refers to working solely in the interests of one client.  That means giving the client our allegiance.  It means giving whatever professional advice we can give to advance their interests, and no one else’s.  It means advocating for the client’s goals and interests.  In dual agency, however, where two parties’ interests are in direct conflict, the real estate agent cannot advise, advocate, or give allegiance to either party if such counsel gives one party an advantage over the other.

As for confidentiality and disclosure, in single agency we would disclose anything we learned about the other party that would give our client an advantage.  In a  dual agency transaction we are not permitted to disclose any confidential information about one party to the other.

What does this mean for the NJ licensed real estate agent about working in a dual agency situation when a buyer is purchasing a company listing, or a buyer is competing with another buyer at the same brokerage for the sale of a property?  First, upon meeting the consumer the first time, make sure that he receives and reads a Consumer Information Statement. Be certain that the consumer understands the role of an agent/representative --  someone looking out solely for the client’s interests.  Explain that as a fiduciary, the real estate agent owes the client loyalty, obedience to their lawful wishes, a willingness to disclose any information that would help their interests, a willingness to hold confidential information, accounting of money and papers delivered by the client, and a willingness to go the extra mile as the licensee diligently fills the client’s real estate needs.

Be sure that the client knows that the company represents other buyer and seller clients also.  That means that if there is a conflict between clients, you will ask them to allow you and the company to act in a dual agency posture, limiting your loyalty and disclosure to either party.  Ask the client to sign a separate informed consent to dual agency at the initial meeting, and again in the purchase contract, giving the brokerage and its agents permission to act as dual agents. 

Acting as an expert witness in several dual agency cases, I have observed that agents did not know:

1.  the Real Estate Commission’s regulation concerning the distribution of the Consumer Information Statement and the separate Informed Consent to Dual Agency;

2.  what fiduciary duties were limited by dual agency;

3.  what explanations had to be given, and when, to the consumer; and

4.  how to explain the conflicts of interest sufficiently to allow the consumer to give or withhold informed consent. 

The harm caused to the consumer in the cases cost the agents and their companies not only a lot of money, but seriously harmed their reputation as well.

(Joseph Marovich is the owner of Marovich Business Institute and regularly facilitates designation courses for the NAR’s affiliates (ABR,GRI,PMN,SRES) and teaches workshops and seminars for boards, associations, and companies throughout New Jersey and nationally.  Licensed for 35 years, he is recognized as an agency expert and often acts as an expert witness in agency and misrepresentation cases.  You can access his course schedule at www.MarovichBusinessInstitute.com, or contact him by e-mail , or 732-961-9618.)

© Joseph Marovich, 2007

Since July 1, 1995, the New Jersey Real Estate Commission has allowed buyer agency to thrive in our state.  That is good.  Once it became legal, buyer representation became the preferred way for real estate agents to work for buyers. Agents were empowered to offer full fiduciary duties to their buyers -- obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care and diligence. 

Importantly, these duties are not the sole responsibility of a single agent working for the buyers. All agents in a brokerage owe the buyers the same fiduciary duties. For example, if Bob Broker is the broker/owner of BB Realty, then all of the licensed agents at BB Realty work for him, under his supervision. All of the buyers and sellers that his agents bring to the office are the legal province of the broker.  The agents are listing and selling in the name of BB Realty.  Betty, a buyer’s agent working with John and Amy Byers, is actually working for Bob Broker’s clients, and so are all the other agents that work for Bob Broker.  This means that Sandy, a seller’s agent in Bob’s office, who is listing 123 Market St, not only represents the sellers, but also Betty’s buyers.  And Betty also represents Sandy’s sellers.  The agency relationship is created with the broker of record.

 The result of the above example is that Bob Broker, and all his agents, represent all the buyers and all the sellers of his company.  And when there is a showing of one of the seller clients’ properties to one of the buyer clients, the result is dual representation, i.e., the brokerage represents both the buyers and the sellers.  The NJ Real Estate Commission allowed dual agency representation with July 1, 1995 enactment of 11:5-6.9 concerning the Consumer Information Statement.  However, the law imposes stringent requirements upon real estate practitioners.  They are:

1.  A consumer must sign written authorization giving informed consent for the company who represents the consumer in a transaction to also represent another consumer in the same transaction.

2.  The informed consent cannot be given solely through the distribution of the Consumer Information Statement and the consumer’s signature thereon.

3.  That informed consent can only be given after the company has disclosed all the material facts that might have an impact on whether the party consents or not, including all real conflicts of interest.

4.  That informed consent can only be given after the company explains the specific ways 3 of the 6 fiduciary duties, viz., loyalty, disclosure and confidentiality, are limited.

5.  That informed consent can only be given after the company explains the other business relationships legally available to the consumer but not available in the brokerage, and the consumer’s right to consult an attorney.

We can understand the fiduciary duty of loyalty better if we understand what it entails.  In most real estate textbooks loyalty refers to working solely in the interests of one client.  That means giving the client our allegiance.  It means giving whatever professional advice we can give to advance their interests, and no one else’s.  It means advocating for the client’s goals and interests.  In dual agency, however, where two parties’ interests are in direct conflict, the real estate agent cannot advise, advocate, or give allegiance to either party if such counsel gives one party an advantage over the other.

As for confidentiality and disclosure, in single agency we would disclose anything we learned about the other party that would give our client an advantage.  In a  dual agency transaction we are not permitted to disclose any confidential information about one party to the other.

What does this mean for the NJ licensed real estate agent about working in a dual agency situation when a buyer is purchasing a company listing, or a buyer is competing with another buyer at the same brokerage for the sale of a property?  First, upon meeting the consumer the first time, make sure that he receives and reads a Consumer Information Statement. Be certain that the consumer understands the role of an agent/representative --  someone looking out solely for the client’s interests.  Explain that as a fiduciary, the real estate agent owes the client loyalty, obedience to their lawful wishes, a willingness to disclose any information that would help their interests, a willingness to hold confidential information, accounting of money and papers delivered by the client, and a willingness to go the extra mile as the licensee diligently fills the client’s real estate needs.

Be sure that the client knows that the company represents other buyer and seller clients also.  That means that if there is a conflict between clients, you will ask them to allow you and the company to act in a dual agency posture, limiting your loyalty and disclosure to either party.  Ask the client to sign a separate informed consent to dual agency at the initial meeting, and again in the purchase contract, giving the brokerage and its agents permission to act as dual agents. 

Acting as an expert witness in several dual agency cases, I have observed that agents did not know:

1.  the Real Estate Commission’s regulation concerning the distribution of the Consumer Information Statement and the separate Informed Consent to Dual Agency;

2.  what fiduciary duties were limited by dual agency;

3.  what explanations had to be given, and when, to the consumer; and

4.  how to explain the conflicts of interest sufficiently to allow the consumer to give or withhold informed consent. 

The harm caused to the consumer in the cases cost the agents and their companies not only a lot of money, but seriously harmed their reputation as well.

(Joseph Marovich is the owner of Marovich Business Institute and regularly facilitates designation courses for the NAR’s affiliates (ABR,GRI,PMN,SRES) and teaches workshops and seminars for boards, associations, and companies throughout New Jersey and nationally.  Licensed for 35 years, he is recognized as an agency expert and often acts as an expert witness in agency and misrepresentation cases.  You can access his course schedule at www.MarovichBusinessInstitute.com, or contact him by e-mail , or 732-961-9618.)

© Joseph Marovich, 2007

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