Dual agency is when the broker/agent represents both the buyer and the seller in the same transaction. In California, it is permissible only if both principals are notified of the dual agency and both consent to it. The best way to prove consent is to have them sign the Agency Disclosure. However, many pitfalls are involved in acting as a dual agent. More often than not, in trying to represent the interests of both clients, one ends up representing neither very well. It’s a quick way to lose the trust of both clients. Then one has no hope for referral business from either. An agent must think long and hard about whether the benefit (usually a higher commission) outweighs the risks: a lawsuit or license discipline.
Let’s suppose a few scenarios to illustrate our point:
1) Seller A has disclosed to the agent that the property has a problem that would be a material fact bearing upon the property’s value. However, Seller A confided this information to the agent and has asked for his confidentiality. Yet, under the laws of agency, the agent is obliged to disclose to his client, Buyer B, the existence of said problem. The agent may be violating his duty of disclosure to B if he remains silent and he may be violating his duty of confidentiality to A if he discloses to B. What should the agent do? Unless the agent can obtain express written consent from A to disclose to B the information, and he subsequently discloses it, the law provides no clear solution to this problem.
2) Buyer B has been trying hard to get his loan but he just learned that his loan has been denied. He asks his Agent not to disclose to Seller A the status of his loan. Again, the agent is in a precarious position. He owes the duty of confidentiality to B but the duty of disclosure to A. Once more, the best approach would be to obtain express written consent from B to disclose his loan status to A.
3) Another case comes straight from the California courts. Agent Z wrote a contract involving dual agency between Seller A and Buyer B for B’s purchase of A’s property. A told Agent Z that there were IRS liens and judgments in excess of the sales price but that they were working on an offer in compromise (where the IRS agrees to reduce its judgments and liens). However, they wouldn’t be able to consummate the sale if the offer in compromise wasn’t accepted by the IRS. Agent Z didn’t disclose any of this information to Buyer B. Buyer B learned independently about A’s predicament and they approached Agent Z. He explained that A was working on an offer in compromise and that it wouldn’t be a problem. A was unable to compromise the liens and thus couldn’t transfer title to B. Z didn’t perform his fiduciary duty to B. There was a real risk that A wouldn’t be able to perform and Z failed to inform B. B may have decided against moving forward with the transaction had Z kept B’s interest first and foremost. The court found that Z and his employing brokerage had civil liability in this case.
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