Number 446, May 2011

"LIMITED DUAL AGENCY OR NO AGENCY" THERE IS A DIFFERENCE

A recent case illustrates the pitfalls awaiting brokerages and REALTORS® when choosing to act as a limited dual agent.¹

A couple engaged a brokerage and REALTOR® to assist them in the purchase of a house (the Grandview property). The Contract of Purchase and Sale for the Grandview property was subject to the sale of their existing house (the Carter property). The Contract of Purchase and Sale also contained a clause enabling the seller to require the couple to remove all of the subjects in the event the seller received another bona fide offer. After the acceptance of their conditional offer to purchase, the couple listed the Carter property with the same brokerage and REALTOR® that represented them in the acquisition of the Grandview property.

The REALTOR® was approached by an unrepresented prospective buyer who was interested in purchasing the Carter property. The REALTOR® had the prospective buyer sign a Limited Dual Agency Agreement and then prepared an offer to purchase the Carter property. The offer was delivered to the couple together with the Limited Dual Agency Agreement. The couple signed the Limited Dual Agency Agreement, as well as accepted the offer.

For unrelated reasons, the sale did not complete and the Carter property was eventually purchased by another buyer represented by the brokerage. Upon closing, the couple withheld a portion of the brokerage's commission alleging, among other things, a breach of fiduciary duty by the brokerage and the REALTOR®.

The court found that the REALTOR® had acted as a limited dual agent in preparing the offer to purchase before the concept of limited dual agency had been discussed with the couple and before they had consented to the brokerage and REALTOR® acting as limited dual agents. The court concluded that the REALTOR® should have obtained the informed consent of the seller prior to the preparation of the offer. This breach resulted in the brokerage's claim for commission being reduced by half.

Interestingly, the REALTOR® attempted to claim, at trial, that he did not act as the agent of the prospective buyer in preparing the offer to purchase and that the Limited Dual Agency Agreement was entered into "out of an abundance of caution." The court understandably rejected that argument given the wording of the Limited Dual Agency Agreement in which the brokerage acknowledged that it was the agent for both the seller and the buyer.

In addition to the court's finding as to the timing of obtaining the seller's consent to limited dual agency, this case further illustrates the practical challenges associated with limited dual agency.

In this case, limited dual agency could have been avoided as the buyer was unrepresented when the REALTOR® was first approached. The brokerage and REALTOR® could have declined to provide agency representation to the buyer and continued to act as the sole agent of the seller. Given the submissions of the REALTOR® at trial, it is possible that is what was intended.

However, by entering into the Limited Dual Agency Agreement, the brokerage and the REALTOR® became the agent for the buyer as well as the seller. This fundamentally changed the legal relationship the brokerage and REALTOR® had with both the buyer and the seller.

Licensees must be aware of the difference between, and the implications of, acting as a limited dual agent for an unrepresented buyer and not providing agency representation to that buyer.

Brian Taylor
Bull, Housser & Tupper LLP