Limited Dual Agency - Duties Now Owed to Both Seller and Buyer #244

Oct 01, 1995

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By Gerry Neely
B.A., LL.B.

When limited dual agency is consented to by the seller and buyer, the fact that the agent now has two principals to whom duties are owed, leads to unexpected consequences and a dilemma for which there may be no certain answer, as the following facts demonstrate.

A seller and buyer who entered into a contract to purchase a home were represented separately by two REALTORS, employed by the same agency. Both the seller and the buyer consented to the dual agency this relationship created and signed the Limited Dual Agency agreement.

Prior to the completion date the seller's REALTOR was asked by a third party to prepare a backup offer on the condition that if the offer was accepted by the seller, both the seller and the REALTOR would agree not to disclose to the buyer the existence and terms of the backup offer. The third party said that he believed the buyer might want an extension of the closing date because his sale proceeds might be delayed. If the buyer became aware of the backup offer he would have not only reason, but also the time within which to arrange the necessary financing.

The REALTOR knew that the agency employing him owed a duty to both the seller and buyer to make to each of them a full and fair disclosure of all material circumstances. He also knew that this obligation continued until the sale completed or collapsed.1

When the REALTOR looked to the Limited Dual Agency agreement for guidance he realized that section 31b)(iii), which prohibited the disclosure of personal information about either party, might limit the apparent obligation to advise the buyer of the backup offer. At this point the REALTOR put the problem on the nominee's desk.

What does personal information mean in the context of this transaction? They concluded that "personal" would be more likely to be defined as private information obtained from the seller, or about the seller, and that however broadly the phrase might be interpreted, it was unlikely to include a backup offer for the very property, which was the subject matter of the contract between the seller and buyer.

They debated whether they could avoid the issue of confidentiality by declining to present the offer. However, this might not only prejudice the seller, but might also result in a breach of the Standards of Business Practice 2 and the board bylaws, which required an agent to present offers for consideration by a seller.

They next discussed whether they should ask the seller if he would agree to maintain confidentiality. If he agreed, they would present the offer and, if it was accepted, say nothing to the original buyer. If any complaint was made they would argue that in the midst of these uncertain, conflicting ethical duties, they had done their best to discharge their duties to both parties. After all, the buyer knew that time was of the essence.

However, their decision was made for them when they reread paragraph 3(a) of the Limited Dual Agency agreement which states that, "the agent will deal with the buyer and the seller impartially", that is to say, fair to both sides, neither prejudicing one nor favouring the other. Could they be seen to be impartial if they had presented an acceptable offer to the seller and then said nothing to the buyer?

They decided to advise both the third party and the seller of the conflict that would occur if they prepared and presented the backup offer. With their agreement, they referred the third party to another agent and the seller agreed to obtain advice from his lawyer, if he needed any. In this way, the dual agent would not know whether a backup offer, if presented, had been accepted.

They felt that if the buyer learned of the circumstances, and claimed they had a duty to disclose even the discussions of a backup offer, they would be able to say that it was unsolicited, had been thrust upon them, and they had used their best judgment to avoid a conflict. Lawyers, and therefore judges, they hoped would appreciate the point. In order to protect the agency and the REALTOR representing the buyer, the discussions of this issue took place in confidence between the nominee and the seller's REALTOR.

Entering into a limited dual agency relationship may be the only alternative to no agency, where two REALTORS are employed by the same agency, or in branch offices of an agent. Where the REALTOR has the option of suggesting either a limited dual agency or a customer relationship, these facts suggest that the REALTOR should seriously consider the latter option.

  1. Legally Speaking columns #117 and #203.
  2. Article 17.

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