The Best of the Legal Hotline: Agency Revisited


 Tracy Rucka  |    May 13, 2019
Best of the Legal Hotline

The buyer is looking for a property and finds one listed as for sale by owner (FSBO). The broker has a buyer agency agreement with the buyer. Is a listing required too? 

No. A broker, acting as a buyer’s agent, may contact a FSBO seller directly, conduct a showing, and draft and present offers directly to the FSBO seller. The buyer’s agent would need to disclose buyer agency status on first contact and reconfirm the buyer agency in the offer. There is no need for a listing agreement since the authority to provide brokerage services and the right to be paid stems from the WB-36 Buyer Agency/Tenant Representation Agreement entered into with the buyer client. 

If the buyer‚Äôs agent were to enter into a listing ‚ÄĒ either a one-party listing naming the buyer or buyers or a full listing ‚ÄĒ then the buyer‚Äôs agent has just created a multiple representation without designated agency situation, and the licensee has become neutral in the transaction, thereby lessening the services provided to the buyer client.¬†

Per the WB-36 Buyer Agency Agreement, the buyer and the buyer’s broker set the buyer agency fee. If the buyer client is concerned about paying the buyer agency fee out of pocket and the buyer’s agent is authorized to accept compensation from the seller, the buyer may ask the seller, as a condition of the offer, to pay some or all of the buyer agency fee. 

When writing an offer for a buyer client on a FSBO property, does the buyer’s agent need to have the owner sign a customer disclosure form?

Yes. When representing a buyer client purchasing a FSBO property, the seller is a customer of the buyer‚Äôs firm. The buyer‚Äôs firm is providing brokerage services to a party in a transaction ‚ÄĒ the seller in this case ‚ÄĒ who is not the firm‚Äôs client, which makes the seller the customer of the firm. Because the seller is a customer, the firm must provide agency disclosure to the seller with a Disclosure to Customers form if the firm will provide any brokerage services to the seller. If the property being sold is primarily intended for use as a residential property containing one to four dwelling units, the firm must ask the customer to sign acknowledging receipt of the written disclosure statement.¬†

What if the agent is working with a buyer customer and the customer wants to see a FSBO property? 

During pre-agency, the agent may conduct a showing of an unrepresented seller’s property to an unrepresented buyer. It may, however, be short-sighted. During the showing, the agent may not engage in negotiation, as the agent remains in pre-agency. Before negotiating or drafting an offer, the agent will need to enter into a listing contract with the seller or a buyer agency agreement with the buyer. However, if the buyer and seller are savvy, they will proceed with the transaction without the agent. 

An agent explained agency and multiple representation relationships with and without designated agency to the seller. In the listing contract, the seller marked the second option, stating ‚Äúthe same firm may represent me and the other party, but the firm must remain neutral regardless if one or more different agents are involved.‚ÄĚ The same agent also has a buyer who signed the buyer agency agreement, and the buyer and also marked the second option. The agent drafted an offer for this buyer on this seller‚Äôs property. Is it necessary to draft an amendment to the listing and the buyer agency agreement, stating the same agent is representing them both?

The law does not require a firm or its agent, who enters into a listing indicating multiple representation without designated agency as the second option and then a buyer agency agreement indicating multiple representation without designation agency as the second option, to amend either agreement to have the party acknowledge the agent is acting in the capacity of multiple representation without designated agency. 

The presumption under the law is that the agent, when discussing the agency models with the parties at the time of entering into the respective agency agreement, explained to the parties that in the event the agent has a buyer-client who wishes to purchase the agent’s listing and both parties checked the second option in their agency agreements, the agent must and will go neutral. 

In the above scenario, how does the agent complete the agency lines in the offer to purchase? The agent has two clients, both with the same firm, who agreed to multiple representation and not designated agency. How should the drafting agent complete lines 1-2 of the offer?

Because the buyer and seller both agreed to multiple representation without designated agency, which is the second option, in their respective agency agreements, the agent drafting the offer would indicate on lines 1-2 that the agent is the ‚Äúagent of buyer and seller.‚ÄĚ When both parties indicate multiple representation without designated agency in their agency agreements, the firm and its agents must go neutral, meaning they cannot put one parties‚Äô needs ahead of the other. Therefore, the offer would indicate ‚Äúagent of buyer and seller.‚Ä̬†

The agent has a buyer agency agreement with a buyer who chose designated agency. The buyer decided to write an offer on a listing held by the agent. The seller also chose designated agency. The buyer and seller wish to work with that agent, even though it means they would receive a different level of brokerage service. What does the agent need to do?

First, the agent should read and follow company policy. The agent should explain to the clients when they sign their agency agreements that if the situation arises where the agent has both the buyer and the seller clients in the same transaction, then something will have to change. Both parties may agree in such a situation that the agent will become neutral and provide only customer-level services. This would be a multiple representation without designated agency situation. The agent will be in ‚Äúthe middle‚ÄĚ and cannot place the interests of one client ahead of the other in negotiations.

If the parties agree, the buyer agency agreement and/or the listing contract can be amended to reflect the change in client consent. If one client consents to multiple representation with designated agency and the other consents to multiple representation without designated agency, the result is a multiple representation without designated agency scenario, according to the statute.

This change must be in writing. To document this modification, the agent may use a WB-42 Amendment to Listing Contract, a WB-47 Amendment to Buyer Agency/Tenant Representation Agreement or the Broker Disclosure to Client form. 

For further discussion of this issue, see pages 9-16 of the October 2010 Legal Update, ‚ÄúAgency Law Revisited,‚ÄĚ at www.wra.org/LU1010.

What is the best agency choice for a seller entering into a listing? What is the best agency choice for a buyer entering into a buyer agency? Is multiple representation with designated agency the right choice? 

There is not a best choice for every transaction; it’s a question of what the best choice will be for each party in any given situation. The broker should explain the different agency models and then allow the buyer or seller to choose, explaining, by consenting to designated agency, the principal is consenting to multiple representation with designated agency should such a situation arise. To have multiple representation with designated agency, the buyer client and seller client are represented by the same firm but by two individual agents. 

But what happens if the listing agent also has the buyer agency agreement with the buyer interested in the listing? 

If the buyer wants to pursue that listing, a single agent cannot provide multiple representation with designated agency representation in a transaction, so something has to change with regard to the agency relationships. There are several ways that such a situation might be resolved, depending on the preferences of the clients and the agent. Some possible solutions include:

  1. The buyer or seller, or both, may change his or her consent for representation to multiple representation without designated agency. By operation of law, when both parties have consented to multiple representation ‚ÄĒ either with or without designated agency, but neither or only one has selected the designated agency component, then the agency relationship for both parties is automatically deemed to be multiple representation without designated agency, or dual agency, and the agent may not place the interest of any client ahead of the interest of any other client.
  2. Another agent in the firm may be brought in to represent either the buyer or the seller in the transaction so everyone can proceed with multiple representation with designated agency selected by both parties.
  3. The buyer agency agreement may be modified to exclude the listed property from the agreement. The agent may then proceed to work for the seller as the listing agent, and the agent may provide services to the buyer as a subagent, or the buyer may work with an attorney.
  4. The listing contract may be modified to make the buyer an exception to the listing, and the agent would work as a buyer’s agent. The agent may provide brokerage services to the seller as a customer, or the seller can work with an attorney.

Tracy Rucka is Director of Professional Standards and Practices for the WRA. 

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