Articles – Agency Disclosure Pitfalls

by Roy E. Grimm, PhD

At the initial consultation meeting, real estate agents are required to present prospective buyers with the Arizona Association of Realtors’ Real Estate Agency Disclosure and Election form which describes the three types of agency: Buyer’s Broker, Seller’s Broker, and Limited Representation (Dual Agency). The buyer is then asked to select the agency relationship he or she wants with the firm and the agent. The first two are rather straightforward statements of fiduciary responsibility to either the buyer or seller. Dual Agency, however, is a tricky hybrid in which the agent attempts to work with both sides in a transaction. It is akin to an attorney trying to work with two parties in the same court case. By definition, the level of service to one’s client is significantly diminished. In fact, the disclosure form states in the case of Dual Agency, “There will be conflicts in the duties of loyalty, obedience, disclosure and confidentiality.”

Dual Agency arises automatically when a “buyer’s agent” shows the buyer one of her company’s listings, as she eventually must if she’s doing her job. That means, in that instant, the agent becomes a “Dual Agent” instead of a “Buyer’s Agent” and is thrust into the unenviable position of trying to serve two masters with very different goals.

An Arizona real estate attorney writes in an article (Realty Times Feb.8, 2005) on Dual Agency aimed at agents and brokers, “

Knowing that, why would intelligent buyers choose such “Limited Representation” over full representation, particularly if a true buyer’s agent’s (one who never practices Dual Agency) services don’t cost anymore than those of a dual agent? Probably because: 1) They were never presented with an agency disclosure and election form. That happens, according to a study by the National Association of Realtors, in roughly one-third of transactions nationwide. Or, 2) The agent simply glossed over the serious ramifications of dual agency. Or, 3) The agent did not present the disclosure and election form until it was time to write a contract, an apparently common practice.

The serious legal and ethical problem for both the agent (as well as her broker) and the buyer in the last scenario is that it is highly likely that the agent had been, in reality, acting as a dual agent without disclosing it until after the fact. Undisclosed dual agency is a very serious offense that could cost the agent’s license. It gives the buyer the illusion that the agent is working solely for him or her, when, in fact, the agent has divided loyalties of which the buyer is unaware. Agents who operate in this manner would do well to consider the liability to which they exposing themselves and their brokers. Buyers would be well advised to ask a prospective agent if and when he or she ever practices Dual Agency.