May a Salesperson Represent Competing Purchasers?
The title of this article was inspired by one appearing in NAR's newsletter, THE LETTER OF THE LAW. That article reported on a decision by the Supreme Court of Montana in a case involving facts that may seem familiar to you: A salesperson entered into separate buyer agency contracts with two buyers. Eventually, each buyer decided to submit an offer on the same property. The owner accepted one and thereafter the unsuccessful buyer filed a lawsuit against the buyer agent and her brokerage. The suit claimed that the buyer agent failed to fulfill her statutory duty to that buyer because she represented a competing buyer on the same property. Indeed, Montana's Supreme Court determined that the buyer agent who represented competing purchasers for the same property violated Montana law. ( NOTE: You must read this article to the end! If you read only to where I give the outcome of the case you will have a better knowledge of Montana law but may be in the dark when it comes to what Pennsylvania permits.)
The Montana decision was based on the language of the state's license law. One section of the law, describing the duties of a buyer agent, states that the agent must "act solely in the interests of the buyer." The Montana Association of REALTORS® participated on behalf of the buyer agent and argued that the language does not prevent the buyer agent from representing two buyers in the purchase of the same home. The Association cited language from the statute pertaining to dual agency which requires that the dual agent "act solely in the best interest" of both the buyer and the seller. The Association reasoned that the statute intended that agents could represent more than one party as long as they do not act adversely to either client's interest.
The Montana Supreme Court rejected this argument and determined that Montana's license law does not allow a buyer's agent to represent competing buyers seeking to purchase the same property. The Court did find that a dual agent can represent more than one party despite the language requiring the agent to "solely" act in the best interest of the client, because it was clear that Montana intended for dual agency to be legal.
What does this bode for Pennsylvanians? Fortunately, our license law takes into account the possibility that a buyer agent may represent more than one buyer seeking to purchase the same property. The Real Estate Licensing and Registration Act (RELRA) provides that:
The fact that a licensee representing a buyer also presents alternative properties in which that buyer is interested to other prospective buyers does not in itself constitute a breach of a duty or obligation owed by the licensee to that buyer.
This is not to say that a buyer agent can not run into great difficulty when representing two buyers, each seeking to purchase the same property.
A provision of RELRA requires licensees to notify their clients as soon as a conflict of interest arises. Anytime a salesperson is working with multiple buyers who express an interest in the same property, a conflict arises, and notice must be given to both buyers. While RELRA does not require that the notice be in writing, the better practice is to provide a written statement (email will suffice) similar to the following:
I want to inform you that another buyer client has expressed an interest in [property address]. It is my responsibility to inform both of you of this potential conflict. I assure you that I will maintain, in confidence, any information pertaining to your interest in the property, including your intent to make an offer, the amount of the offer, as well as other information that you provide. Clearly, I must respect the confidentiality of the other client and therefore will not able to advise you with the same sort of information regarding the nature of their interest or offer to purchase.
Many offices will invite one of the buyers to work with the broker or another designated licensee from the company so that the original salesperson is free of the conflict. This is a matter of company policy and is not required by law.
A licensee who continues to work with buyers competing for the same property must walk a very narrow line in order to be perceived as neutral. There is no reason why you can't provide each buyer with a comparative market analysis, but when it comes to determining the amount of the offer, that is best left to each buyer. If you are going to suggest an offer, the same suggestion has to be made to each buyer. Certainly you can coach each buyer as to the attributes and weaknesses of a property, but the same information should be provided to both buyers. In some sense, each buyer loses the benefit of a strong buyer's agent who will solely work for their respective buyer. For example, when you represent a buyer in a competitive market where the other potential buyers are represented by other licensees, you don't hesitate to pull the stops and do whatever is reasonably possible to give your buyer the advantage. That is clearly not possible when representing two buyers vying for the same property.
Fortunately, Pennsylvania law makes accommodation for the inevitable conflicts that arise in day-to-day life. It will happen that every now and then you will represent parties with competing interests, including two buyers seeking to purchase the same property. Understanding the need to provide notice of the conflict of interest and to establish protocol for handling these situations is important. You are likely to fair much better when you consider this possibility and plan for it.
Copyright © Brett M. Woodburn, Esquire, CALDWELL & KEARNS, P.C., 2008
All Rights Reserved
Jim Goldsmith is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends REALTORS® in disciplinary hearings conducted by the Real Estate Commission. He routinely counsels employers on employee relations issues and is one of the voices of the PAR Legal Hotline. He may be reached at www.realcompliance.com.