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Fischer: Limited agency is legal but demands responsibility

By Staff | Apr 14, 2023

Photo supplied

Jen Fischer

Scenario: “Let’s say a certain lady has a son who is selling his house through his wife’s uncle who is a real estate agent. They receive an offer on the home which they accept. Suddenly, one week before closing, they find out that the uncle is also representing the buyer for the home as well. It wasn’t mentioned to them until today, but does he get a commission on both sides now or how does that work?”

This is the word-for-word text I received from a past client this week. I had helped all of her family with several real estate transactions over the years, with the exception of this son because of the connection with the wife’s uncle. My client was concerned that the “uncle” was not being transparent and was, perhaps, doing something illegal since “something isn’t making sense.” The verdict? No, he is not being transparent, and no, he is not doing something illegal.

Although this topic of dual agency has been discussed in previous columns, this is a good example of this type of agency in action. A limited agent, as it is called, represents both the buyer and seller in the same transaction. The agent then has fiduciary duties to both the buyer and the seller. While it is legal in Utah, it is not in some other states.

Ironically, a few days earlier, one of our agents in training had just finished his course on agency and asked me about the logistics of such a transaction. “This doesn’t seem right,” he asserted. “How can someone really remain neutral and uncompromising when representing both sides?”

Good question. Having been born human, and still identifying as such, I find it very close to impossible. Perhaps for someone who is more transactional-based, this could work, but I have found it less than ideal. I prefer not to do it.

The issue with the uncle is not the legality of limited agency but rather the questionable ethics in which it was put forth. First, he should have disclosed it at the very beginning of the transaction. Both parties (the buyer and the seller) must have knowledge of and agree to the use of the same agent with the understanding and explanation of what this entails. The agent is required to have both parties acknowledge this before going under contract for the property in question by signing an addendum written for this very purpose. The Limited Agency Consent Agreement describes in Section 5 why it is difficult. It states, “Limited Agent represents both the seller and buyer in the same transaction and works to assist in negotiating a mutually acceptable transaction. A Limited Agent has fiduciary duties to both seller and buyer. However, those duties are ‘limited’ because the agent cannot provide to both parties undivided loyalty, full confidentiality and full disclosure of all information known to the agent. For this reason, a Limited Agent must remain neutral in the representation of a seller and buyer, and may not disclose to either party information likely to weaken the bargaining position of the other; such as, the highest price the buyer will pay or the lowest price the seller will accept. A Limited Agent must, however, disclose to both parties material information known to the Limited Agent regarding a defect in the property …”

Also, as part of the initial listing paperwork, the contract explaining agency and commissions, the Exclusive Right to Sell Listing Agreement and Agency Disclosure, also has a paragraph describing Limited Agency. This outlines the breakdown of commissions for both the buyer’s agent and the seller’s agent in specific terms. If one agent represents both, there is no commission split, the entire commission then goes to the single agent representing both parties unless otherwise agreed upon. In other words, yes, he does get paid for both sides.

The other contract that was not explained by the “uncle” to his beloved niece and nephew is the Disclosure of Interest addendum. This is also a required legal document they needed to sign. This addendum is a full disclosure to both parties that the buyer and/or seller are either a licensed Realtor in the state of Utah or a relative of a licensed Realtor in the state of Utah.

While this double conflict, again, is perfectly legal as long as the proper paperwork is presented and signed by all parties, it is not perfectly ethical if furtively slipped in a week before closing and without explanation.

My client asked how they could proceed. I responded by saying, “They move forward and learn a hard and painful lesson. No experience is ever wasted if we can learn something in the process.”

Jen Fischer is an associate broker and Realtor. She can be reached at 801-645-2134 or jen@jen-fischer.com.

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