…in Dual/Designated Agency to both clients.

The following example from the NC Real Estate Commission is discussed in our Update 2008-09 Course on pages 41 and 42. I want to give everyone a “friendly reminder” regarding the disclosure of compensation applying to dual and designated agency sales in your firm. Our NC Real Estate Commission is “adamant” that all licensees comply with brokerage and compensation rules effective October 1, 2008.

SOURCE: 2008-2009 Mandatory Update Workbook, NC Real Estate Commission

Example of Disclosure Required When Company/Broker Acting as Dual Agent

Example #6:
Facts: XYZ Realty represents a seller. In its listing agreement, the seller agrees to pay the Company a 5.5% commission and authorizes the Company to pay 2.5% to any buyer agent or seller subagent who brings a buyer. The listing agreement also specifies that the seller will pay any selling agent a $2,000 bonus above the commission split offered a selling agent, and that the seller authorizes the Company to act as a dual agent. An agent with XYZ Realty is working with a buyer as a buyer agent under an oral buyer agency agreement. The buyer agent told his buyer client initially that the broker expects to receive a commission from the listing company or seller equal to 3% of the sales price of any property on which the buyer makes an offer which is accepted by the seller. After showing the buyer several properties listed with other companies, the buyer now decides she wants to see XYZ’s listing. Prior to showing the property, the buyer agent orally informs the buyer client that they are now in a dual agency situation, obtains the buyer’s consent thereto, and also tells the buyer client that the seller of this property will pay a total commission of 5.5% of the contract price plus a $2,000 bonus to the Company which is acting as the agent for both parties. After viewing the property, the buyer decides she wants to make an offer on the property. What must the buyer agent do?

Comments: Because as yet there is no written agency agreement with the buyer, the buyer agent must prepare and have the buyer client sign a written buyer agency agreement in which the buyer also authorizes the Company to act as a dual agent. Since the buyer agent already knows what compensation is being offered on this particular property, the agent should specify that the buyer authorizes the Company to receive a 5.5% commission plus a $2,000 bonus as its compensation, all paid by the seller, if the buyer’s offer is accepted. The agent may indicate that the Company will not hold the buyer responsible for any sums not paid by the seller.After obtaining the buyer’s signature on the agency agreement, the broker may prepare an offer on behalf of the buyer. Had the buyer agency agreement already been in writing and authorized dual agency and had it specified a commission of 3% paid by the seller, then the buyer agent merely would have been required to tell the buyer that the Company would receive a 5.5% total commission and a $2,000 bonus paid by the seller. Prior to preparing the offer, the agent would also confirm in writing to the buyer the amount of the total commission and bonus the Company would receive from the seller. Total commissions and bonuses or consideration to be paid to the Company by either the buyer or seller must be disclosed to each principal in a dual agency situation as there is no “split” – the Company receives all consideration paid by either principal.

Summary

Once the underlying buyer agency agreement is in writing, identifies the amount of compensation the buyer agent expects to receive from the listing agent or seller, and also authorizes the buyer agent to receive any bonuses, incentives or additional compensation paid to a buyer agent by the seller or listing company, the buyer agent does not need any additional consent from his/her buyer client, as s/he already has that permission in the written buyer agency agreement. What the revised rule requires is that the buyer agent merely put his/her principal on notice by timely disclosing to his/her buyer client those properties which are offering compensation above the amount stated in the buyer agency agreement, the value of the additional compensation, and to confirm that oral disclosure in writing prior to submitting an offer on behalf of the buyer. The buyer agent also should inform his/her buyer client if the compensation offered by the seller/listing company is less than the amount the buyer agent told the buyer s/he expected to receive. This is particularly important if the buyer agent expects his/her buyer client to pay the difference between the amount stated in the buyer agency agreement and the amount the seller/listing company will pay. The buyer should understand what his/her financial liability will be before s/he makes an offer. Where the buyer agent is working under an oral express agreement with his/her buyer client, s/he still must orally disclose to the buyer in a timely manner the amount or value of any compensation offered by the seller which differs from the amount the buyer agent has informed his/her client s/he expects to receive and must confirm that disclosure either in the buyer agency agreement itself when reducing it to writing prior to preparing any offer, or simultaneously in a separate writing at the time the broker and client enter into the written buyer agency agreement.

In a dual agency situation, because the Company has two principals and does not share the commissions, fees, bonuses or other consideration with any person or entity outside of the Company and its associated agents, it must disclose to both parties/principals the total commissions, bonuses, incentives, or other consideration the Company will receive from either its seller or buyer. Typically, the seller already is aware of the total compensation the Company will receive as it generally is paid by the seller and should be set forth in the listing agreement. The buyer should be informed orally of all consideration the Company will receive when showing an in-house listing (regardless of whether the Company is practicing traditional dual agency or designated dual agency) and the total consideration to be received by the Company should be confirmed in writing prior to either principal making or accepting an offer, if it is not already in writing. Where the Company also is receiving consideration from its buyer client in addition to any consideration paid by its seller client, then the form and value of the consideration paid by the buyer client must be orally disclosed to the seller client and confirmed in writing before either principal makes or accepts any offer from the other.