What is Dual Agency?

California Civil Code

A common refrain from prospective buyers involves confusion on the Dual Agency Relationship between a broker, seller and the prospective buyer.  One of the natural questions a buyer has is: ‘Who is the broker going to be representing?’

Legally speaking in California, the matter is simple, if there is only one broker involved, the broker is going to be interpreted as acting as a Dual Agent.   This puts the onus on the broker to get this fact acknowledged from the outset to avoid trouble.  Hence, why there is an Agency Disclosure Form that explains pertinent facts about Agency Relationships that is requested to be executed by a buyer when the buyer’s initial inquiry is made into a business for sale.  To go along with the agency disclosure, most brokers have have written into the NDA or Confidentiality agreement wording that also specifies that the broker is acting as a Dual Agent.

Dual Agency in business sales and commercial real estate transactions are fairly standard due to the lack of uniformity in the listing databases that exist.  As most of you have experienced, you have found an ad for a business for sale online and called the number listed or sent in an email.  Either way, these inquiries are routed to the brokerage that has the business or commercial property listed.  As soon as you talk to that broker, a de facto Dual Agency Relationship is established.  Hence, why the Agency Disclosure and the NDA are requested to be signed early on in the process, before you will even know enough about the business opportunity to really feel like it is worth your time.

This does not affect you as a buyer or a seller in what you need to disclose and be honest about, because that is the same in all agency relationships.but you need to be very clear with the broker involved about your negotiations.  It does practically affect in negotiations.  The onus is on you to negotiate carefully and clearly, so that you are not revealing your hand too early in the process.  Bottom line, in a lot of situations, a Dual Agency is beneficial for a buyer, as they are getting the information about the seller, business or commercial property directly from the listing broker, instead of having it filtered through another broker before it gets to your ears.  As always, be cautious and do your homework when reviewing agency and disclosure paperwork, they are legally binding contracts.

So what standard of professional ethics and conduct should you expect in a Dual Agency Situation?  Here is the California Civil Code section 2079.16:

DISCLOSURE REGARDING REAL ESTATE AGENCY RELATIONSHIP  (As required by the Civil Code)

When you enter into a discussion with a real estate agent regarding a real estate transaction, you should from the outset understand what type of agency relationship or representation you wish to have with the agent in the transaction.

SELLER’S AGENT   A Seller’s agent under a listing agreement with the Seller acts as the agent for the Seller only. A Seller’s agent or a subagent of that agent has the following affirmative obligations:To the Seller:   A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller.

To the Buyer and the Seller:

(a) Diligent exercise of reasonable skill and care in performance of the agent’s duties.

(b) A duty of honest and fair dealing and good faith.

(c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, theparties.   An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.

BUYER’S AGENT   A selling agent can, with a Buyer’s consent, agree to act as agentfor the Buyer only. In these situations, the agent is not the Seller’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Seller. An agent acting only for a Buyer has the following affirmative obligations:

To the Buyer:   A fiduciary duty of utmost care, integrity, honesty, and loyaltyin dealings with the Buyer.

To the Buyer and the Seller:

(a) Diligent exercise of reasonable skill and care in performanceof the agent’s duties.

(b) A duty of honest and fair dealing and good faith.

(c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties. An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.

AGENT REPRESENTING BOTH SELLER AND BUYER   A real estate agent, either acting directly or through one or more associate licensees, can legally be the agent of both the Seller and the Buyer in a transaction, but only with the knowledge and consent of both the Seller and the Buyer.   In a dual agency situation, the agent has the following affirmative obligations to both the Seller and the Buyer:

(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either the Seller or the Buyer.

(b) Other duties to the Seller and the Buyer as stated above in their respective sections.

In representing both Seller and Buyer, the agent may not, without the express permission of the respective party, disclose to the other party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered.   The above duties of the agent in a real estate transaction do not relieve a Seller or Buyer from the responsibility to protect his or her own interests. You should carefully read all agreements to assure that they adequately express your understanding of the transaction.  A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

For More information on how Just Elementary, Inc, Commercial brokers can help you with small business needs call (323) 213-9193 or email cs@justelementary.com