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Disclosure in a Dual Agency Real Estate Deal

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Dual agency situations for real estate agents can be quite an attractive proposition for them.  Instead of having to split a 5% commission with another agent for the sale of a house, an agent can keep all of that money for themselves if they can find both a buyer or a seller. When this happens, the real estate agent has a number of obligations that arise, to ensure that he or she is treating both clients appropriately.  The case of Partners Realty Ltd. v. Morrow, 2014 ONSC 124 is a good example of a case where the agent failed to meet all of her obligations in a dual agency situation, so she lost out on her commission.

The facts of the case are fairly straightforward. The agent acted for both the buyer and the seller in a real estate sale, without telilng the seller that she acted for both.  The seller ultimately walked away from the deal. The agent then pursued the seller for her commission, which was nearly $18,000.  The seller then said that she didn't have to pay the commission, because the agent had failed to give her written notice of the dual agency situation.

The case is not clear how the dual agency situation arose in here.  They will often arise when an agent is listing a property, has an open house, and runs across an agentless buyer at the open house.  They can also arise where an agent for a buyer, who is perhaps looking for a house to buy in a specific area, does some legwork to convince someone in that area to sell their house.  In this case, it sounds like the agent acted for the buyer first, so it may be the latter situation.

Anyway, the court found in favour of the seller, and found that the agent was not entitled to a commission as a result of her breach of the requirement to give notice to the seller of the dual agency situation. The case is a helpful reminder of some of the main points when dealing with real estate agents:

  • A real estate agent has fiduciary obligations to his or her client.  
  • Agents are allowed to act for both the buyer and the seller.  But as a fiduciary, the agent has an obligation to make full and fair disclosure of all of the relevant information known to the agent.
  • Simply having a clause in a listing agreement authorizing a dual agency situation may not be enough.  The agent still has an obligation to bring all of the relevant information to the attention of their client.
  • Backing out of a deal at the last minute typically does not get a seller (or buyer) out of paying the commission. If the agent had properly disclosed the dual agency situation here, it is likely that the seller would have been on the hook for the commission, even thought the transaction didn't close.
  • Even if the breach by the agent doesn't relate to the reasons why the transaction didn't close, a breach of a fiduciary itself can be fundamental enough to disentitle the agent from her commission.

This, of course, won't put an end to dual agency situations in real estate sales.  There is simply too much money in it for agents for them to walk away from a potential client, when a dual agency situation arises.  But it is a good cautionary tale for real estate agents to treat carefully when presented with a dual agency situation.

 

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