Dual Agency: Profit Or Pitfall?
how do you negotiate a sale keeping the best interests of both parties in mind?
You get a call on one of your listings and find out that the potential buyer is not working with a broker yet. Cha-ching! The potential for a big payday just went up! As a YBAA member using the current forms, including the Listing Agreement and the Purchase and Sale Agreement, you are entitled to work as a “dual-agent” as is spelled out in both documents. The Central Listing Agreement states, in paragraph “C”:
OWNER acknowledges and agrees BROKER may act as a dual agent, representing both OWNER and BUYER, in a purchase and sale transaction if BUYER is not represented by his/her own BROKER.
Here in Florida, and in several other States, dual-agency is legally prohibited in the real estate world. To keep it as an option in yacht brokerage, we all need to tread very carefully when entering such a relationship. After all, how do you negotiate a sale keeping the best interests of both parties in mind? How do you get the highest price for your seller while getting the best price for your buyer? Who does the law say the Broker represents if there is a conflict? These kinds of conflicts can lead to difficulties if either party feels impacted by your handling of the sale and these pitfalls are what we all want to avoid.
The legal definition of an “agent” is one that has a fiduciary responsibility to their client. As the Supreme Court of Florida stated in Connelly v. Special Road & Bridges Dist. No. 5, 99 Fla. 456, 466 (1930), “The agent may not deal in the business of his agency for his own benefit. His duty to his principal requires that his efforts shall be in the behalf and for the benefit of his principal. He cannot perform this duty if he is constantly attempting to use his agency for his own purposes.” 1 Mechem, Agency 869. The authorities generally sustain that statement (Switzer v. Skiles, 3 Gilman (Ill.) 529, 44 Am. Dec. 723; Bunker v. Miles, 30 Me. 431, 50 Am. Dec. 632; Miller v. Davidson, 3 Gilman (Ill.) 518, 44 Am. Dec. 715).
In short, “[t]ypically, a seller is the broker’s client because it is the seller who pays the broker’s commission. This puts the broker in a fiduciary relationship with the seller which requires a high degree of loyalty and good faith. The broker owes no fiduciary duty to the buyer whose interests are averse to the seller.” Lewis v. Long & Foster Real Estate, Inc., 85 Md.App. 754, 762 (1991) (citing Proctor v. Holden, 75 Md. App. 1, 19 (1988)). Some states recognize that the Selling Broker is also an agent of the seller, while others close the loop of consideration by tracking the source of the funds, which is the buyer.
I’ve done dozens of dual-agency sales over the past couple of years and “walking the tight rope” between seller and buyer can be daunting. My first bit of advice, before entering any transaction as a dual agent, is to make sure both parties fully understand your role. While your seller at this point already has signed the Listing Agreement, don’t assume they have read every word or understood the meaning of a “dual-agent”. And as you prepare an offer for the buyer, be sure to point out Paragraph 14 in the Purchase and Sales Agreement so that they, too, understand the role you are playing:
The SELLER and the BUYER also acknowledge and agree that in the case of a sole BROKER, such BROKER represents the interest of both the SELLER and the BUYER and that such representation shall not render this AGREEMENT voidable.
Both documents noted above give you some protection from legal action by a disgruntled buyer or seller, but there is no way to fully isolate yourself from any liability. As the saying goes, when a deal goes sour, the wronged party looks to everyone for restitution. The YBAA contract is trying to point out to the buyer and seller that you can act as a dual broker, however, this is a legal argument that is made in a legal proceeding.
If all parties are comfortable with your role as a dual agent, it’s time to compartmentalize your communications with buyer and seller. The YBAA Code of Ethics reads, in part (emphasis mine), “In accepting employment as an agent, the Broker pledges him/herself to protect and promote the interests of the clients. The obligation of absolute fidelity to the clients' interest is primary but does not relieve the Broker from the obligation of dealing fairly with all parties in this transaction.” You need to be even-handed in negotiations and make sure you are not treating one party “more fairly” than the other. You should not disclose to your buyer that the seller will accept a lower price, nor to your seller that you know the buyer will come up in price. When asked about particular issues with the boat, you must disclose what you know, but you do not need to freely volunteer information about the vessel (the buyer has a surveyor for this reason). However, if you know the vessel has serious issues that were patched up, you could be required to disclose those to the buyer. See Fegeas v. Sherrill, 218 Md. 472, 479, 147 A.2d 223 (1958).
Again, this is where “compartmentalization” helps as you switch from your “buyer’s hat” to your “seller’s hat". Remember too, that, “depending upon the facts and circumstances of the case, there may be information in addition to or other than dual-agency that is material to the [buyer or seller], and therefore must be disclosed by the broker. Failure to disclose such information may likewise result in a forfeiture of the broker’s commission.” Wilkens Square, LLLP w. W.C. Pinkard & Co., Inc., 189 Md. App. 256, 279 (2009) (citing Holzman v. Fiola Blum, 125 Md.App. 602, 628 (1999)). The best advice is to remain as transparent as possible to both parties, without divulging communications that should only be shared between you and the seller (or buyer).
Another choice you always have is to simply opt out of being a dual agent. This by far is the safest route to avoid any trouble down the road. You might help the buyer select a broker that can better represent them in the sale, but be careful here, too. Just as we are not to recommend a particular surveyor to avoid a conflict of interest, recommending another broker needs to be as careful and as transparent as possible, too. In most States, this could be a broker within your own company, but some States recognize this to still be a “dual-agent” scenario. Either way, make sure the choice is that of the buyer, not yours. If there are known issues with the boat, it may be prudent to find a broker outside your office. This is the best way to guarantee that you are not only living up to the YBAA Code of Ethics but are also protecting yourself and your brokerage house. I have recommended brokers both within and outside our company’s “walls” and have been recommended from within and from outside, too. This is where the YBAA, CPYB, and other brokerage organizations come into play. Be sure you develop professional relationships with your fellow brokers, and events like YBAA U and boat shows are ideal times to meet and network.
Being a dual agent has its financial rewards but avoiding the pitfalls can be challenging. By being absolutely fair to both parties and, treating each with the respect they would get from you if they were your only party, you can profit from the transaction financially and secure enduring relationships with everyone.
-Bill Bolin, CPYB
S&J Yachts, Florida
I am very grateful to Eugene Samarin of the Lochner Law Firm P.C. in Annapolis, MD for reviewing and adding to this article, including court documentation quotations where appropriate.
Footnote: at this summer’s YBAA U, a legal panel discussion strongly cautioned brokers from entering into dual-agency transactions to avoid any potential pitfalls. Fully a third of the attendees raised their hands when asked if they were currently involved in a dual-agency sale and several members of the YBAA Board discussed additional safeguard measures for members. Stay tuned. In the meantime, either avoid the situation altogether or document -- at a minimum with additional initials on the current YBAA forms next to the dual-agency paragraphs -- the acknowledgment by all parties of the dual agency role you are playing.