In a recent Connecticut case 1 the Seller brought suit against a real estate company and its individual licensees for breach of fiduciary duty and breach of the covenant of good faith and fair dealing, including a failure to disclose “dual agency”. The seller alleged that the real estate company set the list price for the property at $318,000, when they knew, or should have known, that the fair market value of the property was substantially greater. The trial court issued a directed verdict in favor of the real estate company. On appeal, the court reversed and found the real estate company and licensees liable for breach of the covenant of good faith and fair dealing, and violation of the Connecticut Unfair Trade Practices Act, awarding sellers damages of $19,080.
The court elaborated on an important issue that is often overlooked – the difference between professional negligence and a breach of a fiduciary duty. Professional negligence implicates a duty of care, while breach of fiduciary duty implicates a duty of loyalty and honesty. Although professional negligence and breach of a fiduciary duty may arise from the same operative facts, they are not, legally speaking, one and the same claim. Not every instance of professional negligence results in a breach of a fiduciary duty.
In the present instance, the improper conduct was the failure to disclose the conflict (a huge mistake) as well as the violation of the duty to loyalty by listing the property at less than its fair market value. The NAR allows dual agency in its Code of Ethics. Standard of Practice 1-5 explains that Realtors® can represent buyers and sellers in the same transaction after providing full disclosure and obtaining informed consent from both parties.
However, the Standards of Practice also provide the agent is expected to give undivided loyalty to their client and this implies he/she must do everything possible to get their client the best deal. Because of the potential conflicts that dual agency presents, Canada, as well as four states in the US, have banned the practice.
Because dual agency isn’t always fully understood by salespeople or consumers, it can lead to misunderstandings and liability. At a minimum, a licensee should always discuss the implications of the representation with both parties and obtain written consent. Once this is accomplished the agent may still not be able to avoid liability but here are some suggestions that may help: (a) provide buyers all material information about the property; (b) provide information on comparable properties so that both parties may make educated decisions on the price; (c) don’t disclose confidential information about either client without permission; (d) do a comparative market analysis and let the parties decide the price for themselves; (e) never disclose the lowest price the seller will take for the property or the seller’s financial position without permission.2 The best way to avoid a dual agency problem is not to do it at all. However, if you decide to proceed, the licensee should give careful consideration to the potential pitfalls.
2 Realtor© Magazine, July 1, 2003
For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.
Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship