>Daily Development for Monday, August 18,
2008
>by: Patrick A. Randolph,
Jr.
>Elmer F. Pierson Professor of
Law
>UMKC School of Law
>Of Counsel: Husch Blackwell Sanders
>Kansas City, Missouri
>dirt@umkc.edu
>
>BROKERS; BUYER’S BROKERS; DUTY OF
LOYALTY: A brokerage may have agents representing different
buyers bidding on the same property, but the same agent may not submit bids on
the same property for two buyers.
>
>Rivkin v. Century
21 Teran Realty LLC, 858 N.Y.S. 2d 55 (N.Y. 2008)
>
>Buyer was looking for a
lakefront property in a certain area that had special meaning to him. He
contacted Luborsky an agent for Teran, a real estate brokerage, and got internet
information about certain property listed for $100,000. He realized that
this might be his dream property, and told Luborsky as much, authorizing
Luborsky to make a verbal offer of $75,000 before he had even visited the
property, but indicating that he wouldn’t be in a position to sign a contract
until he had made such a visit. Luborsky contacted the listing broker and
made the offer.
>
>Three days later,
Buyer visited the property and, although the improvements were, in his view,
“tear down,” the site was perfect, and he authorized, with Luborsky’s advice, to
make a written offer of $75,000, expecting a counter offer or an invitation for
final highest bids. He told Luborsky that he was willing to go to the
asking price to get the property. He also signed an agency disclosure that
stated, as required by New York law, that “buyer’s agent acts solely on behalf
of the buyer” and has “without limitation, the following fiduciary duties to the
buyer: reasonable care, undivided loyalty, confidentiality, full disclosure,
obedience and a duty to account.”
>
>Over the weekend
following, Luborsky told Buyer that other offers had been received, and Buyer
indicated that he would go higher. So Luborsky agreed that he would
contact the selling Broker and ask whether a counteroffer or a “highest and
best” solicitation would be forthcoming.
>
>Unbeknownst to
either Buyer or Luborsky, another set of buyers, Martins, were interested also
in the property. Martins had been working with another agent from Teran,
Luborsky’s office, and had submitted a full price unconditional offer on the
property, which the sellers ultimately accepted, despite Buyer’s and Luborsky’s
attempts to communicate an unconditional overbid. Buyer made several
direct contacts with one of the sellers, who consistently referred him to the
selling broker, who ultimately informed Buyer that the property had in fact been
sold through an offer from Teran, Buyer’s own brokerage.
>
>Buyer brought this
lawsuit claiming that Teran and Luborsky and the other agent had all violated
the exclusive fiduciary duty set forth in the disclosure and required by New
York law.
>
>This was
apparently an issue of first impression since the law had been amended and buyer
brokers began to appear on the scene. The court concluded that the statute
sometimes used the term “broker” and sometimes used the term “agent,” and that
the term “agent” referred only to an individual. It concluded that
Luborsky owed an exclusive duty of loyalty to Buyer, and could not have acted on
behalf of another client, but another agent in the office could represent a
competing buyer:
>
>“An individual
buyer’s agent acting on behalf of multiple clients bidding on the same property
cannot negotiate an optimal purchase price for all of them. The buyers’
interest conflict; the agent’s representation is inevitably compromised.
But two buyer’s agents simply affiliated with the same real estate brokerage
firm and acting on behalf of different buyers bidding on the same property
generally do not present comparable risks. . . . they only earn commissions for
sale to their own clients. As a result, in this situation the agents have
every reason to negotiate in their clients’ best interest.”
>
>The court also
noted that a brokerage with an agency relationship with a seller would have the
right to show other competing properties to potential buyers, even
if those properties are listed for sale with the same brokerage, but suggested
that a seller’s agent would have a duty to disclose that it intended to do
so.
>
>Comment 1: The
editor has little quarrel with the outcome here. The new statutes the
brokerage agency has pushed through legislatures around the country essentially
eviscerate traditional agency law and set up a whole new paradigm of
relationships. The interpretation made here - differentiating between and
individual agent and the brokerage, seems right. But we should not that
sometimes a client will be so far down the road with the whole brokerage that
there may be conflicts even if another agent is selected.
>
>Comment 2: Note
particularly that the court’s conclusion is based directly on the notion that
neither of the two “dueling agents” will profit from the success of the
competing sale. The editor knows little about the fashion in brokerage
compensation these days, but wonders whether that conclusion is 100% true in
every case. If not, then the selection of the competing buyer’s broker
should be made with the “no shared commission” concept in mind. This
probably would preclude a brokerage owner or supervising broker, who profits
from every deal, from undertaking such a role.
>
>Comment 3: As to
whether all this can be handled, as the court suggests, but simply adding more
boiler plate into the “exclusive fiduciary duty” disclosure creating exceptions
for everything that the brokerage or the agent may due that is inconsistent with
such a duty. These are consumer documents, after all, and at some point,
notwithstanding the statutes, courts will draw a line.
>
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