>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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