Daily Development for Monday, July 9, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

BROKERS; BUYER’S BROKERS; DUAL REPRESENTATION: Where statute imposes a duty upon buyer’s broker to work “solely in the best interests of the buyer,” broker may not present offers from two buyers to the same seller, but must direct at least one of the buyers to another agent for purposes of presenting the offer.

Zuazua v. Tibbles, 150 P.2d 361 (Mont. 2006)

Virtually all the discussion in this case is based upon interpretation of the operative agency legislation.  Undoubtedly this legislation originally was lobbied through by the Montana Association of Realtors and undoubtedly a legislative “fix” is either completed or well on its way by now.  But it still it is useful to review the concepts at work in this area and to think again about the function of a buyer’s broker and what the Realtors are doing to themselves here.

Stone, an agent of the Coldwell Banker agency, had on July 8 executed a form with Zuazua that identified Stone as a buyer’s agent for Zuazua.  Two days later, Zuazua authorized Stone to submit an offer on a property.  Two days after that, Stone signed another buyer’s agency agreement with Moritzky and submitted an offer on the same property on that same day.  Even though two days had passed since the supposed presentation of the first offer, the seller testified that he evaluated both offers and accepted Moritzky’s. 

Zuazua sued in federal court, and the court referred to the Montana court the question of whether the Montana statute prohibits a buyer’s agent from submitting two offers from two different clients on the same property.  Apparently there was a lot more allegedly going on than this one little behavior, but we are fortunately spared the messy details and permitted to look only at this isolated issue of statutory interpretation.

As indicated, the Montana Supreme Court, in a split decision,  found that the requirement in the statute that the buyer’s broker work “solely in the best interests of the buyer” was dispositive of the question, and it ignored other language, emphasized heavily by the three dissenters, that implicitly authorized buyer’s brokers to submit offers from different brokers, subject to the injunction that the broker could not disclose to either client the terms of the other bid.  The Montana Real Estate Commission had already issued rules permitting the submission of competing offers by the same agent.  Both sides agreed that the statute did not expressly address the practice.

The Supreme Court limited its decision to the behavior of the individual agent, and would have permitted the agent in question to designate (with client consent) another agent in the same office to move forward on an offer.  Indeed, one commentator on the case suggested that, if the result stands, agents might be well advised to designate different “submitters” for each of the buyers, so that the designated buyer’s agent can maintain comfortable relations with both buyer clients after the issue is resolved.  (Remember that the seller might reject both offers, leaving both clients still looking.)

Comment 1: As indicated above, in many states it appears that the NAR lobbying machine can get pretty much what it wants out the legislators.  Who’s to oppose them?  The class of consumer customers is too diverse and constantly changing.  In any event, the NAR can fill the air with expertise backed arguments that make anything the lobbyists want sound just like delivery of Mother’s Apple Pie to the deserving consumer clients.  So, as a legal matter, it is likely that the brokers ultimately will get what they want.  And what they want here obviously increases the return to an individual agent (who won’t have to share commissions or pay fees to buddies) and maintains the ability of the agent to control the deal - always a good thing.

Comment 2: The brokers argue that they will still be required to disclose to their customers what they are doing, so everything is just fine.  Really?  The disclosure will be in a tightly written form provided at the outset of the representation, and every other candidate for buyer’s agency (assuming that in fact the agent is incompetent enough to let the customer out of his or her clutches in order to shop around) will present the same “official” form.  It takes a sophisticated buyer indeed to fight back on these forms, and in practice there is very little “give” from brokers in the residential marketplace even if they do.  In any event, the customer has only the agent in front of him or her to explain where the problems lie in that form.  Clearly any acceptance of the terms can hardly be regarded as fully informed.

Comment 3: Apparently, the Montana Association of Realtors, at argument, took the position that the individual buyer clients’ interests are not at stake in the dual offer situation because the buyer’s broker plays little function in the presentation of the offer, and thus neither client’s position can be adversely affected?  Oh yeah???  If that is so in Montana, then brokers there have abdicated an important function for which, allegedly, they are being paid.  From the buyer’s standpoint, probably no function of their agent is more important than the agent’s function as a “closer” - to be present at the presentation of the offer, to calculate the seller’s response to its terms, and to advocate for acceptance or identify subtle changes that might bring the seller around to the buyer’s position.  But if there is more than one buyer, which one is entitled to the agent’s persuasive talents?  Clearly the maximum benefit can be provided when the agent is representing only one interest.

Comment 4: This gets the editor around to his favorite rant - one which he directs at his own brethren in the bar as well as at the brokers: What happened to professionalism?  It seems that at every turn in the development of ethical standards,  the skilled professions are advocating for positions that make their economic return higher and the level of professional service lower.  In fact, it might be said that the positions make it possible for huge, multi purpose offices to take such a bewildering array of positions that they can be all things to all people, and extract money in every instance.  The concept of the individual agent providing personal expertise and loyalty to the individual client is lost in the shuffle. 

Those advocating these positions may take the position that the vast majority of clients are better served at lower costs through mega firms and standardized positions, and that personal service never really existed before - it was only represented to exist - and that the “one size fits all” approach truly is best suited for the modern era.

The problem with this approach is it tends to undercut the very rationale for the existence of licensed monopolies for these service providers - that a high level of skill and judgment is required in order to provide the services in question, and that therefore there should be a professional class established with barriers to admission, so that the public can be assured that it is receiving the necessary skills. 

Without the rationale that individual skill and high levels of loyalty are fundamental to representation of professional clients, there is scant argument for the regulated monopoly that we create for our brokers and lawyers.  Rant ended.  Let it be recorded, at least, in the history. 

Comment 5: The editor takes no position on what the law ought to be for commercial brokers.  In general, he believes that there is more of a true market in this area, and regulation of residential brokerage and commercial brokerage are two different things and ought to be so regarded by the NAR.  Unfortunately, the politics in most states are such that the commercial brokers must ride the coattails of the legislative efforts of the residential side, which has all the power in the local associations.  Another sad reality.  The editor has no notion as to whether it is inevitable, or simply convenient.

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