Two Associates, One House: Designated Agency and a Latent Defect
Amara is an associate at a brokerage that practises designated agency. She represents buyers Jae and Priya, who have been pre-approved to $640,000 and have signed a buyer's service agreement. Tom, another associate at the same brokerage, holds the listing on a 1970s bungalow listed at $615,000. Jae and Priya want to offer $600,000 with a financing condition. Separately, Amara learns from a contractor friend - not from Tom and not from the seller's disclosure statement - that the bungalow had a sewer backup two years ago that was remediated without a permit, and that mould was found behind the basement drywall. The listing does not mention it. Jae and Priya have asked Amara to "move fast" and write the offer tonight.
1. Can Amara act for Jae and Priya on Tom's listing, and what must be in place before an offer is written?
Read the worked answer
Yes - designated agency allows it, but only if the brokerage deliberately manages the conflict rather than just filing paperwork.
Conditions that must be met first
- Both clients receive written disclosure of the brokerage's relationship to the other party before an offer is written, and both acknowledge and consent in writing. If either refuses, the brokerage cannot act for both and must refer one side out.
- Amara is designated to the buyers only and Tom to the seller only. Neither may act for both sides.
- Confidential information stays inside each designation. Jae and Priya's $640,000 pre-approval, their motivation, and any hint that they would go higher must never reach Tom or the seller. Practically: separate files, restricted folders, no corridor conversations, no shared transaction-management access.
- The broker must be aware and confirm the brokerage's written policy on in-house competing representation is followed.
Trap to avoid: treating consent as a one-time formality. If Jae later tells Amara "we'd pay $630,000 if pushed," that creates a fresh conflict that must be re-managed, not absorbed silently. Amara also must not assume anything Tom knows is hers to know or to use.
2. What must Amara do with the sewer backup and mould information, given her clients want to submit the offer tonight?
Read the worked answer
She must tell them, clearly and in writing, before the offer is written - and she must not let the speed request change that.
Why the obligation is triggered A prior sewer backup, unpermitted remediation, and mould behind drywall are facts that would affect a reasonable buyer's decision or the property's value. The duty attaches to what the licensee knows, not to how she found out and not to whether the seller disclosed it. The fact that the source was a contractor friend rather than the listing makes no difference.
What she should do
- Disclose everything she knows to Jae and Priya in writing, including the limits of her knowledge and that it is unverified.
- Recommend specific protections rather than a vague warning: a property inspection by a qualified inspector, a municipal permit search, and a mould or indoor-air-quality assessment.
- Build those into the offer as conditions. "Move fast" is not a reason to drop conditions; it is a reason to explain the risk plainly.
- Raise the disclosure question through the listing side (Tom) rather than contacting the seller directly, since she does not represent the seller.
- Document the disclosure and the clients' instructions.
If the buyers say "we don't care, write it clean," Amara has discharged her duty only if she made the risk genuinely clear and recorded it. Silence plus a fast offer is the failure mode the exam is testing.