The Off-Market Offer and the Undisclosed Referral
Dana, a licensed trading services representative, is approached by a past client, Mr. Okafor, who wants to buy a specific townhouse on Maple Row before it lists. The owner, Ms. Lin, has not listed with any brokerage but tells Dana she will sell for $1.15 million if a buyer appears. Dana brings Mr. Okafor, who agrees to $1.12 million. Ms. Lin accepts verbally. Separately, a mortgage broker who refers clients to Dana offers Dana $1,500 'for the introduction' once Mr. Okafor's financing closes. Dana has not disclosed this arrangement to Mr. Okafor. Dana drafts a one-page agreement for Mr. Okafor to sign, describing the property only as 'the Maple Row townhouse' with no legal description, and includes a clause stating Dana represents both parties. Mr. Okafor asks whether the price is fair and whether Dana is 'working for him.'
1. Identify the agency, disclosure, and dual-representation problems in Dana's conduct, and explain what Dana must do before any agreement is signed.
Read the worked answer
Dana faces three overlapping problems.
1. Undisclosed referral fee. The $1,500 from the mortgage broker is a benefit flowing to Dana connected to the transaction. Under the regulatory framework, a licensee must disclose in writing, and obtain consent to, any remuneration or benefit received from a third party in connection with the trade. Paying or receiving undisclosed referral fees is prohibited. Dana must disclose the fee to Mr. Okafor in writing and obtain his informed consent, or decline it. Because the fee is contingent on financing closing, it also creates a conflict: Dana may be motivated to steer the buyer toward that lender rather than the best rate.
2. Dual agency. Dana cannot simply declare dual agency by inserting a clause. Designated agency rules require that both parties consent in writing after full disclosure, and the brokerage must designate separate licensees to each side if it acts for both. If Dana personally represents both, the conflict is unmanageable for price advice. Dana must either (a) refer Mr. Okafor to an independent licensee and act only for Ms. Lin, (b) act only for Mr. Okafor with Ms. Lin unrepresented (with her acknowledged consent), or (c) decline. Dana cannot advise Mr. Okafor on fairness of price while also owing loyalty to Ms. Lin.
3. Deficient written agreement and no legal description. The one-page agreement lacks a legal description, making it potentially unenforceable under the statute of frauds. Dana must prepare a proper contract of purchase and sale with the full legal description, price, deposit, completion and possession dates, and title and financing terms.
Order of operations: disclose the referral in writing, resolve the agency question in writing before showing or negotiating further, and only then paper the deal. Until agency is resolved, Dana should not give Mr. Okafor price advice.
2. Ms. Lin's acceptance was verbal only. Explain the legal and practical consequences and what Dana should do next.
Read the worked answer
A verbal acceptance of a verbal offer does not create an enforceable interest in land. Contracts for the sale of land must be evidenced in writing and signed by the party to be charged (the statute of frauds). Here neither party signed anything, and the property description is vague. Ms. Lin is therefore not legally bound to sell at $1.12 million, and Mr. Okafor is not bound to buy.
Practical consequences:
- Either party can walk away, and Ms. Lin may accept a higher offer from another buyer.
- Mr. Okafor has no caveatable interest and cannot file a certificate of pending litigation on this record.
- Dana should not tell Mr. Okafor the deal is 'done.' Doing so would be a misrepresentation about the state of the transaction.
Next steps for Dana:
- Immediately tell both parties, in writing, that no binding contract exists yet.
- Resolve agency in writing first (see prior answer) because the contract terms depend on who Dana represents.
- Prepare a written offer with the legal description from the land title records, the price, the deposit (held in the brokerage trust account), subject-to-financing and inspection terms, and completion dates.
- Have Mr. Okafor sign the offer, deliver it, and obtain Ms. Lin's written acceptance and signature.
- Confirm the deposit is received and receipted into trust before treating the deal as firm.
Dana should also document the timeline, because if another buyer appears, the parties' expectations will depend on exactly when a written contract was formed.