Dual Agency, a Disclosed Floor, and an Undisclosed Lender Fee
Pat is a licensed agent at a brokerage that has an exclusive listing on a 1925 bungalow at $525,000. Pat is the seller’s designated agent. Pat’s cousin Morgan wants to buy the home. Pat shows it to Morgan, and the broker obtains the seller’s and Morgan’s written consent to dual agency. During the transaction, Pat learns from the seller that the seller has accepted a job out of state and must close within 30 days, and that the seller would accept $505,000 rather than lose the transfer. Morgan is preapproved to $560,000 and tells Pat, “I’d go to $545,000 if I have to.” Pat tells Morgan about the seller’s deadline and the $505,000 floor, and advises Morgan to offer $505,000. Morgan does; the seller accepts. Pat also refers Morgan to a lender who pays Pat a $2,500 “marketing fee,” which is not mentioned to either party. The seller later learns these facts and refuses to close, claiming the deal is void and that Pat owes the commission back.
1. Identify Pat’s fiduciary and disclosure breaches. Does written dual agency consent cure them?
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Dual agency consent changes the role, not the core duties. With informed written consent, a broker may act for both parties in many jurisdictions, but the broker must remain neutral and cannot use one party’s confidential information against the other. Consent does not authorize betrayal.
Pat breached confidentiality and loyalty. The seller’s need to close in 30 days and the $505,000 floor are confidential negotiating information. Disclosing them to Morgan gave Morgan an advantage and undercut the seller’s position. Pat also learned Morgan’s $545,000 ceiling and did not disclose that Pat held it; Pat’s advice to offer the seller’s floor was advocacy for Morgan, not neutral dual agency.
The cousin relationship required clear disclosure. It may not be prohibited, but it is a close personal relationship that the seller should have known about when consenting.
The $2,500 lender fee is undisclosed compensation. Pat must disclose any compensation received in connection with the transaction. If the loan is federally related and the fee is for referring settlement business, it may also violate RESPA’s anti-kickback provision. Calling it a “marketing fee” does not cure a payment for a referral.
2. Can the seller rescind the sale contract and recover the commission? What remedies are available against Pat and the brokerage?
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Rescission is possible but not automatic. The seller must show that Pat’s breach was material or that the seller’s consent to dual agency was obtained without full disclosure. The seller agreed to sell at $505,000, which the seller was willing to accept, so the seller may have difficulty proving monetary harm from the price alone. But the undisclosed cousin relationship and the secret lender fee can support rescission or damages, depending on state law.
The commission claim is separate from the sale contract. A broker who materially breaches fiduciary duties may forfeit the commission, and the seller may offset damages. Forfeiture is often discretionary, not automatic. The seller can sue the brokerage for breach of fiduciary duty, seek disgorgement of the $2,500 fee, and file a licensing complaint.
Morgan’s position is different. If Morgan did not know of the breaches, Morgan may still be able to enforce the contract. The seller cannot simply declare the deal void against an innocent buyer unless the seller can show fraud or a contract condition failed. The cleaner claims run against Pat and the brokerage.
3. What should Pat have done differently from the first showing through closing?
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At the outset, Pat should have disclosed the cousin relationship to the seller in writing and considered referring Morgan to another agent. If dual agency was still chosen, both parties needed a clear written explanation of what neutrality means: no disclosure of either side’s motivation, negotiating limits, or financial capacity, and no advocacy for one side over the other.
During negotiations, Pat should have kept the seller’s deadline and floor confidential and kept Morgan’s ceiling confidential. Pat could relay offers and counteroffers but should not coach Morgan to offer the seller’s minimum. If Pat could not remain neutral, Pat should have withdrawn from one side.
On the lender referral, Pat should have disclosed the $2,500 payment in writing before Morgan used the lender, obtained informed consent, and determined whether the payment was a prohibited referral fee. If it was, Pat should have declined it. The brokerage should have had a written policy requiring disclosure of all compensation and prohibiting undisclosed third-party payments. The failure to supervise can expose the brokerage as well as Pat.