“Disclosed limited agency” is just another name for dual agency. It is defined in Oregon law as: “a real property transaction in which the representation of the buyer and the seller or two buyers occurs within the same real estate business.” Clearly, dual agency in Oregon continues to be company-based. Disclosed limited agency agreements and administrative rules, however, have significantly changed the old “in-company” sales model still practiced in most states.
The “in-company” sales model in use in Oregon until 2002, and still in use in most states, handles the potential conflicts of dual agency by making all the company’s licensees agents of all the company’s clients. In that way, it is thought, all agents could have access to listing files and still represent buyers because their ability to use information gleaned from listing files to the advantage of their buyer clients would be limited by their also being agents of the seller. All that was required to make this system work was a set of rules about what information a dual agent could and couldn’t disclose and some way for the client to “agree” to an “in-company” sale.
Because the in-company sale model depended on creating dual agency relationships for all agents as soon as any agent took a listing or started working with a buyer, it was necessary to get client approval before actually entering into an agency relationship. This was accomplished by making an “in-company” disclosure part of the initial agency disclosure. However, because the initial agency disclosure was to be given before there was an actual agency relationship, the wording of the in-company disclosure was somewhat awkward. The form asked the prospective client to give “limited authorization” for an agent they “may” hire to act as a dual agent if a situation involving dual agency were to “arise” in the future.
It wasn’t long before lawyers working for disappointed buyers were able to exploit the awkwardness of the in-company form. Arguing the form did not contain clear consent to a dual agency relationship after full disclosure to the client of the consequences of giving such consent; lawyers were able to successfully attack the legal sufficiency of in-company forms. This lead to a general rethinking of dual agency in real estate and the rise of disclosed limited agency relationships.
Disclosed limited agency is dual agency. The law of agency allows dual agency only with the written consent of the principal given after receiving full disclosure by the agent. What courts want to see is that the principal understood the consequences of what they were agreeing to before they gave their consent. So, what are the consequences of dual agency to the principal?
If you look at agency duties, you will quickly see that dual agency creates a very serious loyalty and confidentiality problem. Other duties, like diligence, can be more difficult with clients on both sides of a transaction, but there is simply no way to be loyal to parties with conflicting interests and there is no way to hide information from yourself. The consequences of dual agency are attenuated loyalty and lack of confidentiality. With this in mind, it is much easier to understand disclosed limited agency.
Disclosed limited agency, because it involves dual agency, can be done only by written agreement. In that agreement, the agent must disclose the consequences of dual agency to the principal and obtain the principal’s agreement to the relationship. In Oregon, this is accomplished by having both clients sign a statutory Disclosed Limited Agency Agreement form. Although identical in structure, there are separate statutory forms for sellers and buyers.
Like any agreement, the first thing a Disclosed Limited Agency Agreement does is identify the parties to the agreement. When it comes to disclosed limited agency, those parties are the agent, the principal and the agent’s principal broker. You can think of disclosed limited agency as involving a triangle. Real estate agents conduct their activities on behalf of their principal broker. The listing or selling agent acts as the principal broker’s subagent to provide services to the company’s client. It is this triangular relationship that makes disclosed limited agency possible.
When two different licensees working for the same principal broker get involved in a transaction with one representing the seller and one the buyer, the principal broker is a dual agent. That is the case because the services provided each client is being provided on the principal broker’s behalf. The individual listing and selling agents, however, have personally only established an agency relationship with one of the parties to the transaction. Disclosed limited agency allows those individual agents who have worked only with one party to continue to represent just that party. It is the principal broker alone who is the dual agent.
The full disclosure part of disclosed limited agency is accomplished in Oregon by incorporating the statutory Initial Agency Disclosure into the Disclosed Limited Agency Agreement. The Initial Agency Disclosure explains representation of more than one party to a transaction, including the role of the principal broker and the loyalty and confidentiality limitation involved in dual agency. Once the disclosure is made, the parties give their permission for the individual agents to continue to represent only the party with whom they already have a relationship while the principal broker represents both parties as a dual agent.
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