Far and away the most dangerous agency situation when dealing with multiple offers is representation of both the buyer and the seller under a “disclosed limited agency” agreement. Disclosed limited agency is just another name for dual agency. That is, a situation in which a single agent represents both the buyer and the seller in a real estate transaction.
A disclosed limited agent owes both the buyer and the seller the same statutory duties as a single agent. In addition, the disclosed limited agent has the duty to not disclose either party’s motivation or financial position or certain confidential information as defined by ORS 696.800(3). According to the definition, “confidential information” is anything the agent learns from or about the client, the deal or the client’s motivation but does not include what the client wants disclosed or what the law requires to be disclosed.
In addition to a heightened duty of confidentiality, the duties of a disclosed limited agent also include the duties imposed on what are called “designated agents.” In a transaction where one agent in a firm represents the seller and another agent in the same firm (i.e., has the same principal broker) represents the buyer, the agents’ principal broker is a disclosed limited agent but the individual agents continue to represent only the buyer or only the seller.
Designated agency is not well understood and can cause severe problems in multiple offer situations. While it is true that only the principal broker is a disclosed limited agent in a designated agency situation, the individual agents representing only the buyer or only the seller still have additional duties to all parties. Those duties are to disclose any conflict of interest in writing to all parties, to take no action adverse or detrimental to either party’s interest in the transaction and to obey the lawful instructions of both parties.
Because it may be in the seller’s interest to disclose to other buyers the existence, or even the terms, of a buyer’s offer to other potential buyers, any type of dual agency that creates confidentiality or non-detrimental action duties will put the agents involved in the untenable position of either harming the seller they represent or the buyer they represent.
For that reason, multiple offer situations should be avoided in which one of the agents or the principal broker represents both the seller and one of the competing buyers. Situations in which one of the agents, or the company, represents two competing buyers must be avoided at all costs.
When an agent represents both the seller and a buyer, or two buyers, in a multiple offer situation, the agent owes their buyer(s) full fiduciary duties, including diligence and confidentiality. If the seller wants to use the terms of that buyer’s offer to trigger a bidding war among potential buyers, the agent cannot serve both the seller’s lawful interests and that of their buyer. If the agent suggests to the seller that the seller reject all offers and seek new offers from all potential buyers, the agent harms their buyer(s). At the same time, if the agent doesn’t advise the seller to consider seeking better offers, the agent harms their seller.
There is no safe way to be involved in a multiple offer situation where both the seller and one of the buyers is represented by the same agent or agents supervised by the same principal broker. It follows that in a hot market every offer made by a company buyer on a company listing creates the potential for serious trouble. All that is needed to make that trouble all too real is another offer to be made, either from within or without the company.
The only way to avoid that kind of trouble is to have already received the client’s agreement on how the situation will be handled. Since we are talking about dual agency situations here, the disclosed limited agency agreement signed by the clients is the logical place to seek that agreement. This could most efficiently be done by attaching an explanation of how the company will handle multiple offer situations as an addendum to the disclosed limited agency agreement. A complete explanation of this approach, along with samples of the forms and policies necessary, is included in the section on Handling Multiple Offers.
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