Risks in broker representing both buyer and seller

When you list your home with a broker, he or she will likely tell you that there might be a situation in which they would represent both buyer and seller. For example, you list your home and your broker gets a call from a buyer that he wishes to write an offer on the home. Your agent explains that he represents the seller, but the buyer insists that the agent represent him also.

This is legal in real estate, unlike being an attorney. The broker likes the idea because he doesn't have to worry about an offer coming in from an inexperienced agent. He has control over both sides of the sale in this instance. Most of the time this "dual agency" as we call it in real estate, works fine.

However, when it goes wrong, look out! If your clients get into a hassle over some aspect of the sale and they deem you, as "their agent," have goofed, you may find you've bitten off more than you can chew. Suddenly the agent goes from hero to goat in one easy step. Both buyer and seller are angry at him or her, and the agent loses not just one good client, but two. Equally likely, the agent may face sanctions from the real estate agency if his sin (negligence or misrepresentation) is serious enough.

In my book "Risk Hotline for Real Estate" (www.riskhotline.com) I discuss an actual situation related to me by another broker (p. 203). This agent sold his own listing, representing both buyer and seller. Since the buyers didn't have the cash to pay for a home inspection, the agent agreed to pay for it himself, since he was to receive both sides of the commission.

The inspector discovered major dry rot and an inoperable sump pump in the crawlspace. Cost of repair: $12,000.

The sellers were furious when they learned "their agent" had paid for the inspection without asking their permission first. On the other hand, the buyers thought he "walked on water."

As luck would have it, the seller's homeowner insurance paid for most of the work. However, the agent lost another listing a few months later when another family member sold his home.

Moral of this story: The broker may have violated his fiduciary duty to his seller. The seller was not angry that the repairs were necessary, just that their agent had broken trust with them by not asking for their approval of his paying for the inspection.

A major theme in my book is showing buyers and sellers how they can be more pro-active on their behalf and understand more about the intricacies of buying and selling a home.