The news of the proposed National Association of REALTORS® (NAR) settlement and its implications resulted in industry-wide questions and apprehension about the fundamentals of buyer agency representation. As we continue monitoring industry developments and working to understand how best to talk about the changes with potential clients and the most efficient ways to educate the public, we understand that there are potential buyers who (for various reasons) do not want their own representation. As a result, NVAR’s Legal Hotline has recently seen an increase in questions from members on the topics of dual agency, designated agency, and unrepresented buyers.

Dual Agency vs. Designated Agency vs. Unrepresented Party

First, back to basics. Dual agency is when both sides of a transaction are being represented by either the same agent. Designated agency is when the parties are each represented by the same brokerage, but each have their own agent designated by the principal broker. In a transaction involving an unrepresented buyer, the seller is represented and the listing agent may or may not perform ministerial acts on behalf of the unrepresented buyer. Realtors® experienced in transactions involving dual agency, designated agency, or unrepresented buyers will tell you that such transactions are complex, uniquely nuanced, and might require a certain tolerance of risk. While dual/designated agency is legal in the Commonwealth of Virginia, many brokers and agents see the risks involved as untenable. Realtors® considering acting as a dual agent, or those with sellers considering accepting an offer from an unrepresented buyer, should always consult their broker and legal counsel as appropriate.

Your Ethical Responsibilities

The risks involved with both dual agency and assisting unrepresented buyers is largely caused by the challenges involved with balancing relevant agency or non-agency responsibilities. Article 1 of the Code of Ethics and Standards of Practice of the National Association of Realtors® does provide some specific guidance regarding dual agency, including the requirement that listing and buyer representatives must disclose “any potential for the buyer/tenant representative to act as a disclosed dual agent…” when entering into representation agreements.

If you read through the entire Code of Ethics, you will not see any additional references to dual agency nor any specific guidance for designated agency or working with unrepresented buyers. But don’t worry! We’re now going to cover some “less obvious” applicable ethical guidelines provided by the Code of Ethics to help you balance your ethical responsibilities as you work through these difficult transactions.

Key Elements of Article 1:

“Realtors® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors® of their obligation to treat all parties honestly.”

Key Elements of Article 2:

“Realtors® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction…”

Article 7:

“In a transaction, Realtors® shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the Realtors®’s client(s).”

Key Elements of Article 9 (SOP 9-2):

“When assisting or enabling a client or customer in establishing a contractual relatationship (e.g., listing and representation agreements…, etc.) electronically, Realtors® shall make reasonable efforts to explain the nature and disclose the specific terms… prior to it being agreed to by a contracting party.”

Key Elements of Article 11:

“The services which Realtors® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines (e.g., residential real estate brokerage) in which they engage…”

Members of the public hire Realtors® for the knowledge, expertise, advice, and guidance Realtors® provide during the home buying and selling processes. Consider a first-time home buyer who is choosing not to work with a Realtor® because they cannot afford to pay them out of pocket. You’re a listing agent and you are contacted by this potential buyer who is asking how you might be able to assist them with purchasing the property you have listed. When you offer to refer them to an agent with a different brokerage, they tell you they are very interested in saving money by proceeding without their own agent. You now have a choice to make.

The “Code” on Dual/Designated Agency

If the specific details of a scenario similar to the one above require you to consider dual or designated agency, that will require a conversation with both your seller client and the unrepresented buyer. Articles 1, 2, and 9 very much speak to your obligation to fully explain the agreement to consent to dual agency to the affected parties. NVAR’s “Disclosure of Dual Agency or Dual Representation in a Residential Real Estate Transaction” or “Disclosure of Designated Agents or Representatives” forms both include the key points that members need to discuss with their clients regarding dual and designated agency. Note: Realtors® do not meet their legal and ethical obligations by simply sending their client the form to sign. Instead, it’s important that you take the time to discuss each point with your client so they can make an informed decision. And remember, regarding our hypothetical scenario, until both parties consent to your serving as a dual agent, your only client is the seller.

In order for a Realtor® to comply with their legal and ethical obligations while serving as a dual/designated agent, they will need to truly commit to being a neutral facilitator for the remaining duration of the transaction. One of the reasons why dual and designated agency transactions can be so precarious is because it’s possible that even a hint of bias towards one party, or any appearance that an agent is serving one party’s interests over those of another, may lead to a number of adverse consequences for the agent(s), their brokerage, and the transaction. The truth is that it’s hard for Realtors®, whose instincts are to help their clients however they can, to remain neutral and detached from a transaction. This is not to say that Realtors® can’t be successful in a dual/designated agent transaction, but the decision of a Realtor® to proceed is not one that should be taken lightly.

The “Code” on Unrepresented Parties

Perhaps you decline to serve as a dual agent and the buyer agrees to proceed unrepresented. NVAR’s “Disclosure of Brokerage Relationship for Unrepresented Parties” form simply notifies both parties that you only represent the seller. As such, there is a need for the same level of detachment required of a Realtor® as in a dual agent transaction when serving as a listing agent during a transaction with an unrepresented buyer. Your obligation is to your client. This might again require you to ignore your instincts to better assist a buyer who is in clear need of professional guidance.

What if providing some assistance to a buyer is in the seller’s best interests? For example, it could be helpful to both parties if the listing agent helps a buyer to submit the purchase offer. A listing agent may provide this assistance, but there are limitations to how much assistance can be provided. Virginia Code defines ministerial acts as “those routine acts which a licensee can perform for a person which do not involve discretion or the exercise of the licensee’s own judgment.” In following, the listing agent may help the unrepresented buyer fill out the purchase agreement. However, the agent may cross the line if they begin to advise the buyer about specific terms to include in the offer – even if the agent believes that doing so is in the best interests of their client. In such a transaction, a Realtor® has an ethical obligation to treat the buyer honestly – in addition to their obligation to protect and promote the interests of their client. These same duties, as required by Article 1, can feel in conflict even during a transaction in which both parties are represented because the duty to treat all parties honestly supersedes the duty to act in the client’s best interests. That conflict is only amplified when both parties do not have exclusive representation.

Another thing to consider if you choose to provide ministerial services to an unrepresented buyer is whether you will charge a fee to do so. Speak to your broker to understand what their policy is on charging fees for ministerial acts. If you are able to do so, keep your Article 7 obligations in mind. If you are to receive compensation from more than one party, you must meet your disclosure obligations and receive appropriate consent from your client. Additionally, Article 11’s requirement that Realtors® conform to the standards of practice expected of a residential (or another discipline) real estate practitioner should be considered because dual/designated agent or unrepresented buyer transactions can be more complex.

Conclusion

Often (some may argue almost always), it is in the best interests of all parties to have their own representation, but we may see an increase in transactions where that is not the case. As Realtors® continue to educate buyers about the options available to them regarding agency representation, and as the industry evolves to provide additional options to buyers for the same purpose, it is possible that any increase in these transactions is temporary. Again, the lesson here is not to discourage anyone from serving a transaction how they (and their broker) think is best. Rather, the takeaway is only that the complex nature of these transactions does require additional diligence by Realtors® to stay steady on the “ethical tightrope” – in order to best protect everyone’s interests, including your own.

For additional information on navigating dual/designated agency and unrepresented buyers please watch/listen this video/podcast from the NVAR Professional Standards Committee titled, Dual Agency and Unrepresented Buyers: Where is the Line for Listing Agents?

To submit a question to the NVAR Legal Hotline, please visit nvar.com/hotline.