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By: Goldsmith, James on in

When a Close Relative or Friend Wants to Buy Your Listed Property

Real estate agents deal with conflicts of interest on a regular basis.

Most of you are attuned to spotting and dealing with the conflicts that may arise out of dual agency when you are representing both the buyer and seller in a transaction. But there is also a significant conflict where the listing agent brings a buyer to the transaction, who isn’t just a client, but is a friend or relative of the listing agent… or even the listing agent him or herself.

Even if the listing agent isn’t “representing” this potential buyer in the transaction, there is likely a conflict of interest based on the existing relationship.

It may not feel like a conflict because your seller wants to sell and your buyer wants to buy and both parties (hopefully) know your relationship to the other and are expressing no displeasure but only their gratitude. Because the potential conflict exists you must treat it as a conflict.

Let’s assume that it is a very close friend you are bringing to the transaction. The conflict exists because you have contractual and fiduciary obligations to your seller who seeks to gain as much as possible and you have an internal desire to aid and assist your friend. Even if it weren’t required by RELRA (and it is) the first thing to do is notify the parties of your conflict. Do so in writing.

To appreciate the next step, consider that perceptions will change over time. Today, the seller is pleased because you’ve finally sold their property, but months or years down the road, will the seller believe that you sold him short in deference to your close friend? The shift in perception is certainly more likely if in future years the property dramatically increases in value, regardless of conditions that lead to that increase.

The better practice is to step out of the transaction and allow another licensee, presumably a colleague within your brokerage, to resume efforts. Clearly, whoever replaces you in the transaction should not be a shill, but someone devoted to advancing the best interests of the seller. That you may get a referral fee from the seller’s side of the transaction is not a problem in and of itself, assuming that the seller is fully and appropriately represented.

I will suggest to listing agents who decide to buy their listing to take it a step farther. Besides stepping out of the transaction as the listing agent, offer to pay your seller the equivalent of an hour’s time with the attorney of their choosing before your agreement to purchase is cemented. Having the benefit of independent counsel or independent advice from another licensee may be all it takes to insulate you from later accusations in a civil suit or disciplinary action.

10 Responses
  • February 14, 2020 at 8:19 am Leslie D. Berger says

    I disagree with this, especially since for years the number one source of clients are our sphere of influence ( which consists of family & friends) . So what you’re saying is for all our friends and family, if they are buying one of our office’s listings (for those brokerages that do not do designated agency), that we’re supposed to give up all of our clients for just a referral. I think this is ridiculous & I am appalled that for all the money that we pay for our legal council at PAR, and since it’s existence of Dual agency, that our own legal council advises us NOT to do dual agency! Why aren’t buyers and Seller held to the the PAR AOS contract language the once closed they are completed satisfied & have had the right to satisfy themselves prior to purchase (Paragraph 28. Release for the buyer). Both parties have the right to get an independent appraisal & any buyer going through financing will have an independent appraisal. I’m tired of Buyer’s and Seller’s not being held accountable for their own actions. I understand that in every profession, there are unprofessional individuals that do not do the right thing & that they should be sued for their actions – but I DO NOT believe that the general population of the Realtors in PA have any intentions of harming their clients.

    Reply
  • February 14, 2020 at 8:25 am Diana McKay says

    I always refer a buyer on my listing to a colleague! That is a very thin line to balance and I cannot talk out of both sides of my mouth! It’s always a win/win situation when you bring in a trusted colleague!

    Reply
  • February 14, 2020 at 9:20 am RANDY MYER says

    I don’t believe this article is talking about all dual agency situations but ones where there is a close relationship with a buyer who is purchasing your listing. I think Jim’s recommendation is excellent. I don’t know how you would be able to be a neutral party in such an instance.

    Reply
  • February 14, 2020 at 10:38 am Aaron Gray says

    @ Randy Myer Please help me understand how you understand dual agency, if you represent a buyer on YOUR listing that is dual agency. The close relationship with the buyer is an added potential conflict per this article.

    @Leslie Berger I agree with you, if the governing body allows dual agency then we should not have to tiptoe around practicing what they allow. If there is such a great issue then why not simply do away with dual agency altogether?

    However, dual agency is not the issue, the person having it is where the issues lies. Although the agent represents both parties, they do not function as buyer and seller agent simultaneously, they represent one principal at a time. They are not a seller’s agent when meeting with or discussing things with their buyer client and vice versa. Many misunderstand dual agency because they view the relationship between seller and buyer from a combative stance rather than the cooperative stance we agree to in our code of ethics. We are all on the same team, team settlement; different role same goal. It is not unforeseeable that the seller and buyer both walk away happy, fair market value should be the determining factor of satisfaction, otherwise one party has gotten over on the other. I’m Aaron Gray, and I approve these comments.

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  • February 14, 2020 at 11:17 am Ellen Kline says

    Hi, I believe it’s wise to listen to outside counsel. Jim in particular is actually out and seeing what is going on in the courts. You don’t hire people who will only give you advice you want to hear. And its not their job to advocate for change, that is PAR.
    Having sat in many meetings for Standard Forms, I would listen to Jim without hesitation. He has real experience, whether we want to hear it or think its not right. His job is to advise us of potential issues that would harm us.
    I agree most agents don’t want to do harm, but many are ill informed and actually do harm to the public.
    I represent friends all the time. My close friends or immediate family I would disclose.

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  • February 14, 2020 at 12:54 pm Andrew Wetzel says

    Two thoughts. First, dual agency, which I support if for no other reason than it removes a human being from the equation and that is where much can go wrong, is potentially precarious enough WITHOUT either party being more than simply a client. Second, I recommend that when we remove ourselves from EITHER/ ONE side of a dual agency situation we remove ourselves from BOTH SIDES as we know more about the “past” client than we should. Better safe than sorry!

    Reply
  • February 19, 2020 at 8:27 am Vincent Heath says

    In a fair world with all things equal ( equal, a topic of self serving opinions with equal dilutions) I support Leslie D. Berger. However, thanks to Mr. Goldsmith Esq for reminding us to err on the side of caution and Mr Wetzel clearly points out the potential hiccup ” the Realtor “know more about both sides of the transaction” therefore I agree that the Realtor should protect the transaction and see Council.

    Reply
  • February 19, 2020 at 9:45 am George Hitz says

    I’m more confused than ever. Aren’t we really talking about designated agency and not dual agency. My understanding of dual agency exists when two agents from the same real estate company are involved. Designed dual agency exists when the listing is representing the seller is also representing the buyer. This duality should be addressed prior to any contract is drawn up. In the situation where it was not addressed there is language in the AOS to spell
    It out. As Jim mentioned, it is too late to leave it up to the AOS’s language.

    Reply
  • February 21, 2020 at 6:43 am Darryl J. Audia says

    Leslie Berger
    James Gold Smith needs no defending, however the status of our law probably does. Inspired by the book Lambs to Slaughter a conscious for a need for agency law reform became evident; although slow to come, a law was inacted. Through a constant pounding on of the need for disclosure on my radio show Talk Real Estate, I increasingly became aware of it’s true need. Saying this I still don’t see how dual agency is purely possible or at least justified to pick up both fees in a transaction by being mandated to do less than one would do if the represented someone.
    It is illegal in the following States.
    Alaska
    Colorado
    Florida
    Kansas
    Maryland
    Oklahoma
    Texas
    Vermont
    Jim’s giving you a heads up; you can wait until the disclosure law is modified and dual agency struck down and you have to protect yourself and both parties by abiding or be one of the test cases that obviously should be making its way to the courts as the public becomes more educated.
    I think Jim is saying just be careful.
    Good Job Jim.
    Darryl Audia

    Reply
  • February 24, 2020 at 5:43 pm Dan Caparo says

    agents who cannot comprehend this should turn in their license.

    Reply

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