Client, Customer or ?

 

Question: Did I have a responsibility to ask the buyer about a home sale contingency?

I listed a property as a Seller’s agent. During an open house, a buyer, who is not working with any broker, fell in love with the property. Prior to any serious discussion with the buyer, I disclosed to the buyer that I was working as a seller’s agent. I gave the buyer a Brokerage Relationships Disclosure (Buyer) form which she signed.

The buyer asked me many questions about the home. The buyer mentioned to me that she owned her current home. Eventually, the buyer asked me to write an offer and I did so. The buyer did not tell me that she needed to sell her current home to buy my listing and she did not ask me for such a contingency.

When I presented the offer to the seller, I informed him that the buyer had an existing home and that I did not know whether she needed to sell that home to qualify for the financing identified in the offer. The seller responded: “If I get enough earnest money, that’s not my problem.” The seller asked me to counter the offer increasing the earnest money from $5,000 to $10,000. This counter offer was accepted by the buyer.

All of the preprinted contingencies in the Real Estate Commission approved contract were satisfied or waived. The buyer did timely obtain a loan commitment. The commitment was conditioned upon the buyer selling her existing home.

Now, a few days before closing, the buyer has been unable to sell her existing home. She can’t obtain the loan she needs to buy my listing. Since all of the contingencies which would excuse the buyer’s performance have been satisfied or waived, the buyer will breach the contract if the buyer doesn’t timely close.

The buyer claims that I should have asked her about a home sale contingency. Did I have a responsibility to ask the buyer about a home sale contingency?

Short Answer

No. Since the listing broker worked this transaction as an agent of the seller, without establishing a brokerage relationship with the buyer, then the seller’s agent had no duty to consult with the buyer about her potential need for a home sale contingency. Whether a buyer needs to sell an existing home is often important to the seller. However, this seller made an informed decision to not raise the home sale contingency issue with this buyer. The seller chose to address the issue by increasing the earnest money.

A broker can sell his or her own listing as an agent of the seller, without establishing any brokerage relationship with the buyer. The question of whether or not this is a good idea for the listing broker or the seller is beyond the scope of this article and will be discussed in next month’s column. This month’s article explains why the listing broker in this case had no duty to the buyer and suggests a means of communication to avoid confusion about these issues.

Discussion

CRS § 12-61-802 essentially provides that unless a broker has a written agency agreement with a buyer, then the broker is working with the buyer as a transaction-broker. Though not explicitly stated in the statute, an implied premise of the statute is that in order to become a transaction-broker, the broker must first have some brokerage relationship with the buyer. Real Estate Commission Rule E-33 and the Commission’s forms establish that if the seller and listing broker so chose, the listing broker may work with the buyer as an agent of the seller.

E-33 allows a Seller’s agent to work with a buyer without establishing a brokerage relationship. E-33 also permits a buyer’s agent to work with a seller without establishing a brokerage relationship with the seller. To keep this article as simple as possible, we provide a shortened version of E-33 which begins: “Following proper disclosure . . . a [seller’s agent] may assist a [buyer] by performing such ministerial tasks as showing a property, preparing and conveying written offers and counteroffers, . . . which will contribute to completion of the transaction and successful fulfilment of the agency [to the Seller].” The Rule continues: “Performing such ministerial tasks shall not of themselves violate the terms of an agency relationship between a [listing] broker and a buyer, . . . and shall not create an agency or transaction-broker relationship with the [buyer]. [Emphasis added.]

The proper disclosure required by E-33 is the Commission’s Brokerage Relationships Disclosure (Buyer) form. Among other things, it warns a buyer: “On properties we have listed, we are an agent for the seller and not your agent, unless we enter into a written agreement to act as your agent. . . . Please do no tell us any information which you do not want shared with the seller.” Though the form doesn’t do so, it could quote CRS § 12-61-804 which provides that a seller’s agent owes no duty to the buyer, except the duty to disclose all adverse material facts.

E-33 and the disclosure form match Section 2.b(2) of the Transaction-Broker Addendum. If the box preceding the paragraph is checked, the listing broker “shall act as an agent of only the . . . Seller (and shall treat the other party as a customer, not as a client) . . .” unless certain things happen which are not part of the question above.

Debates about these issues often become mired in misunderstandings about the terms “client” and “customer.” Real estate professionals agree that a customer does not have an agency relationship with the broker. If a buyer or seller has an agency relationship with a broker, then the real estate industry labels the consumer a “client.” However, if a consumer has a transaction-brokerage relationship with a broker, do we call the consumer a client or a customer?

Some of us use the term customer to refer to a consumer who has a transaction-brokerage relationship, as opposed to an agency relationship, with a broker. Some use “customer” to refer to a buyer or seller who has no relationship with a broker. (This seems to be the Commission’s use of the term. See the “*” at the end of the “Brokerage Relationships Disclosure (Buyer)” form which is another use of the term “customer” as a buyer who has no relationship with the listing broker.) Some of us use the term customer to refer to either the situation where the consumer has no relationship or a transaction-broker relationship with the broker.

Even if these terms were precisely defined, we can reduce confusion by avoiding both terms “client” and “customer.” How can we talk about these things without using these terms? Instead of using phrasing which labels the consumer, use phrasing which identifies the relationship of the broker and the consumer.

For example, instead of saying “Mary is my client,” we can say “Mary has hired me as a seller’s agent.” Instead of saying “Because it is an in-company deal, both the buyer and seller are customers,” we would say “Because this is an in-company deal, I have a transaction-brokerage relationship with both the seller and buyer.” Instead of saying: “She just walked into my open house so she was a customer,” we will say: “She just walked into my house so I worked with her as an agent of the seller.” Referring to the relationship between the licensee and the buyer or seller requires more words, but the extra language adds worthwhile precision.

Is it a good idea for sellers’ agents to work with buyers as an agent of the seller; or is it better for a listing broker to become a transaction-broker or dual agent every time the listing broker sells his or her own listing? This question will be discussed in next month’s column.

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN