When the listing agent is stuck in the middle

Facts:  A divorcing couple has listed their home for sale. Shortly after listing it, their agent finds a buyer and the couple signs an agreement of sale. Then, unbeknownst to the agent, the husband enters into a side agreement with the buyer. When the agent asks about the nature of this agreement, the husband refuses to turn over the documentation, telling the agent it is none of her business. Apparently the side agreement involved the buyer renting the property back to the husband for a period of time after settlement.

What should the listing agent do?

First, the listing agent should bring the problem to the attention of the listing broker. This situation raises potential risks for the listing broker as well as the listing agent. Regardless of the actual purpose or content of the side agreement, the simple fact that a seller is entering any kind of agreement without the knowledge or involvement of the listing agent is reason for concern. It’s wise to assume that when a client intentionally hides information and keeps the agent out of the loop, the client may be attempting to participate in illicit activity that could, regardless of justification, involve or implicate the agent and broker.

To avoid legal complications and fulfill their duties under RELRA (Real Estate Licensing and Registration Act) and the REALTOR® Code of Ethics, brokers and agents must maintain open and honest communication with their clients and remain informed about the status of the transaction. In this case, the agent and broker represent the husband and wife — and the duty to keep the client informed extends to her.

Ideally, in these circumstances the agent and broker should discuss the undisclosed activities, expectations of each party and the necessity of keeping one another informed. The agent and/or broker should send the client a follow-up letter summarizing the discussion, taking care to explain to the couple that the agent has a responsibility to both the husband and wife.  If the schism between the husband and wife is so great that the broker is unable to perform her duties, it may be wise to   dismiss the clients and advise them to seek legal counsel.

The PAR standard Listing Contract – Exclusive Right to Sell Real Estate (XLS form) clearly states that: (1) Seller will cooperate with Broker and assist in the sale of the property as asked by Broker: (2) all showings, negotiations and discussions about the sale of the Property will be done by Broker on Seller’s behalf. All written or oral inquiries that Seller receives or learns about regarding the Property, regardless of the source, will be referred to Broker: and (3) Seller will not enter into or renew any leases during the term of this Contract without first giving notice to Broker.

In this situation the Seller has breached all of these terms of the listing contract and would justify the Broker terminating the listing contract.

Representing divorcing couples, partnerships or business with multiple owners can create conflicts not usually encountered.  Keep your broker in the loop, the PAR Legal Hotline number close at hand — and the interests of all of your clients at the forefront.