Proposed legislation seeks to address the issue of representing multiple buyers
On August 25, 2015
By Peg Ritenour, OAR Vice President of Legal Services/Administration
With fewer homes on the market, many agents are finding themselves in the position of showing the same limited number of properties to more than one buyer client. While the license law clearly states that an agent does not breach his fiduciary duty to a buyer by showing the same properties to other buyers or acting as the agent for other buyers, it does not provide any specific guidance on how agents should handle the situation where two or more buyer clients want to make offers to purchase the same property. Can you write an offer for more than one buyer client on the same property? Do you need to disclose to a buyer that you are an writing offer for another client? If so, at what point do you make that disclosure — when the first buyer indicates they are going to make an offer? Or would disclosing that a buyer client is making an offer violate your duty of confidentiality?
These issues arose recently in Ohio in two different cases, each with a different outcome. The first involved a civil suit against a buyer’s agent alleging that the agent breached his fiduciary duty by disclosing to a buyer that another buyer client was going to be making an offer to purchase the next day. This resulted in that buyer also making an offer, which was accepted, and the buyer who lost the property sued. The trial court dismissed the claim, but on appeal, the appellate court ruled that while the license law clearly states that agents can show property to multiple clients, it isn’t clear whether writing offers for competing buyers poses a conflict of interest. It therefore remanded the case back to the lower court on the issue of whether the agent breached his duty of confidentiality and loyalty by making this disclosure to a competing buyer and writing the second offer. The case was ultimately settled by the parties before trial, so a final ruling was never reached on this issue. Despite this fact, the appellate court’s ruling raised serious concerns about how agents should handle representation of competing buyers.
The second case was a disciplinary matter that was brought against a real estate agent for failing to disclose to one buyer that another buyer was making an offer to purchase property the other buyer was also interested in. Following a hearing, the Ohio Real Estate Commission found the agent to have violated Article 10 of the Cannons of Ethics, which provides that a licensee should not enter into an agency relationship with a party whose interests are in conflict with those of the another client the licensee also represents, without fully disclosing the potential conflict and obtaining the informed consent of all parties. Based on Article 10, the agent was disciplined for not disclosing to the interested buyer that she was writing an offer for another buyer.
These two cases resulted in conflicting outcomes on the issue of how an agent should handle two buyer clients making offers on the same property – the civil case suggesting disclosure of this fact may violate the agents duty of confidentiality and the OREC ruling that such disclosure and consent is required under Article 10. To provide a definitive answer on this issue, OAR initiated discussions with the Ohio Division of Real Estate and Professional Licensing that involved researching how this issue is handled in other states. After several months, an agreed upon legislative solution similar to that recently enacted in Illinois was agreed upon that will provide statutory framework for how such situations are to be handled by Ohio licensees. Legislation to accomplish this has been drafted and ready to be introduced this Fall. Even though these provisions won’t become law until enacted by the Ohio legislature, the Division has indicated that the procedures set forth in this draft legislation reflect the Division’s current position on this issue and should be followed by licensees now.
As written, the bill will require disclosure to all buyers, but only when “contemporaneous offers” exist. This is defined as “offers to purchase or lease on behalf of two or more clients represented by the same licensee for the same property that the licensee knows, has known, or has reason to know will be taken under consideration by the owner or the owner’s authorized representative during the same time period”.
Based upon this definition, under the proposed legislation if only one buyer client of an agent makes an offer to purchase, no disclosure of this fact is required to be made to other buyer clients to whom the agent has shown the property or who have expressed interest in the property. Instead, such a duty of disclosure would only be triggered if offers from more than one client of the same agent will be considered by the seller at the same time. In that event, disclosure to all clients must be made in writing and delivered in a timely manner before writing the offer(s). The Division has indicated that this written disclosure can be accomplished via email or text. If timely written disclosure cannot be made (i.e., a buyer doesn’t utilize email or text messaging), verbal notification is permitted and must be documented in the agent’s records.
It is important to note a few other key provisions in the proposed legislation. First, the parties’ consent to their agent writing contemporaneous offers is not required, only disclosure of this fact by the agent. However, if a buyer does not feel comfortable with this situation and requests a referral to another licensee, the licensee is required to make the referral.
Secondly, the bill also limits the disclosure the licensee must make to only the existence of contemporaneous offers; it specifically prohibits disclosure of the identity of the buyers or the terms of their offers to purchase.
Finally, the bill also contains a provision stating that a licensee does not breach a duty of confidentiality to any party (including the seller), by disclosing the existence of contemporaneous offers. This language is intended to not only provide clarity in the license law, but to also provide protection from civil claims alleging a breach of the fiduciary duty of confidentiality.
OAR believes that this proposed legislation, which was approved by the OAR Board of Directors, reflects a common sense approach to a situation that is fair and reasonable for not just REALTORS, but more importantly for the clients they represent.
— Originally published in the Ohio REALTOR magazine (Summer/Fall 2015)