Agency by Surprise: the Disclosure Dilemma in Real Estate
| Publication year | 1986 |
| Pages | 1185 |
| Citation | Vol. 15 No. 7 Pg. 1185 |
1986, July, Pg. 1185. Agency by Surprise: The Disclosure Dilemma in Real Estate
The role of salespeople in typical real estate transactions seemed well settled until recently. Sellers would list their property with a "listing agent." Buyers would contact a "selling agent" to help them locate a suitable new home. With the help of these agents and through use of the local multiple listing service ("MLS"), a sale would be consummated.
The general rule in the law and the real estate profession has been that the listing salesperson was an agent of the seller and the selling salesperson was a sub-agent of the seller---the MLS was considered a unilateral blanket offer of subagency from the listing to the selling salesperson.(fn1)
With the advent of "buyer brokerage," buyers were able to make sure contractually that the selling salesperson was their agent, representing only their interests as buyers and owing them fiduciary duties of loyalty. However, it is well known that a large percentage of buyers engage in real estate transactions without hiring a "buyer's broker," believing that the selling salesperson is their agent. For many years real estate salespeople believed that, although they performed services for either party to the transaction, they were agents of the seller.
That was the prevailing sentiment until courts began deciding that salespeople also could be the unsuspecting agents of buyers (or sellers in the case of buyers' brokers) simply by the conduct of the salesperson prior to closing. This "agency by surprise" has been exhibited in a recent line of cases in Colorado and has left real estate practice in a state of confusion over the liability of salespeople as unsuspecting agents.
The issue of agency disclosure has been the subject of national attention. The National Association of Realtors and the National Association of Real Estate License Law Officials have studied the concerns and made recommendations to their members. These recommendations are available from the respective organizations and are not dealt with here, since this article is limited to Colorado cases and the response of the Colorado Real Estate Commission ("Commission").
In Colorado, to ameliorate "agency by surprise," the Commission recently adopted Rule E-35 and pertinent Guidelines which require disclosure to a buyer of the status of the salesperson as the agent of the seller. Before a discussion of Rule E-35, a brief summary of the case law that prompted its adoption is in order.
In Colorado, the existence of an agency relationship is determined exclusively on the basis of common law. No statutory authority exists upon which the real estate broker may rely.
No particular formalities are required to establish an agency relationship.(fn2) The relationship is consensual in nature and it exists if the "conduct of the parties manifests a willingness on the part of one person to have another act for him subject to his control, and the consent of the other to so act."(fn3) Furthermore, the relationship of principal-agent may be inferred from the acts of the parties(fn4) and can be established by the conduct of the alleged principal and agent.(fn5) Essentially, an agent is "one who acts for or in the place of another."(fn6)
The line of cases raising concern over agency by surprise began with Velten v. Robertson v. Zimmerman(fn7) in 1983. Zimmerman, a real estate salesperson who was acting on behalf of the buyers, was found as a matter of law to be the agent of the seller as well. The holding was based on the fact that (1) Zimmerman contacted the seller first about her interest in possibly selling the property, (2) Zimmerman assisted the seller in proposing an addendum to the buyers' original offer, and (3) Zimmerman obtained the signatures of all the parties on the original contract and the addendum.(fn8) The court noted that the holding was not altered by the fact that the buyers paid the commission.(fn9) Thus, per Zimmerman, through conduct frequently associated with serving the buyer's interests, a salesperson may find that fiduciary duties of disclosure and loyalty also are owed to the seller.
In 1985, the Colorado Court of Appeals once again delved into real estate agency problems in Little v. Rohauer.(fn10) The Rohauers, an out-of-state couple, sought the help of a real estate salesperson at Coldwell Banker in locating a Denver home. They were shown property listed with another Coldwell salesperson. After entering into a written contract, the sellers delivered a title commitment to the listing agent; but the commitment was not delivered to the buyers by the deadline...
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