Chapter: Under Hawaii law, which of the following statements best describes the duty of a real estate licensee acting as a dual agent? (EN)

Chapter: Under Hawaii Law, Which of the Following Statements Best Describes the Duty of a Real Estate Licensee Acting as a Dual Agent? (EN)

I. Agency Relationships in Real Estate

1. Definition of Agency: An agency relationship exists when one party (the agent) is authorized to act on behalf of another party (the principal) and has the fiduciary duty to do so. This arises from the law of agency, a branch of contract law.

   • Restatement (Third) of Agency: Provides a modern framework for understanding agency relationships. Defines agency as “the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.”

   • Key Elements: Consent, control, and fiduciary duty.
     2. Types of Agency Relationships:

   • Single Agency: The licensee represents either the buyer or the seller, but not both in the same transaction.

     • Seller Agency: The licensee represents the seller.
     • Buyer Agency: The licensee represents the buyer.
   • Dual Agency: The licensee represents both the buyer and the seller in the same transaction. This creates a complex situation due to the inherent conflict of interest.
   • Subagency: (Largely obsolete) An agent of an agent. The listing broker is the agent of the seller, and cooperating brokers who bring buyers are subagents of the seller.

   • Designated Agency: The broker designates individual licensees within the brokerage to represent the buyer and the seller, effectively creating separate agency relationships within the same brokerage.
     3. Fiduciary Duties: The agent owes the principal specific duties. These are paramount in any agency relationship, but particularly complex in dual agency.

   • OLD CAR: This mnemonic helps remember the core fiduciary duties:

     • Obedience: Obey lawful instructions.
     • Loyalty: Act solely in the principal’s best interest.
     • Disclosure: Disclose all material facts.
     • Confidentiality: Keep the principal’s information confidential.
     • Accounting: Account for all funds.
     • Reasonable Care and Diligence: Use reasonable skill and care.

II. Dual Agency Under Hawaii Law

1. Legality of Dual Agency: Dual agency is permissible in Hawaii only with informed consent from both the buyer and the seller. This consent must be documented in writing. Hawaii Revised Statutes (HRS) address this directly.

   • HRS § 467-1(13): Defines dual agency.

   • HRS § 467-14(17): Addresses disciplinary actions for representing more than one party without their knowledge or consent.
     2. Informed Consent: Consent is not simply a signature. It requires a thorough understanding of the implications of dual agency.

   • Disclosure Requirements: The licensee must disclose:

     • The licensee is representing both the buyer and the seller.
     • The duties the licensee can and cannot perform due to the dual agency.
     • The potential conflicts of interest.
     • That the buyer and seller are each giving up the right to undivided loyalty.
     • That the licensee cannot disclose confidential information of one party to the other, unless required by law.

   • Withdrawal of Consent: Either the buyer or the seller can withdraw their consent to dual agency at any time. In this case, the licensee may need to terminate the relationship with one party or both, depending on brokerage policies.
     3. Limited Fiduciary Duties: Due to the inherent conflict, a dual agent’s fiduciary duties are necessarily limited. Undivided loyalty is impossible in dual agency.

   • Impossibility of Full Loyalty: The agent cannot advocate exclusively for either party. A balance must be struck.

   • Compromised Confidentiality: The agent cannot disclose confidential information from one party to the other (e.g., the seller’s willingness to accept a lower offer, the buyer’s willingness to pay more).
   • Duties Still Owed: The dual agent still owes duties of obedience to lawful instructions (within limitations imposed by dual agency), disclosure of material facts, accounting, and reasonable care and diligence.
     4. Scope of Representation: The licensee’s scope of representation under dual agency should be clearly defined in the written consent agreement. This helps manage expectations and minimize potential disputes.

III. Analyzing the Agent’s Duties in Dual Agency

1. Duty of Disclosure: The duty to disclose all material facts remains paramount. The licensee must disclose any known defects about the property or any other information that could materially affect the buyer’s or seller’s decision.

   • Example: If the agent knows the property is in a flood zone but the seller has not disclosed it, the agent still has a duty to disclose this information to the buyer.

   • Equation: Let I represent “Information.” If I is a “Material Fact” (MF), then the agent has a duty to “Disclose” (D). This can be represented as: If I = MF, then D(Agent, I).
     2. Duty of Confidentiality (Limited): The licensee must maintain confidentiality regarding information obtained from each party. However, this duty is limited in that the agent cannot use confidential information from one party to the detriment of the other.

   • Example: The buyer confides they are willing to pay $10,000 more than their initial offer. The agent cannot disclose this to the seller.

   • Breach of Duty: If the agent does disclose this to the seller, they have breached their duty of confidentiality to the buyer and breached their fiduciary duty.
     3. Duty of Loyalty (Limited): The licensee’s duty of loyalty is compromised. The agent cannot act solely in the best interest of either party. Instead, the agent must remain neutral and fair.

   • Neutrality Requirement: The agent must avoid favoring one party over the other.

   • Fair Dealing: The agent must treat both parties fairly and honestly.
     4. Duty of Reasonable Care and Diligence: The licensee must still exercise reasonable care and diligence in representing both parties. This includes ensuring that all documents are properly executed, that the property is properly inspected (or that the buyer is advised to have it inspected), and that the transaction is handled in a professional manner.

   • Professional Standards: The agent must adhere to the standards of care expected of a licensed real estate professional in Hawaii.

   • Negligence: Failure to exercise reasonable care and diligence can result in liability for negligence.
     5. Prohibited Actions: A dual agent cannot:

   • Disclose the maximum price a buyer is willing to pay without the buyer’s permission.

   • Disclose the minimum price a seller is willing to accept without the seller’s permission.
   • Advise either party to take any action that would be detrimental to the other party.
   • Represent the interests of one party to the detriment of the other party.

IV. Practical Applications and Examples

1. Negotiation Scenarios: In a dual agency scenario, the agent cannot aggressively negotiate on behalf of either party. They must act as a facilitator to help the buyer and seller reach an agreement.
2. Offer Presentation: The agent must present all offers to the seller, even if the agent believes the offer is too low. However, the agent cannot advise the seller on whether to accept or reject the offer.
3. Conflict Resolution: If a conflict arises between the buyer and the seller, the agent must remain neutral and cannot advocate for either party. The agent may need to advise the parties to seek independent legal counsel.
4. Documentation: All disclosures and consent agreements related to dual agency must be carefully documented and retained.

V. Evolution and Impact

1. Historical Context: The rise of buyer agency has led to increased scrutiny of dual agency. Originally, most agents represented the seller. The push for buyer representation has highlighted the inherent conflicts in dual agency.
2. Legal Challenges: Dual agency has been the subject of numerous lawsuits, often alleging breach of fiduciary duty.
3. Modern Trends: Many brokerages are moving away from dual agency in favor of designated agency to minimize conflicts of interest.
4. Impact on Consumers: Consumers need to be educated about the risks and benefits of dual agency to make informed decisions about their representation.

VI. Conclusion

Under Hawaii law, a real estate licensee acting as a dual agent owes both the buyer and the seller a duty of fairness, honesty, and reasonable care and diligence. However, the licensee’s fiduciary duties of loyalty and confidentiality are limited. The licensee must obtain informed consent from both parties before acting as a dual agent, and must disclose all material facts. The licensee must remain neutral and cannot advocate for either party’s interests over the other’s. Failure to comply with these requirements can result in disciplinary action by the Hawaii Real Estate Commission and potential legal liability. The core of fulfilling the duty lies in transparent communication, documented consent, and a commitment to fair dealing within the legally defined limitations.