In 2007, Hiroshi Horiike, a multimillionaire from Hong Kong, plunked down $12.25 million in cash for a beautiful mansion in Malibu, one that overlooked the Pacific Ocean and featured numerous amenities. Except there was a problem. In 2009, when Horiike filed a remodeling permit, he discovered that the property was actually 9,500 square feet – far less than the 15,000 square feet it had been listed at. Horiike promptly filed a lawsuit, one built upon the unusual nature of his original real estate transaction.

Horiike’s transaction was one of dual agency, which in California means a single brokerage represented both the seller and buyer. So Horiike’s lawsuit – which was argued before the California Supreme Court in September – charged Coldwell Banker and its listing agent with breaching their fiduciary duty in not disclosing the property’s correct square footage; depending on how the court rules, the case could have considerable ramifications in how dual agency works in California.

Many a media outlet has followed Horiike’s lawsuit, but what is the state of dual agency here in Illinois? And what legal pitfalls should Illinois agents be aware of?

To find out, we spoke with Betsy Urbance, an attorney with Sorling Northrup Attorneys who has been the legal hotline attorney for Illinois Realtors for more than 18 years.

“A ‘Glorified’ Messenger’”

Disclosed dual agency is legal in Illinois, but as Urbance explains, not all offices allow it. Among those that do, there are some strings attached.

“While disclosed dual agency is permitted, it does substantially limit what the licensee can actually do for the clients,” she says. “This is true when it comes to offering specific marketing, purchasing or leasing advice to the clients. The disclosed dual agent really becomes a ‘glorified’ messenger.”

As detailed in the Professions, Occupations and Business Operations statute of the Real Estate License Act of 2000, dual agents can do such things as:

• Explain real estate terms
• Help arrange property inspections
• Explain closing costs/procedures
• Disclose material defects in the property
• Help compare financing alternatives

Dual agents cannot, though, disclose the following:

• Confidential information without the client’s permission
• The price the seller will take other than the listing price (without permission)
• The price the buyer is willing to pay (again, without permission)
• A recommended/suggested price or terms the buyer should offer
• A recommended/suggested price or terms the seller should counter with, or even accept

Legal Disclosures

Dual agency is tightly regulated, and must operate under the following disclosure/consent rules:

A licensee must disclose the potential for a dual agency, typically when the seller enters a listing agreement; the long-form disclosure language is likely included in the agreement itself.

The buyer must sign a separate long-form disclosure (one specifically drafted for buyer clients) before the licensee acts as a disclosed dual agent. Urbance says the disclosure can be within a buyer-brokerage agreement or, if the relationship is a spoken one, a stand-alone document.

The client can remove themselves from the dual agency at any time, and the licensee must allow them to do so. The licensee cannot receive a referral fee for the exiting client without disclosing to both parties.

Legal Pitfalls

A dual agent, Urbance stresses, limits their role in the buying and selling process. Problems arise when, as is alleged in Horiike’s lawsuit, the rules that govern their behavior are breached.

“Trouble might occur when they do not adhere to their [Dos and Don’ts] ‘list,’” Urbance says. “For instance, they share the seller’s confidential information with the buyer, or vice versa. If they are truly dual agents, they must not favor or advocate one client over the other.”

Because of those safeguards, Urbance says there are circumstances where agents should not pursue dual agency. For instance, if an agent is representing a distant relative, the familial relationship might suggest favoritism, should the deal go south. Short sales and sigmatized properties can also prove problematic.

“There is no legal duty to disclose the stigma – i.e. the property was the site of a murder – but if you were to be the buyer’s agent and the licensee knew this for a fact, the licensee would likely disclose it,” Urbance says.