Seller Subagency and Vicarious Liability

QUESTION: I’m the BIC of my firm, and I am considering whether to adopt a new policy that would allow my agents the option of offering seller subagency to a buyer who cannot pay for their own buyer’s agent. I’ve heard that seller subagency has some risks, and I know that this kind of agency is not used very often in North Carolina. Can you give me some insight?

ANSWER: Seller subagency was common in North Carolina until several decades ago when buyer agency became more prevalent. This shift was substantially accommodated by cooperating compensation in the MLS, which is set to disappear in light of the recent NAR settlement.

Seller subagency is one solution to helping a buyer in a transaction, so long as the seller has properly authorized cooperating compensation for the seller subagent’s services and both buyer and seller have consented to seller subagency in writing. The role of a seller subagent is to help the buyer in the transaction, but not with any fiduciary duty to the buyer. Rather, the seller subagent’s fiduciary duty is to the seller, on whose behalf the seller subagent is actually working.

Given the unique role of the seller subagent, it is easy for buyers to be confused about who the seller subagent represents. That is why it is critical that the prospective buyer receive a WWREA at first substantial contact along with a clear explanation of the seller subagent’s duties. In addition to the WWREA, however, Rule .1014(e) of the License Law imposes an additional requirement that a seller subagent disclose their agency in writing so that the buyer will know who the seller subagent represents before the buyer reveals personal and confidential information. These rules together mean that after the NAR settlement rules are implemented this July, a broker may only assist a prospective buyer with locating a property by either (1) having a written buyer agent agreement or (2) a written disclosure to the buyer that the broker will be working with the buyer as a seller’s agent or subagent.

Aside from the risk that a buyer becomes confused about who the seller subagent represents, there is also the risk of vicarious liability. Vicarious liability is a legal theory where one party, the principal, can potentially be liable because of the actions of another party, the agent. In the context of seller subagency, this means that it is possible that a seller or listing firm could be held liable for the actions of a seller subagent.

Together, the risks above may be ones that your firm is willing to accept, but we would strongly suggest talking to your own lawyer and consulting with your E&O carrier to make sure any policy you adopt is in compliance. You will also want to have an in-depth conversation with your seller to advise them on the advantages and disadvantages of paying cooperating compensation to a seller subagent rather than a buyer agent.

Release Date: 4/11/2024