Special offer

Is Dual Agency Truly a “Bait and Switch”

By
Commercial Real Estate Agent with RE/MAX West Realty Inc., Brokerage (Toronto)

dual agents

Is Dual Agency Truly a “Bait and Switch”

Ontario Real Estate Source

By Brian Madigan LL.B.

A consumer association in the United States known as “CAARE” otherwise known as “Consumer Advocacy in American Real Estate” is rather opposed to the concept of dual agency.

This is what they say:

“Dual Agency is the Ultimate "Bait and Switch."

Dual agency is when real estate agents claim to represent both the buyer and the seller on the same transaction, creating an impossible conflict of interest.

It is branded (even marketed) and legalized under different names depending on the state. It is often misnamed designated agency or facilitator.

Despite attempts to distinguish these terms, they all end up meaning the same thing – legalized fraud.

Although the term “dual agency” seems to infer an important fiduciary relationship, dual agency is in fact no agency at all.

Or more accurately, dual agency is a betrayal in which your agent becomes a secret double agent working for the other side.

Bait and Switch

Dual agency is potentially one of the worst “bait and switches” possible because it involves the “switch” (abandonment) of a trusted advisor and advocate.

Even with disclosures, consumers rarely expect the change in relationship that comes with dual agency and they are almost never prepared for the complete abandonment that defines dual agency.

And despite the degradation in the level of services in a dual agency situation, the client still pays full commission in a dual agency.”

COMMENT

Dual agency is “when”. No, it’s not, that’s just about the worst grammar that one would find on the internet, but I don’t wish to be unduly critical about their position or their arguments.

In all fairness they do raise a good point about the conflict of interest. I would be hard-pressed to say that it is “impossible”. They do not appear to be clear on that point.

However, one matter for sure, there is, in fact, a very clear and irreconcilable conflict of interest.

The branding, marketing and legalization, as they describe it, is referred to as “multiple representation” in Ontario. It is authorized as an appropriate legal practice under the Real Estate and Business Brokers Act, 2002 and the Regulations. The Act is clear and upfront about the practice. It is not secretive or surreptitious.

Consumers are to be informed, and their informed consent to multiple representation is required before proceeding with this particular “service model”.

They argue that it is misnamed “designated agency” or “facilitator”. This is true to some degree. However, there should be a new name. The role is different and I would certainly say that it is much like the role of a “mediator”, rather than the role of an advocate.

The consumer group misinterprets the concept of agency. They say, it’s no agency at all. However, that is not quite correct.

At common law, the duties of agency are: disclosure, competence, obedience, confidentiality, accounting, and loyalty.

Agency Obligations at Common Law

The law of agency developed thousands of years ago and eventually found its way into the common law inEngland. There are some fundamental and basic principles which include the obligation of the agent to offer to the principal:

1) Disclosure. The agent is under an obligation to keep the principal informed and to disclose any material and relevant matters to the principal.

2) Competence. The agent is under an obligation to be competent in his profession, and to inform the principal that there are matters beyond the agent’s expertise.

3) Obedience. The agent is subservient to the interests of the principal. The agent is to follow the reasonable and lawful directions of the principal, carrying out the principal’s instructions. The agent is to act in the principal’s best interests and not his own.

4) Accounting. The agent is to account for monies received and disbursed. Payments of any kind or nature, direct or indirect are all for the benefit of the principal. Funds are received as a fiduciary, and are to be disclosed and remitted in full to the principal. The agent is the intermediary between the principal and third parties. The agent is not a third party contractor but rather the person who brings the principal and third parties into a contractual relationship.

5) Confidentiality. The agent is to maintain the privacy of the principal and matters that are of a private nature are to remain in confidence. Information provided to an agent is received in a fiduciary capacity and is not to be disclosed without authorization by the principal.

6) Loyalty. An agent is to offer loyalty to the principal. Once engaged in a fiduciary capacity, the agent must place the interests of the principal above his own, must not entertain the interest of others, including himself above that of his principal.

Each of these duties are separate and distinct obligations and vary somewhat in their application and interpretation depending on the nature of the agent’s profession and the actual agency agreement.

Common agency arrangements today include attorneys, trustees, solicitors, barristers, doctors, accountants, financial agents and real estate agents.

Needless to say, not all of these duties and obligations can be fulfilled is what might be referred to as the “dual agency” service model Accounting is straightforward. But, the other duties require some modification. This is not unlike lawyers dealing with two clients at the same time who may have similar interests, but fundamentally, at a different level they may not. Consider a husband and wife buying a cottage. They both want good title and the deal to close, but they may not have the same view when it comes to location, spending time there or leaving it to their children. The lawyer is not under an obligation to resolve all these issues. The lawyer simply takes the limited agency role, acts for both and lets them sort out the other issues themselves.

In a similar way, real estate agents can operate under a very limited agency role. However, it must be clear and upfront and known to all.

So, while it’s not exactly “no agency”, it is certainly “limited agency”.

However, to describe the arrangement as “legalized fraud” is outlandish, objectionable, and irresponsible.

Then they argue that dual agency is a betrayal, and your agent becomes a double agent working for the other side. First, there was an explanation, then there was informed consent, and that permission to act can hardly be considered to be a betrayal. And, why would the thought be that your agent would be working for the other side rather than you?

In any event, the role here transforms from advocate to mediator. The mediation role is well-known particularly in the field of labour relations. Most mediators are lawyers who are trained both as advocates and mediators. The lawyer in the middle will be a mediator, expects to be a mediator, and all parties know and expect that he will be a mediator. There’s no surprise, and he’s not tricking anybody.

And, to some degree as a mediator in labour relations, he still fulfills some basic agency duties, much the same as a realtor would when acting in the dual agency role.

This consumer group classifies dual agency as a bait and switch. But, this view overlooks the matter of consent. When the time arises, the seller MUST CONSENT. No consent, then the buyer will have to find someone else.

Sometimes, someone in the mediator role can bring the parties together better than two adversarial advocates both trying to out-negotiate the other. Oftentimes, these deals get done, while the advocates, both reluctant to “give in” will walk away from the deal.

Yet, in the next paragraph, this consumer group acknowledges “the disclosures”, but rather than admit that they agreed, hold onto the concept that an adversarial advocate is the sole and only approach and very much in their best interest. This is wrong, because mediation has worked effectively and successfully in other fields.

This consumer group seems to be annoyed that the agent receives double the commission. However, there are two deals here, the selling or listing end and the buying end. Why not pay one agent full price if the deal gets done? After all, the deal got done and that was the objective.

In my experience, the overall commission is often reduced in dual agency or multiple representation situations. Nevertheless, in most cases, if the deal is properly put together, there is more work, not less work for the agent.

Yes, that’s right. In order to properly handle the mediator role effectively and discharge one’s legal responsibilities, the agent must do more work, provide more disclosure and create more documents than if another agent advocate were involved.

While this consumer group made many good points, it undermined its own criticism:

1) by failing to appreciate the laws of agency at common law,

2) by failing to recognize that the parties must both consent, and

3) valuing the role of advocate much higher than that of mediator.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com

 

 

 

 

Ellie Shorb
Compass Real Estate - Chevy Chase, MD
Realtor DC, MD & VA Luxury Home Expert

I always say that each party in a transaction deserves his/her own representation. I totally agree and have seen people miss out on critical advice when they don't have an agent in their corner.

Jul 26, 2011 03:01 PM
Marilyn Boudreaux
Marilyn Boudreaux, Century 21 Bono Realty - Lake Charles, LA
Lake Charles LA Century 21 Realtor

We have Dual Agency in Louisiana I think it is a conflict of interest.  Many agents survive on dual agency I think it is best to have someone else in the office represent the buyer on your listing, if you do participate you must walk a very straight line and adhere to all the ethics above you mentioned.  You gotta pick the team you represent

Jul 26, 2011 03:04 PM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

The biggest problem is that the possible conflicts are not discussed up front and the seller or buyer have no  idea what it really means.  By the time they are in a dual  agency the seller wants to sell and the buyer want to buy and now both are on their own.  If there really is INFORMED consent, then I am fine with the concept if the buyer and seller agree with full knowledge.  I doubt many agents really give one of the parties the option of being referred out and having representation.. and still paying the co-broke fee.

Jul 26, 2011 03:13 PM
JodiAnn Garone
Century 21 Action Plus Realty - Freehold, NJ
Bringing you Home!

Brain,

Great post, thank you for sharing it with us. I would to say that I am an ABR- Accredited Buyers Representative and have never felt comfortable working as a disclosed dual agent as we call it here in NJ.

What I do to avoid this conflict is advise the sellers when I take a listing that I will not work on both ends. I explain that if I do get an interested party I will pass them on to another agent to work with them. That way I don't feel like I am in the middle and that I really don't know the buyers information.

 The only issue I have at times is that the buyers don't want to work with another agent because they feel they will get a better deal if they go through the listing agent.

Not true but it is what many buyers think... Go figure, I try to be as fair as possible but some folks are just never happy..lol 

JodiAnn

Jul 26, 2011 03:18 PM
Hella Mitschke Rothwell
(831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker

We have dual agency in California as well. In many cases it can facilitate a sale as long as the sales price is not an issue ie. the buyer knows what he wants to pay. In all other aspects, the dual agent has to be "fair to both sides" equally.

Jul 26, 2011 03:22 PM
Sheri Cambareri
Village Properties of Mineola, LLC - Mineola, NY


Thanks for the great tips-I am just starting out with this whole blogging thing and can use all the help I can get.

Jul 26, 2011 03:42 PM
Kathy Clulow
Uxbridge, ON
Trusted For Experience - Respected For Results

Brian - There is much that is different in how real estate is practiced in various jurisdictions

What some of the commentors here may not realize is under our rules regulations etc they are talking about dual agency when someone not just in the same office but any office within the same company acts for the buyer and the seller

Jul 26, 2011 04:44 PM
FN LN
Toronto, ON

Hi Brian - It would be much more difficult to practice real estate if the law did not allow multiple representation (previously known as dual agency), especially in areas where certain brokerages have a very large number of agents practicing.  In many cases, you only know a few of the agents in a large brokerage with multiple offices or a very large single office.

Jul 27, 2011 02:04 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

One problem is that the concept is not explained very well and often the agent has sought the listing extolling their own virtues as a negotiator.

If they are going to end up as a mediator, then how good are they at that?

Jul 27, 2011 02:24 AM
Bryan Robertson
Los Altos, CA

Great article, Brian.  I NEVER allow dual agency.  If I get a buyer lead on a listing of mine, I refer it out so that the buyer has a professional to advise them during the negotiations.  If I'm doing dual-agency then I can't really perform at my peak for either party.  The only conditions I would ever see being a dual-agent is if the buyer and seller are in agreement (generally) on price and both are sophisticated enough to not need my advice.

Jul 27, 2011 02:59 AM
Malcolm Johnston
Century 21 Lanthorn Real Estate LTD., Trenton, Ontario - Trenton, ON
Trenton Real Estate

Brian, this is a great commentary on CAARE's rather ill thought-out position.

I actually completed a deal last month that would NOT have worked unless it was dual agency simply because I could reduce my commission enough to make it fly. The seller was at the bottom end of what she needed and the buyer was at the very top end of what he could pay. This house had been on the market for a long time and there were a few problems with it, so a cash buyer was needed. If another agent would have been expecting to get paid out of the deal, they would have been out of luck.

Jul 27, 2011 07:16 AM
Anonymous
Joel Stern

The discussion thus far has been mainly theorotecal, without the hard facts and figures to conclusively prove the merits of one argument or another in favor of or opposed to dual agency. My own experience back in 2005, when I hired a so-called presumed buyers agent working for Weichert Realty of Maryland to find me a house of choice, provides a real-life graphic example of the harmfulness of this practice. The presumed buyers agent in question switched roles to become an agent of the seller (whose property was also listed by Weichert Realty) without my informed consent; indeed, the seller of the house of choice himself was unaware that she had become his representative. The mandatory disclousre form was never submitted to me. When I sued Weichert for beach of fiduciary duty, I lost my case because the Maryland Court of Special Appeals ruled that statutory viiolation of the Maryland Brokers Act CANNOT be grounds for a civil lawsuit but can also be the subject of a complaint to the corporation-friendly state real esate commission. From what I have learned from numerous consumer advocates over the past six years, my expeirnece was by no means a random aberration but typical of the victimization of countless home buyers and sellers by the deceptive practices of the NAR.

A further point: Surveys conducted by the NAR itself over the years have indiicated shocking failure by great majority of agents to provide the mandtory disclosure forms stipulated by the laws of their respective states. If agents are either too incompetent or unethical to fulfill fundamental ethical obligations vis-a-vis their clients, why should the practice of dual agency be allowd to continue?

A second point: Are you all thoroughly conversant with the disclousre forms of your states? Do you really believe that the average client witho9ut a background in law, business, or real estate can fully comprehend the trugid legalese that characterizes such documents? Are you absolutely sure that agents can understand them or explaint them to their untrained clients? If niether the cleint nor his agent can understand or explain these forms, how can dual agency be practiced in a fair and competent manner?

If anyone is interested in my own lawsuit and its ramifications for consumer protection in the housing market, you can Google my name "Joel Stern", then "Weichert"; you'll find many hundreds of websites and blogs that cover this issue in more detail.

Sep 25, 2012 12:26 AM
#13
Chuck Marunde
Sequim & Port Angeles Real Estate - Sequim, WA
Sequim Real Estate Broker

Brian, as a former real estate attorney and now real estate broker, I've seen the practical implications of dual agency for the consumer.  Here's how I like to describe the conflict in simple terms:

Imagine a real estate agent listing a property for sale.  He owes that seller a legal and fiduciary duty, which means he has essentially said to that client, “I hereby promise to get you the highest possible price.”  Now a buyer drives into town, calls off the sign and wants that same agent to write an offer.  The same agent owes the buyer a legal and fiduciary duty and is saying to that buyer, “I hereby promise to get you the lowest possible price.”

I've written several articles on dual agency, which are available at http://www.sequim-real-estate-blog.com/exclusive-buyers-agent/buyers-agency/

Sep 25, 2012 02:37 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Chuck,

Thanks for stopping by. I don't think that this issue will go away, anytime soon.

Brian

 

Sep 25, 2012 06:25 AM
Doug Miller
Consumer Advocates in American Real Estate - Minnetonka, MN

This is Doug Miller, the Executive Director of CAARE.  I am a real estate attorney, a Real Property Law Specialist, certified by the Minnesota State Bar Association and have been involved in numerous class action law suits, including the summary judgment against Edina Realty in 1992 for undisclosed dual agency.  I also hold a real estate brokers license, I've spoken before Congress etc...   I am qualified to discuss this topic.  

First, thanks for the grammar lesson.  I had someone change the post to read, "Dual agency occurs when..."   I think that may be the only part you got right about dual agency.

What few of you understand is that dual agency is legal only in real estate.  The other professions (that actually have entry standards and real continuing education standards) only allow dual agency in extreme situations and then it is still frowned upon.  Dual agency is legal in real estate only because you have a powerful lobby group and because it is profitable for real estate brokers.  And those laws were set up to stop class action lawsuits.  They do not protect you against individual violations.  Dual agency is only legal if you follow the law.  

Once you mess up your disclosures or violate the dual agency law in some other way, your statutory protections go away and the common law of agency applies.  And I guarantee you that most of you violate the law in every dual agency transaction that you do.  I've looked at enough purchase agreements and talked to enough consumers to know.   I've attended enough real estate continuing "education" classes to know that more than 90% or more of you don't have a clue how to deal with dual agency if it comes up.  In fact, most attorneys feel that the disclosures necessary to properly conduct a dual agency transaction in any profession are so complex and so unique to each situation that no one can do it routinely.

There are more than 200 years of common law on the idea of serving two masters and how it is simply impossible in almost every situation.  I've researched this law and can tell you that just about everything you said in your post is incorrect.

You can't go from being an agent to being a mediator.  That's a bait and switch.  It is abandoning your client when they need you most.  Even NAR's surveys indicate that two of the three most important things to a homebuyer are that their agent negotiate price and terms.  Sorry, can't do that in a dual agency.

And dual agency is not a form of agency.  It is a form of betrayal.  Of course you still owe all those fiduciary duties, but go ahead and try and fulfill them in a dual agency transaction.  That so called agency is an empty promise.  Real estate attorneys that we've talked to indicate that they believe that most dual agency transactions involve fraud and such serious breaches of fiduciary duty as to actually render the transactions voidable.

I could go on and on.  However, one thing I have learned from these blogs is that so few agents understand dual agency yet they are perfectly willing to argue about it.  If you want to debate this topic, than provide me with facts and law to back up your position.  

I am happy to provide facts and prove them up.  However, first I would like to see an honest interest in fact finding and a willingness to accept that you might be wrong.  To date, I have yet to see that on this topic.

And Malcolm, the transaction would have worked fine if both brokerages reduced their fee.  In fact, some day we should talk about the fact that brokerage fees are negotiable - and that means for buyer brokers too.  There's a great Department of Justice website on the topic.

Sep 25, 2012 08:50 AM
Chuck Marunde
Sequim & Port Angeles Real Estate - Sequim, WA
Sequim Real Estate Broker

Doug, my website does not say I am an attorney.  It says, "Chuck Marunde has been a real estate attorney (20 years), an escrow officer who closed 100′s of transactions, and a real estate agent starting in the ’70′s."  All of that is written in the passive past tense.  Had you viewed more of my videos and articles you would have repeatedly heard that I was a real estate attorney for 20 years, also in the past tense.  You would have seen testimonies from clients which referred to that past experience.  By the way, all of my clients know I am retired as an attorney.  Wherever I have a signature that includes reference to attorney, it always includes "(Ret.) after that title.  In my email signatures, I rarely even reference the attorney.  Here is my signature:

Chuck Marunde, J.D., Broker
Sequim & Port Angeles Real Estate, LLC
(Address and Phone Number included here)

Apparently Doug, you are more interested in going after Realtors and trying to make them look bad.  I appreciate you're post about dual agency, and I agree with much of it, but may I suggest you buy "How to Make Friends and Influence People?"
Sep 26, 2012 04:39 AM
Doug Miller
Consumer Advocates in American Real Estate - Minnetonka, MN

Hi Chuck.  My apologies, I think you may need to update: http://freerealestatelaw.com/ .   I've seen people refer to themselves as "almost" lawyers in the past and a lot of times they lost their license for good reason.  Not the case with you obviously.   I see you refer to yourself as retired later in the page.  I'm guessing you just missed this spot.  Here is the title from that page: "Sequim Real Estate, Sequim Homes and Land

The Online Answers for Retirees Buying a Home in Sequim
Sequim Real Estate Attorney and Broker Chuck Marunde, J.D."

I

Sep 27, 2012 04:32 AM