Is Dual Agency Truly a “Bait and Switch”
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
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