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Why Should Realtors have Dual Agency when Lawyers Don’t?

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

dual agents

Why Should Realtors have Dual Agency when Lawyers Don’t?

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.

Among other concerns this is what they say about realtors and the comparison to lawyers:

“Compare to Attorneys

Attorneys possess incomparably superior education and licensing standards as compared to Realtors. 

In addition, attorneys are trained in how to manage conflicts of interest. Realtors are not.

Attorneys must have a post graduate doctorate degree and pass a State Bar Exam in order to become licensed.

They also have a meaningful Code of Ethics that provides substantial and public penalties for infractions.

Even with their tremendous training in agency relationships and conflict management, attorneys avoid dual agency because of the impossible situations it creates.

Licensing requirements for real estate agents are essentially non-existent.  The minimum standard to obtain a real estate license doesn’t even require a high school diploma and an individual can often obtain their license after taking only a 30 hour class on how to pass the exam. 

And their "Code of Ethics" is enforced by peers (competitors) who are members of their trade association and all decisions are kept private.  Licensing laws are typically lax as is enforcement of those laws.

There really is no comparison. Realtors do not possess the necessary training or education to engage in such a complex relationship as dual agency.

Despite the complete lack of minimum standards and the incredible complexity and danger of dual agency, it is now legal in most states for Realtors to practice dual agency. It is typically not legal for attorneys. 

Attorneys run conflict checks to avoid dual agency and have for the most part bifurcated their profession into plaintiff and defendant firms.

Nothing like that system exists for Realtors. We believe that it should.

To make matters worse, Realtors don’t understand dual agency, they have little training in conflict management, and the disclosure forms are misleading and inadequate. 

Consumers don't understand it, are highly vulnerable and typically rely upon their Realtor for skewed and inconsistent “advice” about dual agency. 

And to totally drive the malfeasance home, Realtors are financially encouraged to practice dual agency and fondly refer to the bagging of dual agency clients as a “hogger.”

COMMENT

Well that was certainly a scathing comparison. Underlying it all, there are some good points, but the invective criticism is in my view “over the top”.

Education

In Ontario, it takes about 4 ½ years to be called to the bar after initial entry to law school. The pre-requisite is two years of university, but most will have either 3 year or 4 year Bachelor degrees and many will hold Master’s degrees (another year or two). So, all in all, after high school that’s about 6 ½ to 10 ½ years of education.

In Ontario, for prospective real estate agents there is now a minimum requirement for the completion of high school. That is quite new and has applied only to about 1,000 recent entrants out of the 60,000 plus registrants.

If an applicant is 18 years of age, then an admission examination may be taken in lieu of the high school diploma requirement. There are a series of programs which can be completed on a part time basis in order to become registered. They can be taken in class, by correspondence or online. No actual attendance is required in class, other than for the purpose of writing the examinations. The program will take about 4 months to complete, and somewhat longer if the student has limited time available.

The mathematics component of the program would be the equivalent of about a grade 8 mathematics course.

Code of Ethics

In Ontario, a real estate agent must be registered with the Real Estate Council of Ontario (RECO). This is an independent licensing body which oversees, regulates and licenses real estate practitioners. It fulfills a consumer protection role and handles complaints and discipline in respect to its members. A trade association which is voluntary would be the Ontario Real Estate Association.

The Code of Ethics is a regulation under the Real Estate and Business Brokers Act, 2002. Fines of up to $12,000 are often issued. Prosecutions are taken in Court for more serious matters.

The Law Society of Upper Canada performs a similar role in respect to lawyers, referred to as Barristers and Solicitors. Both professions are highly regulated and it would be unfair to say that there are minimal penalties for ethical transgressions.

Decisions made by RECO are published on its website and available to the public. In my view, licensing is strict and enforcement is strict.

Complexity of Dual Agency

It would be reasonable to acknowledge that dual agency is a somewhat complex subject matter. As for “would be” real estate agents, the entire matter of agency, and multiple representation occupies a good deal of the 4 month pre-registration program. When it comes to the legal profession, basic contracts is required, but agency, arbitration and mediation are electives. Agency is covered under the contracts course.

It is true that dual agency is difficult. In fact, it appears to be rather poorly explained in many documents. As for the complications of handling difficult issues, there are 3 hour continuing education courses available. The problem is that not everyone takes them.

Strictly speaking, in litigation, there are no double representations of actual parties, but there are still conflicts. A lawyer appointed to defend a party by his own insurer may have issues related to coverage under the policy and the like.

In business matters, potentially there are many possible conflicts which are often ignored because each of the parties is not prepared to retain their own lawyers independently.

Fundamentally, the issue seems to be the role: advocate or mediator. If an agent is acting as an advocate, that can only be done for one party. Not two, ever. No exceptions! However, in the mediator role, the agent performs a clearly different service. The agent goes back and forth between the two parties attempting to strike a compromise. Lawyers do this all the time. And essentially, this is no different for real estate agents fulfilling the mediator role as dual agents or acting under multiple representation.

The issue is truly the explanation and informed consent.

It’s not rocket science, and while lawyers do possess other education and training, not all that extra time is spent on this issue. Within 2 to 3 hours most mature adults with common sense will be able to understand, appreciate and explain the concept.

Conflict Tests

Large law firms have an organized system to track and identify potential conflicts among clients. Smaller firms, often handle the matter simply by awareness and discussion among the few partners and practising lawyers.

In my experience, real estate brokerages have incorporated no such systems into their operations. Conflicts could easily develop which are unknown to the brokerage.

On the other hand, individual agents always know whether there is a conflict, and they always know whether they might be requested to provide services to the buyer and the seller in the same transaction. So here, the radar goes up. The agent explains the mediator role and if both parties accept it, then the matter moves forward.

The elaborate system of some brokerages acting only for sellers and others acting only for buyers seems to be a rather simplistic, inelegant and unnecessary solution.

Real Estate Agent’s Knowledge

The consumer group argues that real estate agents:

1)     don’t understand dual agency,

2)     don’t have training in conflict management, and

3)     offer misleading and inadequate disclosure forms.

Well, anyone can understand dual agency, but it will take a couple of hours. Real estate agents have the same training in conflict management as lawyers. None! It’s not part of either mandatory curriculum. So, both acquire this knowledge through experience and/or continuing education on an elective basis.

Now, I am quite prepared to admit that any so-called disclosure forms that I have seen are wholly inadequate.

Consumer Knowledge

Not only are the forms and written explanations inadequate, but so are most of the explanations that I have heard. And, I have heard hundreds of real estate students try to explain agency and multiple representation, all with substantial difficulty. So, pity the poor consumer!

And “yes”, the consumer is relying upon the agent to explain and the documents offered are far from satisfactory and require a comprehensive explanation. To that extent, they may not receive it from their own agent, unless that agent has taken some additional steps to create their own material.

I would certainly agree with the consumer group that the advice out there has been “inconsistent”.

Financial Incentive

There really should be no particular financial incentive to dual agency. In fact, handled properly, it is far more complex than a simple transaction. Actually, there is a financial disincentive to dual agency, not the other way around.

To a large extent it is this failure to value the service performed and failure to understand the service model in the first place which in my view is at the heart of the issue.

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

 

 

 

 

Comments (8)

Leslie Prest
Leslie Prest, Prest Realty, Sales and Rentals in Payson, AZ - Payson, AZ
Owner, Assoc. Broker, Prest Realty, Payson,

I don't like lawyers, I don't want re agents to be more like lawyers, I blame a lot of what is wrong with our country on people imitating the adversarial win-at-any-cost lawyer behavior; and we DO practice dual agency!

Jul 28, 2011 06:51 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Leslie,

The adversarial approach is not always the best way to strike a deal.

Brian

Jul 28, 2011 06:57 AM
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Brian,  Interesting post and marrative.  I'll resist the temptation to rebut each point but a few certainly come to mind when comparing agents and attorneys ! 

The most interesting issues for me were as follows:

1. Lack of formal training in " agency ".  I agree.   Lets have this become a significant part of the training process.

2. Conflict of interest.  I agree again.  Nothing says this couldn't be handled in the existing training.  Or, why not an advanced designation which would allow agents to practise dual agaency ?

Just sayin'

 

Jul 28, 2011 07:24 AM
Chris Smith
Re/Max Chay Realty Inc., Brokerage - New Tecumseth, ON
South Simcoe, Caledon, King, Orangeville Real Esta

Brian, often and only if both parties are willing, when I am entering into a dual agency, I bring both parties to the same table, and act as a mediator in the negotiations.  In every case, both parties have been happy with the outcome and feel that I provided a valuable service.

Jul 28, 2011 12:25 PM
Malcolm Johnston
Century 21 Lanthorn Real Estate LTD., Trenton, Ontario - Trenton, ON
Trenton Real Estate

Realtors are financially encouraged to practice dual agency and fondly refer to the bagging of dual agency clients as a “hogger.”

I have never heard of that expression before.  These reports by CAARE are very unprofessional and not in the least objective. Is Melanie Aitkin moonlighting as a ghost writer for this group?

Jul 29, 2011 01:55 AM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Bil,

I agree, a little more training and experience would be appropritae.

Chris,

I think this makes a lot of sense.

Malcolm,

They are out of Minnesota. They have legal advice. However, their business acumen seems lacking.

Jul 29, 2011 02:23 AM
Larry Estabrooks
Independent Real Estate Agent - Moncton, NB
100% representation means NEVER DUAL AGENCY !

Brian, There is a huge lack of training, a total disregard for the concept of agency and an unbridled misuse of the term "agent". Salespeople are not agents. You know this to be true.

Chris, a salesperson, cannot enter into any kind of agency relationship. In real estate, the agency relationship is between the client and the agency / brokerage.

Jul 29, 2011 10:53 PM
Brian Madigan
RE/MAX West Realty Inc., Brokerage (Toronto) - Toronto, ON
LL.B., Broker

Larry,

You are quite right. In Ontario, the term "agency" was replaced with "representation" in the new Act which came into force on 31 March 2006.

However, the public in Ontario is exposed to information over the internet, which essentially means they will have a lot of incorrect information about agency.

I might do a series on the topic. I think that would be a good idea.

Brian

Jul 30, 2011 03:01 AM