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Dual Agency is Illegal and It Should not be Practiced!

SOME STATE DO NOT ALLOW DUAL AGENCY, BUT WHAT IS THE PRACTICE?

We have been having a discussion on my blog on Right or Wrong? Dual Agency and it has been discussed that it is illegal to practice "Dual Agency" in some states. I would like to open up this blog to the discussion on how the practice of real estate is performed in the states that do not allow "Dual Agency". I am from California and we have "Agency" and can practice "Agency" with either buyer or seller or represent both parties in a transaction under "Dual Agency". The "Agency Relationship" needs to be disclosed in writing as to the duties and responsibilities an agent has to their clients. We also need to confirm the relationship when a transaction is entered into in California.

But, I would like to know what is the practice in states that do not allow "Dual Agency".

What disclosures need to be provided?

How do you handle fiduciary responsibility with a client and what is your responsibility to a customer?

How do refer a customer to another agent from another firm to represent them? And, are you able to collect a referral fee?

What are the pros and cons to this practice?

I know that each state has different laws and rules so I would like to have some of these topics discussed here in this blog.

See other blogs associated with these topics provided by myself and other members in Active Rain:

Right or Wrong? Dual Agency

What do you do? When a buyer ask you to show your listing.

(If you would like to have a link to your blog about "Agency" and other related topics, give links in comments and I will post it to this main blog if it applies)

Posted by Ernie Cabrera, CEO, REAL ESTATE AMERICA - REA on 11/18/2007 01:19 AM

Comments (34)

dual agency, agency, real estate agency relationships, real estate practice, rea, real estate america, realtors, mls, ethics, rules, disclosures

This post has been included in California Information Sacramento County, CA Information Folsom, CA Information

34 Comments on Dual Agency is Illegal and It Should not be Practiced!

NOV

2007

Ernie, I have blogged on this one before. Even though it is allowed in Virginia I do not do dual agency, it seems like a conflict of interest to me...

I used to own a company in southern Cal called Real Estate of America. :)

You know, I rarely practice dual agency, but sometimes it comes up. For example, couple months ago the seller of a home I had listed negotiated directly with the buyer next door and asked me to represent both of them. I basically coordinated the paperwork, because that's about all one can do in a situation like that. You can't look out for the seller's best interests at the same time you are protecting the buyer's.

You asked for a link, so here is an article I have written about dual agency for About.com:

http://homebuying.about.com/od/realestateagents/qt/92807_DualAgncy.htm

Ernie,

I have done only twice in 9+ years of Real Estate life.

I have a basic issue as to whether you can truly represent both sides of a transaction fairly. Again I have had the opportunity only twice an dboth time bot parties were well on board with the process.

Charles, I totally understand and respect your conviction and point of view on the matter of Dual Agency. I would welcome the links to your previous blog for us to refer to. Thanks for stopping by and commenting.

Elizabeth, thank you for your link, I read your article which was well written. I don't do dual agency very much myself, but I am careful to explain it to my clients when I do to make sure they understand how it works and what I can and can not do. I find many clients do not mind it all that much as long as they can find a fair price because the sale of the home or the purchase of the home is more important to them.

Are you familiar with the practices in other states where dual agency is not allowed? I would like to know what is the practice in those states. What is the difference if there is one?

By the way, how long ago was it when you had the company in Southern California? My father had started our company about 29 years ago in the San Francisco Bay Area.

Dan, what is the law in PA on dual agency? Per your comments, it is allowed there, but what is the practice?

I know it is a balancing act that can be difficult, just as you had mentioned it really works when both parties are well on board with the process. Thanks for your comments!

NOV

2007

Good post Ernie, I would be interested to see what is done in those states as well. My very first transaction was a dual agency situation and it scared me half to death! I ended up referring the buyers out mainly because they wanted to treat the transaction as a 1031 exchange. The transaction didn't qualify but they wouldn't believe me for anything or believe any of the experts on 1031 I referred them too. So for that reason I referred them...

Anyway, at that point in my career I hadn't even decided if I agreed with it. It seemed like you'd be shortchanging the clients so unless everyone was getting what they wanted from the beginning, it didn't sit well with me.

I work in PA and we practice Dual Agency. It has to be disclosed and we can't advise either client, we're basically reduced to a messenger.

Hello Ernie, i Fla there is no dual agency, but you can choose to be a transaction broker in which both sides agree, from the beginning, that the Realtor is only there to process the transaction. I wrote a post about it in Oct where I said Never Again. I don't believe anyone can adequetly handle both sides if there is an issue. There is always an undercurrent of "who is he really representing?"

I feel that if the situation comes up again, and I end up with both sides, I will give one side to an agent in my office to handle for me, and I will take a referral. I like being able to "take sides" and work the best deal I can for one client...........My 2cents........Mike

In Ny Dual Agency is allowed. I personally don't like the concept, I think it could lead to both buyer and seller distrusting the agent.

Ernie--

Thanks for the post on such an interesting topic. It may be helpful to make a distinction between dual agency and the individual real estate agent serving as a dual agenct in a given transaction. I work for a large broker in Maryland with over 200 offices spread all along the Eastern Seaboard and 16,000 agents. In my experience dual agency occurs frequently because of the role of the broker. Most clients are familiar with the company's size and reputation and do not have a problem with dual agency once it's explained.

For my own listings, my office is large enough where I can refer it to another agent or have my office manager designate another agent to handle one side of the transaction. This is my preference, but there are several agents in my office who have successfully served as a dual agent -- individually serving as the representative for both the buyer and seller in a single transaction. In my opinion, this is a fine line to walk and there is too much potential for conflict.

Ernie - another great post. Thanks to you and some other AR members, I have finally garnered up the courage to make my own first post on Power Point Presentations. Thank you for giving me faith in my voice and going out on a limb.

As for you, your voice is one that shows great knowledge, compassion and support.

Continued Success!!

NOV

2007

Ernie, good post! This is very interesting to read. I like your other blogs that pertain to this too.

Linda, I saw your new blog. It look great with great information.

NOV

2007

Ernie: It is legal in NC, but I think that most people should not practice dual agency. There is too much that can go wrong unless you are absolutely certain to handle the transaction properly. I do it...but I don't allow my agents to do it. I've seen some horrible cases of people really making a mess of others' lives. NOT FAIR. Thanks for opening the conversation...really important issue.

Happy Thanksgiving!

NOV

2007

Elizabeth, I agree it could be a problem if an agent does not understand fully how it works and what is the correct practice. I appreciate you commenting here! I will note that NC is a dual agency state in my other blog on Right or Wrong? Dual Agency where I am tracking which states allows or dis-allows dual agency. Thanks!

Ernie: Arizona allows dual agency with disclosure. It is useful in a foreclosure situation where the seller wants as little publicity as possible.

Mike in Tucson

Virginia allows dual agency with disclosure to all parties. I have not had the opportunity yet. So far I have always represented the seller and had the buyer as a customer. Its the old fashioned way of doing business.

Mike, I appreciate your input! It is a good point that in foreclosure situations the seller wants as little publicity as possible. I could see that being the need or desire of the seller more than the price in "short sales and forclosures".

Gene, thank you for making your experience and thoughts know here. I think representing one side of the deal is more common in most states. I am not sure how agency works in Virginia, but in California, our client is where we have a fiduciary responsibility to them and our customer, we do not have fiduciary obligations. What is the practice there?

I will post state info on dual agency in my other blog. Thanks again!

In Florida they outlawed dual agency about 10 years ago. I never quite understood why it was ever allowed. We now have what is called a "transaction broker" relationship with customers by default. It is still a fine line if there is only one Realtor in the transaction.

Transaction broker means there is no fiduciary relationship with the parties. The statutes have a specific list of duties of what is required of us and what info is considered confidential. I try to stick what it says in the law and just act as a neutral party (like a closing attorney does) between the buyer and seller if I am double dipping.

Rob, thanks so much for that information. I have been wondering how it is practice there. Your comments have helped me understand the issue a little bit better. I understand that there is no fiduciary relationship, but does that help the buyer/seller or us as agents? It still seems to me that the actual practice is similar even though the laws are different?

I'm glad dual agency is still legal in Washington. This way I can set myself apart, by having a policy never to practice dual agency.

Sandy

Sandy, thanks for your comments and thoughts! Best wishes and much success on this Thanksgiving morning!

I am told via continuing education classes that transaction brokerage serves 2 purposes. (1) By not having fiduciary duty, it eliminates some liability and legal responsibility that brokers owe to customers. (2) It protects consumers in that they are not liable for any errors or mis-statements of the broker because the broker is not their fiduciary and thus does not legally represent them.

From the time of Adam and Eve until many years after MLS was invented, most real estate people represented both sides of the transactions represented by their listings. It worked fine. MLS changed that. Prospects preferred to work with one agent who could show them the listings of all. But MLS didn't come along to rid us of dual agency.

It amuses me how many agents put their name/phone number riders on the For Sales signs. If they don't consider working dual-agency, then their name/number purpose is not to sell the house but to attract more listings. That's a bit too close to the unethical line for me.

Meanwhile, a prospect calls them from the number on the rider....she wants to see the listing. Now what? The agent shows her the house but discourages her from buying that one, then showing her others that are not the agent's listings...all in the name of No Dual Agency? What if she insists on buying your listing...the one she originally called you on?

Why don't agents make deals among themselves? You let me put my riders on your listings and I'll let you put mine on yours? At least the listing client would be honestly represented, and the listing agents would be more likely to answer their phones.

Finally, I've never had any trouble practicing dual agency.

NOV

2007

Bill, just because I show you my listing and sell you the house doesn't mean I have to do dual agency. Any new home site you go to here in Virginia without your buyers agent and purchase a home, that site agent is doing the same thing as the listing agent. The only time it gets into dual agency is when the listing firm is the same as the selling firm. My seller is my client and my buyer is the customer. Are they being treated fairly, absolutely. Are they being represented? Absolutely not but that is their informed decision not mine. Same thing if I go and and sell my buyer an "Unrepresented Seller's" (FSBO) home. I represent the buyer and the seller is a customer.

Of course, as a lawyer, I'm programmed to hate dual agency. An old REALTOR friend of mine used to say, "Dual agency is no agency at all!" There are lots of problems with dual agency. I teach courses on it for broker continuing education here in Minnesota. Here are some of the difficulties:

1. Many salespeople don't understand when it arises. Everyone knows if a single salesperson represents both the buyer and the seller, then there is a dual agency. But under Minn. law, and the law of many other states, if two salespeople in the same firm represent the buyer and seller, even if the salespeople are in offices 150 miles apart and have never met each other, then there is a dual agency. (I like designated agency as it exists in some states - notably Nebraska.) It's also possible for the listing broker to show an unrepresented buyer her listing, in which case the listing broker is the seller's agent, but does not have to represent the buyer. (I argue below that it may be a breach of duty to the seller to try to represent the buyer in that case.)

2. Salespeople ignore the limitations in the multiple salesperson dual agency. Where one firm, but two different salespeople, is representing both buyer and seller, they often ignore the fact that there is a dual agency. Each continues to advise her/his client as if in a single agency situation. (In other words, they behave as if there is designated agency - only we don't have designated agency in Minn.)

3. Salespeople ignore the limitations in the single salesperson dual agency. Where a single salesperson represents both buyer and seller, they often provide advice that is inappropriate. We teach salespeople that once a dual agency arises, they may no longer advise either buyer or seller regarding price, terms, or motivation of the other party. Salespeople frequently admit to me in classes that when they act as a dual agent, they will advise a seller whether to counter a buyer's offer (clearly crossing the line). If they are willing to admit going this far in class, I wonder what they really do out in the real world.

4. Salespeople practice it when it's unnecessary. I told the story in my first blog post about Salesman Steve (http://activerain.com/blogsview/225333/The-Extra-Ordinary-Story) of the listing salesperson, who when confronted by a buyer who had no buyer rep, immediately offered the buyer a buyer rep agreement, which would have created a dual agency. In that case, the listing salesperson could simply have disclosed to the buyer that he was representing only the seller. The listing salesperson would get no advantage from being a dual agent as opposed to being only the seller's agent. The buyer would have gotten hardly any benefit. And the seller is actually harmed. Why? Well, the seller's salesperson put himself in a position where he could no longer fully advise the seller, entirely unnecessarily. As the seller, I would have been pretty pi$$ed.

5. Short-changes the consumer. Consumers do not understand agency disclosures (often because salespeople do not understand them). At the beginning of the relationship, they sign off on the agency disclosure and consent to dual agency without understanding that they will pay the same price for services but get less service. What do I mean by that? Well...

6. Dual agency undermines the broker's value. Imagine this scenario: "Broker A says to the seller, I'll list your home for 6%, paying 2.8% to any cooperating broker, and I'll be your agent." Broker A finds a buyer and asks the seller to consent to a dual agency. Seller is now deprived of one of the most important things in the broker's value proposition - advice about price, terms, and motivation. This is simple economics: The broker's services with key negotiation assistance cost 6%; the broker's services without key negotiation assistance cost... 6%. That means that the key negotiation assistance is worth ... nothing? I do like it when listing brokers say, "I'll list your home for 6% - if my firm sells it, we will not be able to advise you during purchase agreement negotiations - in that case, we'll only charge you 4.5%."

This is really just scratching the surface of problems...

-Brian

This is really just scratching the surface of problems...

-Brian

Ernie, this is a valued topic to discuss and thank you for bringing it up. There are some serious issues that arise when a brokerage becomes a dual agency when the buyer and seller are not truly aware of what they have committed themselves into. Thank your Brian for that detailed analysis.

Texas allows dual agency if the buyers and sellers both sign disclosures that they understand they are being represented by the same agent. Our office does not prefer to practice dual agency and in order to cut down on it, our broker will pay the intermediary fee out of her own pocket so that the agent who has had to refer to another does not lose any commission. Most of us don't have any problems with asking another agent in our office to be either a buyer or sellers rep. We have a disclosure as well for a client to sign if he or she decides to decline having a rep.

I have a deal that I am working on right now where I am the listing agent but am also working with the buyer. He knows that I am representing the seller, but feels that he is getting a fair deal on the property and limits what he discusses with me and I, of course, with him. He just felt that with this transaction being so small, he really didn't need someone else to represent him and this is a cash deal, so no discussion about financing has had to take place.

On a larger deal, I would definitely refer him out to one of our other agents though, especially if it involved financing. I would not want to discuss financing and terms with someone while representing the seller. I prefer to make sure that everyone is fairly represented.

Hi Ernie, I read several of the comments on here and was quite surprised to find so many agents don't agree with dual agency. I was a bookkeeper of a very large Real Estate office and I processed many transactions where the agent had both sides. Of course, we only know what we grow up with right? I've never worried about being in that position (hasn't come up yet) because I've seen so many agents walk through it. Of course, disclosures have to be signed and my clients would have the option of another agent representing them, which I always point out when discussing the contract.

DEC

2007

I want to thank everyone for their comments here! It is much appreciated and it has been great reading your comments. I know for sure we will not all agree on this, but we can all agree to do our best to take care of our clients.

I would like some help in getting the information for all of the 50 states on dual agency. Please go to:

Right or Wrong? Dual Agency - What States Allows It or Not

Let me know if your state allows it or not. I want to finish the list I have started from the comments of our members. It would be great to get info on our other provinces and our neighbors (Canada and Mexico).

Thanks for your help and your comments!!!

You guys and gals ROCK!

In NC, Dual Agency is allowed, unfortunately.

Seems like the "South" wants to hold on to a lot of outdated traditions sometimes.

The largest company in our area not only practices Dual Agency, they pay their agents a higher commission split, if they do.

They were the first company to fight, as hard as they could, to prevent the "new" practice of Buyers Agency when I introduced it here over 10 years ago. I had many a fight over my right to represent my client, the buyer, and they felt I was a traitor.

Good thing a larger percentage of buyers have wised up.

Educating the public about the dangers of Dual Agency and the benefits of single agency is key. We must do that educating.

Great post, and many good responses. In my very first deal as an agent (in Arizona) I had to represent the buyer and the seller, (JUST MY LUCK...Thank God a have a Great Mentor...) In my opinion It really should'nt be call Dual Agency, it is more like "Part Time Agency" It is like a tennis match (you being the ball) In every stage of the transaction you are only representing one client at a time. I do have to say that if everything goes great, the commission is Awesome. Not my ideal transaction, but I think every agent should do it at least once in the States that it is legal...Happy Holidays....

Oscar

JAN

2008

In Hawaii our law is a little different than most. Dual agency is when the buyer and seller are represented by the same company, not just the same agent. Almost impossible to avoid in some situations. We do not have designated agency here.

JUL

2008

Great post! Please contribute to my dual agency blog article at http://activerain.com/blogsview/579085/The-True-Test-of

Thanks,

Christina

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