Dual Agency and the Hogs Who Love It

By
Industry Observer with Greater Boston Association of REALTORS MA 9505496/Broker

I read an interesting article in Inman News the other day about the controversial subject of Dual Agency, aka direct deals or "double dipping" by some.  In other words, taking both sides of the commission by representing the seller and the buyer in a real estate transaction. Here's the article that I read.

DESIGNATED AGENCY VERSUS DUAL AGENCY

In states like Massachusetts, we have enacted regulations that provide for disclosed designated agency in all real estate transactions.  Many people may be familiar with the scenario where a real estate agent provides them with a form that they need to sign when they first meet with him/her.  This form is called a "Mandatory Licensee Consumer Relationship Disclosure" and it sets forth the role of the agent vis a vis his client (you).  It states whether the agent represents the buyer or seller in a transaction.  It also states the relationship of other agents in the realtor's firm.

Some firms only represent buyers.  Some only represent sellers.  These are known as buyer agency or seller agency firms.  All agents and brokers in these types of offices represent your interests if you are selling (sellers agency) or if you are buying (buyers agency) - but you will never see a realtor who works for a buyers agency taking listings; and vice versa.  I'm not going into the merits of such relationships, but there are firms out there that do quite well as buyer or seller agency firms.

The more common relationship with a realtor though, is through an office that practices designated agency.  These firms (it is safe to say that all of the major national real estate organizations) represent clients who are both sellers and buyers.  Through designated agency, the real estate agent that assists you must tell you, in writing, whether they will represent you as a buyer's agent or as a seller's agent.  As such, they owe you the duties of "undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability, provided however, that the agent must disclose known material defects in real estate." 

In short, the disclosed buyer's agent can show listings of other agents in his firm, and a disclosed seller's agent can take on buyers that are not looking to purchase any of his listings. 

Now comes the open house (and the dual agency hogs are sniffing and frothing at the mouth...)

What do you hear when you go to an open house?

a) "Hi, my name is Joe Designated Agent, welcome to my open house.  There are so many excitingmale angel features about this house that I'd love for you to see.  Could I ask you to please put your name and contact information down on this sheet of paper so that I may follow up with your agent with any questions and to obtain important feedback for my seller?  I see that you aren't working with an agent right now, is that correct?  I'd be happy to answer any basic questions that you have, but if you are interested in the house, I'd prefer to introduce you to someone in my office who works with buyers like yourselves and who can represent your interests as a potential buyer, since I represent the seller."Big Bad Wolf

or

b) "Hi, my name is Heidi Hogg.  Welcome to the open house.  There are so many exciting features about this house that I'd love for you to see.  Are you folks here by yourselves?  Don't worry, I'd love to work with you.  Why don't I show you around myself so we can get to know one and another.  Did you know that I can probably get you this house cheaper if you work with me because the seller will not have to pay a full commission on the buyer's side?"

 

What's wrong with this scenario?  Most states do allow designated agents to enter into dual agency.  And if working with the listing agent can help the buyer save on the purchase price, isn't that to everyone's advantage?  NO, it isn't.  Firstly, a designated agent must obtain the mutual consent of both parties to enter into a dual-agency relationship and notice (usually written) must also be obtained from the parties.  Remember what I said about "undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability, provided however, that the agent must disclose known material defects in real estate."  Well, under Massachusetts law at least, here's what the disclosed dual agent provides: "A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.  Consequently, a dual agent cannot satisfy fully the duties of loyalty, full disclosure, obedience to lawful instruction which is required of an exclusive seller of buyer agent.  A dual agent does, however, still owe a duty of confidentiality of material information and accounting of funds."  So, in the end, disclosed dual agents have only to provide "reasonable care, confidentiality and accountability, and disclosure of known material defects" to their clients.

IS IT TIME TO BRING DUAL AGENT HOGS TO THE SLAUGHTERHOUSE?

Hogs in the SlaughterhouseLet me start off by stating that I have been a disclosed dual agent before.  Sometimes, I fell into it.  Other times I brought it on.  What's the difference?  Well, say I have an existing relationship with a buyer client.  I've even gone as far as entering into a contractual relationship as an exclusive buyer's agent.  Shortly thereafter, I  list a home for sale for someone else.  It is important to note that the buyer client came first.  In this situation, if my buyer client wants me to show him the house that I just listed - I can do so, and can represent both parties - if and only if both parties agree to me switching to a dual agent capacity.   Am I a hog? 

It depends - many would say.  Did I take a full commission from the seller?  Did I tell the seller that I didn't want to sell his house to one of my clients because of the inherent conflict of interest?  Did I tell the buyer the same and offer him the chance to work with another buyer's agent in my office? Did both buyer and seller understand the consequences of dual agency?  In my case, the answer is "yes" to the all these questions.

"Wait a minute..." many of you are saying.  "You took a full commission from your seller - you're a hog"  Well, yes I did, and no, I'm not.  My buyer's agency agreement set forth my fee to the buyer and that is what the seller was offering the co-broke side.  "How come you didn't reduce the seller's side of the commission?"  The answer to that was that a variable or dual rate commission was not originally envisioned when the listing was taken, and the seller felt that I should have been fully compensated for my efforts.

So, if I did it, why can't others?  Good question.  Was I the predatory type of agent like Heidi Hogg?  No I wasn't.  I accommodated two clients and satisfied my agreement to market and sell the home and attract a buyer.  But, Heidi is still a hog.  Let me explain.

Heidi makes a regular practice of double dipping.  She goes into listing appointments fully prepared to reduce her commission to the seller if he allows her to sell it to a buyer that she procures.  From the very start, she is conflicted and not working in the seller's best interest, but in her own.  She has no intention to co-broke (share the listing with an outside agent).  She either keeps the listing "in her pocket" or makes it very difficult for outside agents to schedule showings.  Worst of all, she approaches un-represented buyers and convinces them that they don't need a buyer's agent when she can do the same work for them - and possibly get a better price for them (wait a minute...who is she going to get the better price for - the buyer or the seller?).

Some lawyers would argue that Heidi isn't even a dual agent at all.  She is still a seller's agent and can only serve as a non-agent facilitator to the other party.  Thus, the seller is the agent's "client" and the buyer is the agent's "customer."  Even though Heidi believes, and has led her client to believe, that she can become a disclosed dual agent - it would be contrary to agency law for her to abandon everything she knows about the seller's interests and try to play impartial.  I'll leave it to the lawyers to play with this thought...

PARTING THOUGHTS

"What's your point?" you may ask.  Well, disclosed dual agency does happen and in certain instances, it is appropriate.  However, in the great majority of cases, buyers and sellers alike are being taken advantage of by greedy agents who in reality serve their own interests ahead of their clients.  One might say "what's the big deal with an agent acting as a dual agent, since the seller knows how much he needs to receive and the buyer can figure out his own offer price?"  Fair enough.  But the bigger question should be "in dual agency, how does an agent deal with home inspection issues? Who's side is the agent going to go to bat for if the buyer wants a credit for a new roof and the seller is refusing?" 

What if the agent discovers a material defect as part of the home inspection that he/she was not previously aware of?  Does he now have to disclose that defect to other buyers if the deal falls through with this particular buyer?  Wouldn't the seller's agent have been better off not attending the home inspection or reviewing a copy of the home inspector's report?  As a designated seller's agent, I would want to stay far, far away from reviewing any inspection reports, lest someone accuse me later of knowing something that I should have/could have disclosed.

In summary, become an informed consumer.  The listing agent is not your friend if you are a buyer.  Seller's should demand designated agency to get value for their commission dollars spent and buyers should have their separate representation for the reasons discussed above.  Rarely, should the paths cross.

My final comments on the subject?  Stay kosher.  Don't eat pig.

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Rainmaker
440,489
David Zablatsky
Avant Realty Group - Needham, MA
Real Estate - Needham, MA

Thank you Martin, for posted a very good and true article, this definitely happens all over.  I agree that the buyer deserves good true representation properly, i think in the long run there could be a negative residual effect and buyers may try to go directly to the seller as they feel that realtors have not properly serviced them and in turn as potential sellers they may do the same thing.

 

- David Zablatsky

Sep 03, 2009 09:07 PM #1
Rainer
10,470
JOHN HOLST
MetroStar® Realtors® Chesterfield Relocation™ - Chesterfield, MO

I am writing a White Paper and a Book on why Dual Agency should be eliminated.  Please provide any lawsuit information or other horror stories on how the clients' best interests were compromised or diluted.

There are multiple forces in the works: 1. In Congress, with fault being discovered that many buyers were not properly represented that added hot sauce to the housing melt-down, 2. With Errors & Omissions insurance carriers seeing that in 50% of all lawsuits agency is brought in as an allegation, see new Standards of Practice coming soon, 3. Well funded consumer advocacy groups (as in the 1993 Edina lawsuit that cost $18 Mil) are preparing to file multiple class action lawsuits in early 2010 against all the major players for inherent conflict of interest on dual agency and double-dipping brokers trying to "represent" both sides of a transaction, 4. The courts are getting tired of issuing warnings, eliminate dual agency or else.

It has been ten years since the real serious shot over the bow from Oklahoma:

In the case of SNIDER v. OKLAHOMA REAL ESTATE COMMISSION, June 1, 1999 the Oklahoma Supreme Court said: "Sellers' agents and dual agents do not and cannot by law give a buyer the same degree of loyalty as an agent who acts on behalf of a buyer. Sellers' agents owe their allegiance to the seller. Dual agency invites a conflict of interest. A buyer who relies on the seller's agent or on dual agency does not receive the same degree of legal protection as that afforded by an agent acting solely on behalf of the buyer".

Professionally, I find the concept of dual agency as completely indefensible and should be eliminated along with the perverse ways to thread the needle with transaction brokerage, designated agents, and disclosed dual agency.

There is no way that you can deliver a true informed consent from a Seller that is no longer going to have full fiduciary level of representation when somebody in the office is now going to be representing the buyer.

Just like the Veterinarian's Office; Cats go in one door and Dogs go in another:

Step 1. Need for only an Exclusive Buyer's Broker to represent the BuyerMake sure that the agent / broker that represents you gives you the highest level of representation possible, full fiduciary duty to only represent your interests as a Buyer and not the Seller. Engage an agent that will pledge in writing to exclusively represent only your interests. Say NO to: dual agents, designated agents, transaction agents and seller's agents. The Seller usually in 95% of the deals will fund the fees (just a normal real estate commission) to pay for this Exclusive Buyer's Broker to only represent the Buyer.

 Step 2. Need for only an Exclusive Seller's Broker to represent the SellerMake sure that the agent / broker that represents you gives you the highest level of representation possible, full fiduciary duty to only represent your interests as a Seller. Engage an agent that will pledge in writing to exclusively represent only your interests.

 PLEASE GIVE ME YOUR BEST VIEWPOINTS AND COMMENTS

Dec 06, 2009 10:30 AM #2
Rainmaker
2,988,601
Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

No requirement that the total commission be a 50/50 split with the Buyer Agent.  If they are concerned about their compensation they should use a Buyer Broker Agreement. We NEVER do Dual Agency with our listings.

Aug 21, 2010 07:09 AM #3
Rainmaker
482,608
Martin Kalisker
Greater Boston Association of REALTORS - Boston, MA
Professional Standards & Legal Assistant

Tony and Suzanne -

It is amazing to me why sellers or buyers would even consent to this practice, except in very narrow circumstances.  Is it greed on the part of the listing agent or is it because the sellers are cheap and they want to save a couple of percentage points on the commission?  Maybe our Boards should eliminate variable rate commission structures to help  bring this practice of dual agency to a halt.

 

Aug 21, 2010 07:19 AM #4
Rainmaker
51,922
Tony Cannon
Bressi Realty Carlsbad - Oceanside, CA
Real Estate - Oceanside Carlsbad

Short sale listing agents in this area are the primary culprit for ensuring they are a dual agent. Either the initial offer that is submitted for short sale approval(often an investor buyer from the listing agent) or buyers picked up along the way while waiting for short sale approval are the only offers ever seen by the seller's bank, regardless of whether they have the best terms or not.

Oct 18, 2010 05:04 AM #5
Rainer
134,071
Laura Murray
Weichert - Silver Spring, MD
Search Montgomery Co., MD for homes www.MDRealEstateOnline.com

I think if I where a client of a real estate agent I would never go for allowing dual agency.  I want my real estate agent to only have my interests at heart.

Aug 11, 2012 12:07 PM #6
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Rainmaker
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Martin Kalisker

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