In part 1 of Dual Agency is a Scam I discussed what dual agency is and how it can arise in a real estate transaction. In this final posting on the subject I want to talk specifically about why it is not a good thing and what you might do about it should you find yourself in that position.
Before I get started, let me first address why I deliberately use the word “scam.” Dual agency is a scam perpetrated on the real estate consumer not because it is illegal, but because the consumer rarely understands its implications and little effort is made to make sure they do. When it is time for a buyer or seller to sign a dual agency consent form, it is typically presented as a routine document with little explanation. Even the language of the document does not clearly convey its ramifications. Absent a clear understanding of agency law as applied to the real estate transaction, it is very difficult, at best, for the consumer to fully grasp the negative aspects of what they are consenting to. In essence, as a profession, we often shortchange the consumer on this one and don’t give it a second thought.
The primary reason dual agency is a bad deal for the consumer, as alluded to in part 1, is that it seriously dilutes the powerful advantages of having an agent represent you in what is, for most of us, the largest financial decision of our lives. So, here’s a question for you: if you were being sued, would you hire the attorney of the person suing you to defend you in that law suit? Of course not. There would always be a legitimate question as to where the loyalties of the attorney lie. Is the attorney loyal to you or to your adversary? This is precisely what is at stake in the case of dual agency.
In my practice, I represent buyers only. Of the many services I provide, one of the biggies is that I negotiate fiercely on behalf of my clients to maximize their savings in the transaction. A critical part of that process is building a relationship with the agent who has listed the home my client wishes to buy so that I can get information that will benefit my client’s negotiating position. One of the things I know going in is that, like in any other part of the business world, about 80% of agents, while honest and well intentioned, are something less than fully competent (I am being as diplomatic as I can be).
We are all familiar with the 80/20 rule, that is, 20% of the workers in any field or profession do 80% of the work. Ambition and competence, or lack thereof, is the root cause of this phenomenon. Real estate is not immune from this immutable law, so of course, I strive to capitalize on it whenever possible. It never ceases to amaze me how often I can get that listing agent (the seller’s agent) to blurt out something like “well, even though the list price is X dollars, I know the seller will take as little as Y dollars.” WOW! Do you think that’s information I’m going to use to help my client? Darn tootin’!
The ONLY reason I am allowed to use that information for my client’s benefit is that I have no legal relationship i.e., agency relationship, with the seller. An agent in a dual agency situation would not be allowed to inform the buyer of that information, or otherwise use it at all. Why would you elect to put yourself in that position? And by the way, this is also the case if you, the buyer, have an agent negotiating with the seller’s agent who employed with the same company as your buyer’s agent (remember the same designated broker scenario in part 1).
If you are a seller, you are equally compromised by dual agency. If your agent is good, and he/she finds out the buyer will pay as much as X dollars for your house, you had better hope your agent has not put themselves into a dual agency situation because they would not be able to use that information to get you a higher offer. The point here is that in a dual agency situation the agent’s ability to perform one of their most valuable services is severely compromised, that is, their ability to negotiate to maximize your savings if you are a buyer or maximize your profits if you are a seller.
Don’t forget, your agent is also the expert when it comes to properly completing the volumes of paperwork required for a smooth transaction as well. The standard sales contract in Arizona is 10 pages of fine print all by itself and this is just one of a number of documents that needs to be completed. Within the sales contract, as well as some of the other documents, there are numerous opportunities for your agent to gain the upper hand for you as a client within the transaction. You should expect your agent to do so zealously. Again, why in the world would you want to jeopardize your position as a buyer or a seller?
Dual agency does just that by prohibiting the representation of the interests of one party to the detriment of the other (as stated in the Consent to Limited Representation document in Arizona which is the consent to dual agency). As long as I am acting morally and staying within the ethical guidelines of the National Association of Realtors, my mission in life is to represent my client’s interests, even to the detriment of the other party, if that is what it takes to get my client the best deal. I do not worry about taking undue advantage of the other party because my assumption has to be that the other party is either competently represented or has the wherewithal to do it themself. There are plenty of other reasons why dual agency is a bad deal for sellers and buyers alike, but this blog post is already getting a bit long and if these reasons don’t convince you, there’s just not much more I can say.
You have three options when you find yourself in a dual agency situation. One, sign the consent form and accept the consequences of your decision which may or may not be too terrible. Two, don’t sign the form and don’t get representation and don’t expect any assistance at all. That will be like taking a knife to a gun fight. Three, don’t sign the form, and find a good agent to represent you, there are plenty. In certain circumstances another issue may arise called procuring cause and I’ll explain that in another blog post. In the meantime, don’t be concerned, the agent you find will determine if it’s an issue at all.
Whether you are a buyer or a seller, one important thing you can do up front, is simply to prohibit your agent from entering into a dual agency circumstance at all by making sure that condition is clearly stated in your agreement with your agent.
In reality, if you are a buyer, you need to seek the services of a good agent before you even begin house hunting. In another blog I will discuss the many advantages of that action. It really is a no-brainer, however. A buyer’s agent is paid from the seller’s proceeds of the sale in the vast majority of cases so it almost always costs you nothing. Why wouldn’t you do this?
To summarize, as a simple guide, there are two common ways where dual agency arises. One, if you are an unrepresented buyer interested in a particular house and you begin to do business with the agent who has listed the house or with the salesperson at a new home development. Two, if you are represented and you are interested in a house listed by another agent employed by the same company that employs your agent even if that listing agent is housed out of a different geographic location entirely. When you find yourself in either of these circumstances, just ask the agent is this is a dual agency situation, then take appropriate action as you deem fit.
Oh, one last thing. Did I mention there’s one person who loves dual agency? That would be the agent, especially if he or she is the listing agent of the house you’re thinking of buying. That’s because if you buy and you are unrepresented, they do what we refer to in the business as double-ending the deal. That means they need not split the commission with the agent who brought them the buyer, they get both ends and have now doubled their paycheck for that sale. It’s a beautiful thing ;-)
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