Tony Moon, The Real Estate Heretic, discusses the relatively common occurrence of dual agency in a real estate transaction including what it is, how it arises, and why it’s a bad deal for everyone involved except the agent.
Buy a home with your own agent, not the seller’s agent. Duel agency can cost you big time.
Dual Agency is “Bait and Switch.”Dual agency is a way for brokers to unfairly get paid double. It is most prevalent at large brokerage firms (we recommend avoiding these). Commissions are already arguably too high and savvy consumers can avoid paying a double fee while also preserving their right to representation.Dual agency occurs when real estate agents from the same firm claim to represent both the buyer and the seller in the same transaction. Representing adversarial interests at the same time is a legally impossible situation (“serving two masters”) and is illegal in every other profession. Worse, brokers are incentivized with a double fee if they manipulate you to agree to this.Dual agency (also known as Designated Agency) is often branded (even marketed) to consumers by large brokerage firms as a thing of value – it is not. Although the term “dual agency” seems to infer an important relationship of trust and reliance, dual agency is a betrayal in which the firm becomes a secret double agent that only gets paid double if they can convince you to do it.In order to avoid dual agency, seek out smaller, highly qualified and independent brokerage firms that understand and agree to other more favorable relationships such as Exclusive or Single Agency representation.Negotiating Tip: Sellers, instead of negotiating a bundled commission, negotiate each part of the commission. Do it yourself (“unrepresented”) buyers typically receive no financial benefit for their work. Instead the listing broker confiscates the entire amount (a hogger). So instead of negotiating a 5% commission, negotiate how much your listing broker will get (2% for example), negotiate how much will be offered to buyer brokers and do it yourself buyers (3%). When buyers are searching, yours will stand out because buyers stand to save 3% only on your house by doing it themselves. Listing brokers should not care whether the 3% is paid to buyer brokers or buyers. If they claim that they have to do more work, then keep shopping until you find a listing broker that is willing.Looks like this:Listing Broker: 2%Buyer Broker or Do It Yourself Buyer: 3% Bait and SwitchDual 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 (and often never even know that it occured) 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 ends up paying double. Should Less Service Equate to a Lesser Fee?The Consumer Federation of America came up with a recommended fee schedule that suggests a sliding downward scale to align the degradation of services that results from dual agency with a lowering of the fee Realtors charge. According to them, less service should translate into a lower fee. It is Illegal for Attorneys to Practice Dual AgencyIt is illegal for attorneys to engage in dual agency in adversarial relationships. Yet, attorneys possess far higher entry level licensing standards and education requirements than do 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 thorough training in agency relationships and conflict management, attorneys avoid dual agency because it places too much risk on their clients.Licensing requirements for real estate agents are essentially non-existent. The minimum standard to obtain a real estate license in the United States 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 designed to protect Realtors, not clients and is enforced by peers who are members of their trade association and all decisions are kept private. Real estate 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.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 disclosure forms are misleading and inadequate. Consumers don’t understan
How a Dual Agent Affects Sale Prices Having an agent represent both buyer and seller can either raise or reduce the final selling price, depending on the timing of the transaction Evan Rosenfeld was a dual agent for a West End Avenue home in Manhattan. GORAN RUKAVINA/TOWN RESIDENTIALBy SANETTE TANAKAJan. 23, 2014 9:02 p.m. ETpro badgeWould you trust a dual agent?Dual agency occurs when the same brokerage firm—and sometimes the same real-estate agent—represents both the buyer and the seller in the same transaction. Dual agency can increase or reduce a house’s sale price, depending on the timing, says Bennie Waller, professor of finance and real estate at Longwood University in Farmville, Va., who studied dual agency in home sales.Dual-agency sales that occur in the first 30 days of the listing contract sell for roughly an 18% premium because agents may be able to more efficiently match the property with the right buyer if they search within their own network, Prof. Waller says.ENLARGEOver time, that information advantage diminishes as other agents learn more about the seller and property, says Raymond Brastow, professor of economics at Longwood University, who co-wrote the study. By the end of the listing contract, the agent’s priority is getting the property sold before the contract expires. Dual-agency sales during the last 30 days of the listing contract sell for roughly a 6% discount, or $9,300 less. Overall, a dual-agency representation reduces sale prices by about 1.7%, according to the study.Real-estate agents have a lot to gain from dual agency. The seller typically pays 5% to 6% of the sale price as commission, which is split between the buyer’s agent and seller’s agent. Thus, agents have an incentive to represent both sides of the transaction and earn the entire commission, Prof. Waller says.
Avoid Dual Agency Pitfalls APRIL 2007 | BY BRAD J. BOYD Wouldn’t it be nice if life were clear-cut? Often in residential real estate it is: The most common legal arrangement in the business is for a listing agent from one company to represent the seller and a buyer’s agent from another company to represent the buyer in a transaction. The advantage to this scenario is that when negotiations arise or the parties are sending counteroffers back and forth, the two sides have a relatively balanced opportunity to obtain guidance and strategy from their own representative. But dual agency creates relationships with clients and customers that aren’t clear-cut.For example, Rita Real Estate Broker is the listing agent holding an open house for her client, Sam Seller. Barb Buyer asks Rita details about the property during the open house, tells Rita she isn’t working with an agent, and asks Rita’s help in preparing an offer for Sam’s house. Rita has to stop, ask Barb if she’s asking for representation, and decide if she wants to enter into a dual agency relationship.First Rita must resolve whether her state’s laws and her brokerage’s policies permit dual agency. Next, she must determine whether Sam Seller has agreed to let her act as a dual agent in the transaction and obtain his full, written consent to Rita’s new role. She must also disclose the limitations the dual agency will place on her ability to assist Barb and Sam. Only then will Rita have done everything necessary to create disclosed dual agency.If she does enter into a disclosed dual agency relationship, Rita must observe her state’s dual agency laws, which probably require her to keep some types of information from each party confidential. In a dual agency relationship, Rita’s fiduciary duties to her clients are much more limited. She can no longer be an advocate for either party because each client has opposite goals.Designated Dual AgencyDual agency relationships occur not only when one agent represents two parties but also when two agents from the same company represent two parties in the transaction. If Rita’s friend Alice Agent, who works out of a different office of the same brokerage Rita is affiliated with, comes to Rita’s open house with her buyer clients, Bill and Betty Buyers, and the Buyers later make an offer, once again, a dual agency relationship may be created.In some states, there’s another option, designated dual agency. In these cases, the broker of Alice’s and Rita’s brokerage could designate one agent to represent the buyer-client and another to represent the seller-client. The broker would screen off some transaction information so that neither agent has access to the confidential information of the other party.Although designated dual agency can work well, it poses the same general challenges as a typical dual agency arrangement. Designated agency still places significant responsibilities on each agent and on the brokerage to follow strict management policies to avoid compromising the integrity of the transaction.Avoiding Dual Agency TrapsIn a few states — Colorado, Florida, and Kansas — dual agency is prohibited. This prohibition ensures that the real estate practitioner isn’t put in the difficult position of trying to satisfy both parties and risking that one or both parties may walk away feeling they didn’t receive the focused and thorough representation they expected. That dissatisfaction could lead to legal action, especially if there are problems with the transaction.However, if dual agency is legal in your state and you want to make it a part of your business model, be sure to take these steps to ensure that both clients are treated fairly.Review your state’s laws (consult with an attorney if necessary) to determine if dual agency is legal and what disclosures and procedures you must follow.Review your brokerage company’s policy to see if dual agency is permitted and exactly what actions you as a dual agent may not perform for each party.Disclose the dual agency and what it means to all clients in writing, and obtain their timely, written consent to the relationship. Be sure to explain how dual agency limits your ability to fully represent each party.Review and discuss with your client any state-mandated agency disclosure forms. Some states also have statutory language that must be included in all dual agency agreements. Failing to properly disclose dual agency is illegal.Recommend that both parties retain attorneys to advise them regarding the purchase agreement, contingencies, price, earnest money, or other negotiated issues. This can be a win-win for all parties involved since the client will be adequately represented and the attorneys’ participation will take pressure and liability off of the sales associate.If you’re careful in informing all parties about the requirements of a dual agency relationship, acting as an agent for both can be a viable way to close deals. Just don’t let your desire to get the deal done lead you to i