About Dual Agency
The problems with Dual Agency are many, and they can be serious. So much so that many states have outlawed the practice of real estate Dual Agency completely. In all likelihood, California will eventually get around to changing the law, but for now, the consumer needs to be aware of the possible difficulties involved. Since having your own 100% loyal Agent usually costs no more than sharing a Dual Agent with the Seller, there is no good reason to ever get involved with Dual Agency.
What is Dual Agency?
Dual Agency occurs when one Broker represents both Buyer and Seller in a real estate transaction. Each party might have their “own” Agent, but if both Agents work for the same Brokerage, it’s still Dual Agency, because ultimately it’s the Broker who is the Agent of the Client, and both Agents are thus limited in the scope of their actions. Two agents might work at different offices in completely different neighborhoods, but if they work for the same Broker, they are still acting as Dual Agents.
There are a number of reasons why Dual Agency is a troublesome practice. One simple one is that in a Dual Agency situation, Agents are required by law to provide a lesser level of fidelity to their Clients. This is not a debatable issue, it’s a fact, and it is expressed in the agency disclosure form that Agents are required by law to give to their Clients. You can read more about the limitations of a Dual Agent in an article entitled, “The Perils of Dual Agency” from the California Department of Real Estate, linked at left.
When an Agent (or a Brokerage) is acting as a Dual Agent, the Agent may not disclose the negotiating strategy of the Seller to the Buyer, and the Agent may not tell the Buyer that the Seller might accept less than the listing price. This means if the Buyer is writing an offer for some amount, the Agent might be sitting right next to the Buyer, showing the Buyer where to initial and sign the contract, knowing that the Buyer is going to pay more than is necessary to purchase the property, but the Agent is prohibited by law from letting the Buyer know that the Buyer is about to over-pay.
This is not 100% fiduciary loyalty. The Agent is compromised in his representation of the Buyer’s interests, plain and simple. And this is not a situation that engenders the trust that is crucial to the success of an agency relationship.
What if the Seller is using a common negotiating ploy to try and get a higher price from the Buyer? In Dual Agency, the Agent cannot disclose the negotiating strategy of the Seller to the Buyer.
“Exclusive agencies are best. They remove any conflict of interest, which is the main reason for considering a buyer broker in the first place.” - Kiplinger’s Changing Times
“Even where a dual agent carefully complies with all of the applicable statutory disclosure and consent requirements, pitfalls remain.The best option for the dual agent may be to withdraw from the transaction once he or she realizes there is an irresolvable conflict of interest. However, the Department has seen that some agents may be unwilling to do so if it requires forfeiting their commission...” -CA Dept. of Real Estate, Real Estate Bulletin, Fall, 2007
If it's been a while since you went house hunting or if you're new at the game, you may not have heard of buyer-brokers. A relatively new phenomenon, and still a tiny slice of the real estate business, buyer-brokers work for the owner-to-be. That's a market switch from traditional real estate agents who show you houses but whose legal duty is to the seller, who pays them a percentage of the sales price. Confide to a traditional real estate broker that you're prepared to bid as much as $150,000 on a house, and the broker will tip off the seller. Tell a buyer-broker, and the seller will never know. - MONEY - June '96
"You can't have partial loyalty. An agent either works for you or works for someone else." - CONSUMER REPORTS Feb '94
"Exclusive buyer's agents work only for consumers and often can save them money – and they don't cost more to hire...exclusive buyer's agents are not tied to any particular property or agency, so they will show buyers any home, even those for sale by owner." - Los Angeles Times
"You´ve got to have someone representing you who represents only you," - Ralph Nader
"Your goal should be to engage an agent who will represent only your interests. Not just a `buyer broker´, but an exclusive buyer broker. Make sure that is what you are getting." - Joseph Eamon Cummins, Author, Not One Dollar More!
When a Seller hires a Listing Agent to list and sell a property, the Seller typically expects certain things from the Agent. The Seller wants the house sold for the highest possible price. The Seller wants the house sold as quickly as possible (especially in a declining market). The Seller wants to give the least amount of concessions (for example, repairs or credits for repairs) to the Buyer.
Meanwhile, the Buyer wants to buy the house for as low a price as possible. The Buyer wants to investigate potential problems as thoroughly as possible, and the Buyer wants the Seller to perform the necessary repairs or to give credits for issues discovered during the investigations.
While the Seller’s Agent wants to convince all potential Buyers that this property is the one to buy, the best deal, the best fit, the best house, the Exclusive Buyer’s Agent is not concerned with selling the Buyer any one particular property. The Exclusive Buyer’s Agent helps the Buyer know the entire market and assists the Buyer in finding the house that is the best fit for the best price, whichever house it might happen to be.
While the Seller’s Agent wants to present the property in the best possible light, the Buyer’s Agent wants to help the Buyer dig as deeply as possible into the issues by hiring experts to investigate and expose defects that the Seller doesn’t know about and would rather not know about (Of course, if the Seller does know about problems, they must be disclosed). If you were selling your house, would you want your Agent, who is supposed to be acting in your best interests, to be strongly encouraging the Buyer to dig deeply for potential problems and issues?
These varying motivations can make it impossible for one Agent to give 100%, uncompromised loyalty to both the Buyer and the Seller at the same time, regardless of the intentions of the Agent, and neither party gets the full benefit of an undivided Agent with full fiduciary loyalty.
If Dual Agency is so inherently problematic, why is it still around? Some Buyers mistakenly believe that a Buyer can get equivalent protection and also save money by going directly to the Seller’s Agent. Hopefully this page will point potential buyers towards the reconsideration of that notion.
The reality is that the one person who unwaveringly benefits from Dual Agency is the Agent, who gets paid considerably more for representing both sides, while providing a lesser level of fidelity to each.
In the language of the law, Agents are said to have a fiduciary relationship with their Clients. The word fiduciary comes from the Latin word fiducia, which means “trust”. In an Agency relationship, where the Client depends upon the Agent to always act in the best interests of the Client, trust is essential.
Because Dual Agency allows agents to have an appearance of complete fidelity while at the same time limiting the actual fidelity of Agent to Client, it should be legally prohibited in real estate. Until that happens in California, it’s up to the consumer to understand Dual Agency and to avoid it completely.
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