I really don’t like Dual Agency. I think that’s pretty well established. Even so, Russell Shaw convinced me — in person, not on BloodhoundBlog — that BloodhoundRealty.com would have to offer Dual Agency if it is to list effectively in the historic districts of Downtown Phoenix.
Right about the same time, we undertook the Dual Agency Smack-Down, an attempt to explore the issue in detail. At a certain point in that debate, I hit what I thought was an insuperable wall. The problem was the complexities of a represented real estate transaction:
The only workable way even to achieve Disclosed Dual Agency is by repeated, overt agency violations against either the buyer or the seller, or each in their turn. In other words, you would have to hint at them what to “order” you to do, and each one of those hints would be a betrayal of the interests of the other party.
The problem, as I came to see it, was the word “detriment” in the Arizona Association of Realtors Consent to Limited Dual Representation form. If a broker could not act in any way detrimental to either party, then he could not offer any meaningful or useful advice to either party.
As it turns out, that word “detriment” turns up in Dual Agency disclosures from all over the country. I had a Realtor in Florida send me a disclosure for Transactional Brokerage (that is, no agency for either party) and the word “detriment” even appears there.
Interestingly, the statute law of Dual Agency in Arizona is not nearly so restrictive. The law requires disclosure and informed consent, but it does not insist that the Dual Agent cannot act in ways that might be perceived as being detrimental to one party or the other. Obviously the common law dictates of agency come into play, but the point of a Dual Agency Disclosure form is to modify agency for both parties in such a way as to permit the transaction to take place.
The problem — in Arizona, take careful note — was not Disclosed Dual Agency but, rather, the impossible restrictions that were being imposed by the Dual Agency Disclosure form we have been using. At the time, I made this point about the AAR Dual Agency Disclosure:
What that language says, in my opinion, is that no Arizona brokerage that has undertaken Disclosed Dual Agency using that form has done so in a way that would withstand the questioning of a plaintiff’s attorney.
I believe it is impossible for any brokered real estate transaction to close according to the strict terms of that language. Instead, every Arizona brokerage that has undertaken Disclosed Dual Agency using that form has routinely, repeatedly and serially acted in ways detrimental to both buyers and sellers, each in their turn, throughout every one of those transactions.
This was not malicious. To the contrary. The Disclosed Dual Agent was acting in the best interests of each client, each in their turn, and each of those clients had an absolute veto power over everything that was done at each step of the process. The problem is simply that a brokered real estate transaction is too complicated to be effected without expert advice. In tendering that advice, in all good will, the Disclosed Dual Agent will have acted to the detriment of the other party every time he gave good, solid, useful advice to the party before him.
This is actually funny. It is not possible to do a Dual Agency as the form requires, but no one would want such a thing anyway! To comply with the terms imposed by the form, the Dual Agent’s answer to every detailed question would have to be, “Search me…” For this, the sales commission would be doubled.
The solution to the whole nasty problem is simply to rewrite the form. I promised to do this in November, but events intruded. I’m just getting to it now. If you will download this file, you’ll see what I came up with. It’s not radically different from the Dual Agency Disclosure you are already using. The key difference is that Buyer and Seller are consciously acknowledging that the Listing Broker is going to be advising each of them in their turn about the courses of action each might take, all the while protecting the confidences of each from the other.
The major changes, from what you’re accustomed to, are these:
Definitions and Disclosures:
Dual Representation, also known as Dual Agency, is a mutual agreement among the Buyer and the Seller that either the Listing Real Estate Broker or one or more Licensees of the Listing Real Estate Broker will advise both Buyer and Seller in the sale of a particular piece of real estate. While Dual Representation can afford Buyer and Seller certain advantages, there is substantial risk in a Dual Representation. These risks are disclosed in detail below.
1. In the normal course of events in a complicated real estate transaction, the Licensee working with the Buyer or the Seller may suggest certain plans, procedures, tactics or stratagems that may advance the interests of the Buyer or the Seller. In a Dual Representation, that same Licensee or another of the Broker’s Licensees may then in turn advise the other party as to how to respond to these overtures, in turn suggesting other plans, procedures, tactics or stratagems that may advance the interests of the responding party.
2. In all such cases, in a Dual Representation, Broker and Broker’s Licensees will zealously protect the confidences of both Buyer and Seller, and in no circumstance will any suggested plans, procedures, tactics or stratagems betray any confidential information shared by Buyer or Seller.
3. While Buyer or Seller might perceive that such suggestions of plans, procedures, tactics or stratagems to the opposing party in this transaction might work to Buyer’s or Seller’s disadvantage, in fact both Buyer and Seller retain their full rights to direct the actions of Broker and/or Broker’s Licensees, to include, in accordance with the terms of the Purchase Contract, the unilateral right to cancel the transaction.
4. The intent of this disclosure is to acknowledge, ratify and grant Buyer’s and Seller’s mutual consent to Broker’s efforts to assist both Buyer and Seller in identifying and obtaining the best attainable results for each party in this real estate transaction while simultaneously protecting the interests and confidences of each party.
5. If you are not completely comfortable with this disclosure of Dual Representation, you are encouraged to obtain separate representation in this transaction.
And:
Duties and Limitations: The Broker now represents both Buyer and Seller equally but separately. Both parties understand that Broker or Broker’s Licensee(s) may advise each party separately as to how best to proceed with this or any subsequent negotiations, subject to the restrictions delineated below, even though such advice may be perceived to be disadvantageous to the opposing party. Both parties understand that Broker or Broker’s Licensee(s) will be working actively and equally for each party, with no bias toward either party, to help each party obtain the best attainable, mutually-satisfactory outcome from any negotiations between the parties.
All we’re doing is taking account of and getting explicit consent for what is already happening in real life.
Some caveats: This is all about Arizona. If you’re in another state, and if you want to play with these ideas, take them up with your broker or your attorney. And: I am not an attorney, nor do I play one on TV. This language has never been tested in court, and, god willing, it never will be. The Arizona State Constitution empowers me to write whatever language I might need to effect a real estate transaction, but it doesn’t warrant that my language is any damn good. You proceed at your own risk.
But: I think this solves the problem of Dual Agency, to the extent it can be solved. At least we have managed to jettison the impossible fantasy of “representing” each party without doing anything “detrimental” to the other…
Technorati Tags: arizona, arizona real estate, dual agency, phoenix, phoenix real estate, real estate, real estate marketing
CJ, Broker in L A, CA says:
WELL DONE! You’ve described exactly the way we operate when faced with a dual agency situation. (It is legal in California, and when it happens, we can’t always turn them away). This is open source/public domain? I am free to use it? Thank you, Greg!
February 14, 2007 — 7:48 pm
Norm Fisher says:
“I think this solves the problem of Dual Agency, to the extent it can be solved.”
You’re probably right and I’ll admit your draft is the best solution I’ve seen so far but it’s still a messed up concept. It sounds like you’re negotiating a transaction with yourself. 🙂
The fact that the paperwork is always out of sync with the actions of the agents involved is only part of the problem, albeit a large part. The finest human beings are still subject to bias, whether it be in favor of the buyer or the seller and that’s something which can’t be solved through paperwork revisions.
Russell is a brilliant man and I have no doubts that his intentions are sincere. Perhaps he’s even in a place where he can act without bias. Many agents can’t.
Please Greg. You’re slipping towards the dark side. Dual agency is evil. 🙂 I will be glad when it dies and I do believe it will. Most agents would agree if clients suddenly started demanding significantly lower fees when representation falls by the wayside.
By the way, in my area the form says, “The Realtor shall not act in the interest of either the buyer or the seller to the advantage of one over the other.”
February 14, 2007 — 8:38 pm
Greg Swann says:
> I am free to use it?
I don’t know the statute law in California, so you should take it up with your attorney.
February 14, 2007 — 9:22 pm
Greg Swann says:
> Most agents would agree if clients suddenly started demanding significantly lower fees when representation falls by the wayside.
I don’t want to do this, but I don’t want to lose half-million-dollar listings over it, either. Cathy has never had a Dual Agency, but this form is written for her farm. When I did them in the past, we would split the Buyer’s Agent’s commission three ways: One point to the seller, one to the buyer and one to the brokerage. The point was to reinforce consciousness of the limitiations of the Dual Agency by compensating the parties.
If you have a copy of your form as a PDF, I’d love to see it. I have a nice collection.
February 14, 2007 — 9:28 pm
Allen Butler says:
I think this is a brilliant topic for discussion. While I am not nealy as fluent in these things as is Mr. Shaw, my limited exposure has proven this to be the case. I currently have a listing in an older part of Phoenix that listed at 1.39 million. I literally get three to five calls a day from unrepresented buyers wanting to get info about this property. The potential for a dual agency exists in a big way for this particular property. I have already discussed this issue with my seller, and have told him that this is how it will work:
If an unrepresented buyer wants to buy the place, I will lower my commission to 4% from 9%, and the buyer and he can negotiate a lower price, or some closing costs or something. Furthermore, both parties will have to agree to sign a form that I myself have created (in cooperation with my broker) that explicitly states that I am not representing either party. I will not advise either party as to the contract and its terms. Both parties shall be responsible for reading and understanding the implications of the contract and all its pertinant addenda.
Usually, this is good enough to scare the crap out of them, and they ask me to find another agent who will handle the buyer’s side for a reduced fee.
February 14, 2007 — 10:15 pm
CJ, Broker in L A, CA says:
> I am free to use it?
>I don’t know the statute law in California, so you >should take it up with your attorney.
We’re good on the attorney part — I was thinking in terms of Bloodhound’s copyright.
February 15, 2007 — 4:25 am
Greg Swann says:
> I was thinking in terms of Bloodhound’s copyright.
Everything between “BY THIS NOTICE” and “THE UNDERSIGNED” is pulled nearly verbatim from the AAR form. You’ll need to replace that with the appropriate text from the CAR form, since it’s state-specific. If you’re fine with the CAR, you’re fine with me.
February 15, 2007 — 6:02 am
Norm Fisher says:
Greg, your approach seems reasonable to me. I’m not sure why anyone would agree to dual agency and the limitations that it brings without some kind of adjustment. I’ll email you a copy of the form.
February 15, 2007 — 6:06 am
Greg Swann says:
Norm, I got the form. This is the language you called out last night:
> d) the Brokerage will not represent the interest of either the Buyer or the Seller to the advantage of one over the other;
The buyer is wise to close near the end of the month to avoid pre-paid interest. The seller is wise to close on or near the first of the month to avoid making another loan payment. If I advise either of them of these facts, I am working to the advantage of one over the other. I think this is the same defect as the AAR form in different language.
February 15, 2007 — 6:52 am
Norm Fisher says:
Greg, yes I agree completely. I didn’t intend to suggest this wording was better, or even substantially different. Almost anything an agent says in “limited dual agency” could be construed as being to the advantage of one over the other.
When a REALTOR can hardly speak, he or she becomes darned near worthless to the clients.
Though nobody practices it here yet, I prefer the idea of designated agency where salepersons from the same brokerage are involved. That would eliminate the bulk of dual agency deals and then we could figure out how to deal with the one salesperson scenario.
Great post!
February 15, 2007 — 7:09 am
Greg Swann says:
> Greg, yes I agree completely.
Check. I wasn’t being argumentative.
Here are two problems with Dual Agency:
1. By the time the Buyer is on board, the Seller will have already had 90% of the useful advice the agent will bring, all of it to the disadvantage of the Buyer.
2. Sellers like Dual Agency because Buyers behave like children when they fall in love with a house. Why wait for better representation? We can buy NOW, NOW, NOW!
Taking the two together, I think the Buyer is at a disadvantage in a Dual Representation no matter what.
Here’s an idea I had last night: Identify the brokerage on the Buyer Broker Agreement as “Acme Realty or nominee.” If the Buyer catches a clue and nominates their own agent later in the process, the Dual Representation is dissolved.
The Seller’s interest in snaring the Open House Buyer is served, but the Buyer’s interest in getting separate representation, should they wake up and smell the coffee, is preserved.
February 15, 2007 — 7:32 am
Norm Fisher says:
Greg, I like it. I’m thinking this type of conflict is probably reasonable grounds for one party to terminate. Why not provide for that?
It’s also interesting to consider that it may be the seller who wishes to pull the pin when dual agency is proposed. Maybe the buyer says, “I’m fine with dual agency” but the seller tells you to hit the highway. Hmmm.
February 15, 2007 — 3:44 pm
Mike Thoman says:
Greg,
What will the modified 10 unique Bloodhound benefits look like?
Mike
February 16, 2007 — 7:35 am
Greg Swann says:
> What will the modified 10 unique Bloodhound benefits look like?
I don’t know yet. I’m revising pages as I have time, but we’ve never been happy with that one. In the long run, I’m going to re-do everything.
February 16, 2007 — 7:57 am
Cathleen Collins says:
Hi Norm. I’ll take this one —
> reasonable grounds for one party to terminate. Why not provide for that?
We already do, in our listing and buyer broker agreements. We always have firing clauses. BTW, we give ourselves this out, too — we can fire the client if we see the relationship isn’t good for everyone.
Also, the Dual Agency Agreement reminds the clients:
But you’d better believe that the seller would have to agree to the prospect of dual agency before we would even entertain this.
I’ve been convinced, by Russell and Ardell particularly, that sometimes having the hard line against dual agency is more of a liability avoidance for us than it is of benefit to our clients. So let the client decide… Last summer when I was holding an open house at one of Greg’s listings I met an unrepresented but interested party. I was very careful to not establish any sort of implied agency, which made me dial back my enthusiasm. All the while, I realized I was certainly ruining my chances of encouraging this party to hire me to help find him a home. And, so be it — my loyalty was to the seller. But afterward, I couldn’t help but wonder whether I had also discouraged him from pursuing the home I represented. I’ll never know… he never responded to my emails. Perhaps he went to see another open house and the agent there was better able to glue him down. But I’ve been bothered ever since because I don’t believe I did my very best job for my selling client. What if?… After that I always tried to get an agent from a different brokerage to sit my Open Houses with me. But the idea Greg mentioned above,
handles this problem beautifully for me. Again, as long as the seller is aware of and agrees to this practice.
February 16, 2007 — 8:20 am
Norm Fisher says:
Thanks Cathleen. I also have a similar provision in my agreements to allow a client to exit. I hadn’t considered providing myself the same opportunity. Good idea.
“Also, the Dual Agency Agreement reminds the clients:
If you are not completely comfortable with this disclosure of Dual Representation, you are encouraged to obtain separate representation in this transaction.”
So, the agents actually let the clients read these forms in Phoenix? 🙂 I’d be willing to bet that most clients in my area get the abbreviated version from the agents. “This means blah, blah. Please sign here.” Hardly informed consent.
Agents like you, Greg, Russell and Ardell are the least of my concern. I am more concerned about the guy whose eyes glaze over when he hears things like “implied agency.”
What troubles me most is that the paperwork so often says one thing, but the agent’s actions say another. Where I work, dual agency which involves two agents from the same brokerage most often works like single agency. If that’s the case, I just don’t understand why we can’t tell it like it is.
February 16, 2007 — 7:15 pm