A Case (by Case) For and Against Dual Agency

by Kris Berg

Realtor, Associate Broker

Author website

Trevor Smith’s answer to Dual Agency?

Let the buyer represent himself, and give him the commission regularly paid to the Buyer’s Agent. (Granted, this would still leave the buyer relatively unprotected, but at least if something goes bad, its his own fault and not the agents).

Your obvious question is, “Where are the customary apostrophes to indicate a contraction or possessive noun?” No, wait, that is just me. What you are really thinking I suspect is that this sounds suspiciously like a Redfin philosophy, but then, Trevor is not so coincidentally a Redfin agent from Seattle.

By the way, according to Trevor, Redfin’s Blue Collar Spokesmodel, they are gaining market share there at warp speed. In 2006, it was reported that Redfin closed over 200 transactions. Now, it seems they are putting those deals to bed at a clip of 90 a week. I feel a press release coming on!

In light of Trevor’s recent remarks, I’ll take the opportunity to open old dual agency wounds. Is dual agency truly the root of all evil? It depends on who you ask. Even here at the Kennel Club, we have two camps. Now, let’s make that three.

I fall somewhere in the middle on the subject. Steve and I have acted as dual agents in many transactions. We do not like it, and we do not seek it out, but at times it is so very appropriate that any argument suggesting we are compromising our agency duties is simply ludicrous.

BITING THE HAND THAT FEEDS ME

Greg Swann is a well-known critic of dual agency transactions.

Disclosed Dual Agency cannot possibly be effected — in reality — without repeated, overt agency violations.

I will offer one example of how this statement is not only wrong but offensive to those of us that bend over backwards to protect the rights and interests of our clients – all of them. We closed escrow recently on a transaction involving our listing and our buyer. The reasons dual agency worked in this situation relate back to Russell Shaw’s contention that we have less control over our client’s decisions than one might imagine.

The idea that the agent somehow controls what a buyer will pay and what a seller will accept only indicates a disconnect from reality.

In our particular case, I had been showing past clients homes -many of them. And by past clients, I mean that we had an established relationship; we represented them on the sale of their last home over a year ago, and they most recently had been in my car for three consecutive weekends looking at properties. They were very qualified to purchase a much more expensive home than those at which we had been looking, but they were very disciplined. They established a maximum price limit and were committed to standing by it, as evidenced by the two offers we submitted that died because of their unwillingness to go a penny beyond this number. Enter new listing. This listing was what Steve and I have come to refer to as an SOS (save our sale). It had previously been marketed by a “relative” for six months to no avail. The sellers were anxious, to say the least.

This particular home did not meet the buyer’s prescribed “needs”, yet I have learned that a buyer’s true needs are a moving target. I suggested they take a look, as it was in their price range. The bottom line is that the buyer instructed me to write a take it or leave it offer. They buyer had seen enough homes to perceive value at the offered price; the seller had been on the market long enough to perceive value in the offer submitted. The interests of both sides were served.

Certainly, negotiated items in a transaction involve more than price, but it is a fallacy to suggest that the price issues does not eclipse all others. Greg commented recently:

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.

This is minutia and, while there are arguments to make against dual agency, this particular argument is weak. The bottom line is the bottom line. Pay me now or pay me later. From the seller’s standpoint, I can make that last mortgage payment and get a bigger check at closing, or I can pay it out of my proceeds and receive a smaller settlement.

TINKERS AND TEA

Ardell DeLoggia had a dream about the negotiating process becoming more civil and, therefore, more productive. She proposed long ago (and I am too lazy to look up the link) that, with the parties really working toward the same end game, the process just might be more productive if the principals talked it out over a cup of tea. I challenged the idea at the time as being more than a little utopian, and yet if there was ever an opportunity for this type of approach, the dual agency transaction may provide the best environment. Success in a real estate transaction should not be measured by how much you have beat up and bullied the other party; it should be measured by the outcome. As agents, we are both advocates and functionaries. Either role can be more or less important in any given circumstance.

PERCEPTION IS REALITY

Jeff Brown correctly acknowledged that the issue of perception is perhaps the greatest barrier to successful dual agency, and perceptions of favoritism and compromised advocacy always pose a liability threat. This is why a dual agency role should only be assumed under the proper circumstances and with the maximum of care and caution.

At the risk of oversimplifying, an agent’s duties can be loosely lumped into three categories: Entry, negotiations and transaction oversight. And there are really three categories of buyers that could throw you into the dual agent role:

• Buyer as established listing agent client;
• Buyer as accidental client; and,
• Buyer as listing agent shopper.

The listing agent shopper (LAS) is perhaps the perfect candidate for the dual representation scenario. I’ll call him Redfin Direct. He either doesn’t want representation or doesn’t think he needs it. He has accepted responsibility for access and he has mentally taken on the role of negotiator, so he is going to be the least concerned with agent loyalties. His perception is that he only needs a functionary, and his primary motivations are control and money, mostly money. His perception is that by approaching the listing agent directly, he will negotiate a credit in terms of price or actual monetary concession in escrow, and he is often correct. Variable commission structures to the seller are not uncommon (the fee is less if the agent represents both sides), and absent a variable commission, the LAS is in the position to negotiate directly with the listing agent. Either way, he sees money up for grabs, and the biggest issue is who the lucky recipient of the windfall will be.

The case of the accidental client, that buyer who has wandered in unrepresented as a sign- or ad-caller is the most likely candidate for reassignment to an uninvolved agent. With an established relationship between seller and agent, and absent an established trust between buyer an agent, dual agency in this situation begs for perceptions of conflict of interest down the road, both real and imagined.

The established listing agent client is a sticky wicket. Surprisingly, we find ourselves in this situation often. The established client won’t want to be reassigned to another agent to represent him, as he is presumably working with his agent because of the past relationship and earned trust. With the agent having a clear loyalty to and familiarity with both parties, the agent would be wise to expect the “Mom always liked you best” charges. Reassigning the established client could simply exacerbate the perception of favoritism, at least in the mind of the buyer. To continue to represent both sides successfully and leave the impression that both were loved equally will likely cost the agent.

DUAL AGENCY AT A COST

The cost of successfully performing as a dual agent is huge, in terms of both time and money. Each and every time we have accepted this role, the effort has been logarithmically greater than that of the single-side transaction. To ensure that both sides leave the transaction feeling that their interests have been served requires the utmost of attention, care and finesse. Then there is the money. Even if the dual agent is able to make it through the price negotiations with their fee intact, they had better expect to have that checkbook poised at all times. When it comes time to negotiate repairs, for instance, guess who is most likely to cut the check?

DIVIDE AND CONQUER

So, I am the middle man on the issue. Depending on the circumstances, dual agency can make all the sense in the world or no sense at all. As a not-so-trivial caveat, if Steve and I were not a “team”, it would never make sense (unless of course we enjoyed the inside of a courtroom). With two bodies, we always choose to share custody in these circumstances. At the first sign of a potential dual agency situation, and only with full knowledge and consent of both parties, we agree to an amicable separation. He will represent one side, I will represent the other, and we will reconcile as one big, happy family only once all contingencies have been removed.

So, I don’t see dual agency as inherently evil, just inherently risky business. Arguments against the practice are based on a potential compromise of agency and fiduciary obligations. As Trevor suggests, what better way to avoid blurring of the agency lines than to eliminate agency for one side altogether? At least then, if something goes bad, its his own fault and not mine.