Dual Agency Smack-Down: A category 11 hurricane of arguments against Disclosed Dual Agency . . .

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

I’m going to stir up a category 11 hurricane by basing my initial entry in the Dual Agency Smack-Down on our past posts on the subject. Cathleen and I have dealt with this topic at great length in the past, so it seems reasonable to reinforce our arguments by revisiting them.

For the benefit of readers who may not be real estate professionals, I’ll start with our Dual Agency policy page, which defines and frames the issue:

Dual Agency is the process by which one real estate broker represents both the seller and the buyer in a transaction. It is legal in Arizona, provided it is fully disclosed and consented to by all parties.

Clear as mud?

Here’s what you’re apt to think of, when you think of Dual Agency: An agent lists a home for sale, you see it at an open house and sign a contract on the spot. The agent represents the seller. Does he also represent you? If he does, his role is reduced to that of a transaction facilitator. He carries messages back and forth between you and the seller, but he is forbidden by the Dual Agency to advocate for either of you. He may be completely scrupulous in his performance, but the chances are excellent that either you or the seller — or both of you! — are going to feel cheated at the end of the process. If “your” agent isn’t working in your interest, he must be betraying it instead. This may not be the truth of the matter, but it’s a suspicion that leaps readily to mind.

But here’s how Dual Agency usually works out. Your agent from Behemoth Realty takes you to a number of homes, including some that are themselves listed by Behemoth. You select one of these. Your agent is not the listing agent of the home you picked. It’s listed with a different Behemoth agent. So there’s no problem, right? Wrong. Your Buyer Broker Agreement is with the broker of Behemoth Realty, not with “your” agent. The Listing Contract is with the broker of Behemoth Realty, not with the seller’s agent. Both agents are themselves sub-agents of the broker of Behemoth Realty, who is “your” representative and also the seller’s. This is almost always worse than one agent representing both parties. In that circumstance, the agent will usually at least try to be fair. When both parties are represented by two different agents from the same brokerage, it almost always works out that each agent will advocate for “his own” client, which means that broker will be actively betraying the interests of both of his clients — probably without even knowing that this is what is going on.

So why does Dual Agency even exist? For the benefit of the real estate broker, of course. This answer comes from my Arizona Republic column:

So how much will the broker get paid for this farce of his fiduciary duties?

Double.

All of this predates the idea of buyer’s agency altogether. When brokers represented only the seller, the buyer was never represented. If the listing broker could scare up a buyer on his own, he didn’t have to split the sales commission with a cooperating broker.

Double-dipping isn’t very far from double-dealing, and this has always been the Achilles’ heel of the real estate industry.

So, even now, when buyers have full representation, brokers are still trying to cling to this antique idea in order to cling to the double commissions.

Because Russell Shaw and I are both licensed in Arizona, we’re talking about Arizona real estate law in the context of this debate. But laws vary from state to state, so you may have to translate our terminology into something that works for you. In some states, sub-agency — every agent works for the seller and no one represents the buyer — is still practiced. In Washington State, a doctrine called Designated Agency has been legislated into being: The listing agent alone represents the seller (not the listing broker and all the listing broker’s agents) and any other agent of the listing broker would be presumed to represent only buyers for that listing. In Florida, they practice Transactional Brokerage, which eliminates the fiduciary duty of agency — I am obliged to put my client’s interests ahead of all others, including my own — and renders every agent as, essentially, a transaction facilitator.

In Arizona, and in many other states that have adopted Buyer Brokerage, the seller will be represented by the listing broker and all his agents, and buyers can elect to be represented by a buyer’s broker and one of his agents. The possibility for Dual Agency exists because a buyer’s agent might represent a buyer on his own or another of his broker’s listings. In that circumstance, the agent is obliged to obtain an explicit Consent to Limited Dual Representation from both seller and buyer. This creates a Disclosed Dual Agency, as is discussed above.

So where’s the beef? If both parties are informed in advance that their agent will take compensation from both of them for advising neither of them — who could have an objection?

Maybe that’s too easy. My magnum opus on this topic is called Caesar’s wife on the witness stand: The moral, the practical, the marketable and the defensible approach to forbidding dual agency. Where’s the beef? Start here:

Dual agency has a bad reputation for three reasons, only one of which is wholly deserved. That one is true double-dipping agents or brokers who are looking for the biggest payday regardless of who gets hurt. Second is the public’s perception of dual agency, which is colored to some degree by negative opinions about real estate agents generally. But third is the conviction, justified or not, on the part of buyers and sellers that dual agency resulted in unfair treatment. This feeling may not run deep enough to bubble up as a verbalized complaint, much less a lawsuit, but it can still be there. You can find it by talking to friends and family members who have been involved in dual agency in the past. If you bring it up in your early contacts with prospective clients, you’ll get an earful about half the time. You will never find an ordinary consumer who understands dual agency — and likes it.

Cathleen emphasizes these points, explaining how we evolved our policy against Dual Agency:

At about the same time, Greg was representing a dear family friend in the sale of her house. He got a sign call from someone who didn’t think he needed buyer representation… he was shopping on his own and making sign calls. (He told us that the primary reason he was interested in our friend’s home more than any other was that Greg was the only agent who had returned his sign call!) By this time we were already convinced that it’s practically impossible to avoid dual agency when representing a client if the customer (a party in a real estate transaction who is not my client) is unrepresented. The party without representation is sure to rely on us for advice — even though we cannot advise a customer without creating an undisclosed dual agency. Thus, since we would be the only professional representation when half of the parties weren’t represented, we had made it policy to sign limited dual agency agreements with each party. That was the only way we could reasonably, realistically perform under that circumstance, so full disclosure via the limited dual agency agreement makes everyone acknowledge the elephant in the room.

Anyway, this particular transaction was a difficult one. Greg explained to both parties up front that since he represented both, he couldn’t advocate for either, nor could he disclose nonmaterial information he knew about one party to the other, because doing so would betray the other client’s confidences. So, when it came to negotiating the Buyer’s Request for Repairs and the Seller’s Response, he couldn’t help either. I was with the selling friend socially during this time, and she was really having trouble responding to the request for repairs so she asked my advice. I told her I couldn’t give it, and she said, “But he’s not your client, he’s Greg’s.” I had to explain that a client of anyone in one brokerage is the client of everyone in that brokerage. My friend pouted that this wasn’t fair, and she would never had accepted the offer of someone who wasn’t represented had she thought through all the consequences. Ahhhh…! Now ain’t that a kick in the head? At the same time, Greg was unable to tell the buyer how much he thought the seller might give in the negotiations, so the buyer complained to Greg that he thought he was playing favorites. When they both walked away from the transaction, we thought this was a sign from the gods.

Ultimately, we have four reasons for opposing Dual Agency:

1. In practical reality, representing two opposing parties, even completely ineffectually, is so difficult as to seem to be impossible
2. This seeming, even if a fiction of the mind, calls our ethics into question
3. This is the polar opposite of our marketing message
4. All that notwithstanding, the legal peril of Dual Agency is considerable

Back to Caesar’s wife:

Another way of judging the whole matter is, “What would an attorney do to avoid suspicion of divided loyalties?” No law firm, no matter how many attorneys it employs in how many offices, would represent both parties to a lawsuit. Lawyers and judges recuse themselves at the first hint of a suspicion of a tainted contact — far below any threshold that might be called collusion. Realtors may not want to hold themselves to that standard, but lawyers eat Realtors for lunch every workday — and they get weekends off!

I don’t presume to tell other people what to do. We forbade dual agency as a matter of brokerage policy (and there are only the two of us, so far — the kid and the dog aren’t licensed) not because we were or had been in the wrong, but because we didn’t want ever even to be perceived as having been in the wrong. If our clients feel — even if only in secret — even if only in their restless nightmares — that they have been cheated, then, from our point of view, we have failed them. We want for our clients to see us as their relentless champions — and by that I mean backlit, proud as a Bloodhound, towering heroically over every obstacle, with the music swelling to an anthemic crescendo. We may not succeed in doing that with every client, but that’s our goal.

Dual agency, anything that even hints at collusion, and every form of “referral fee”, disclosed or not, prevents us from developing that kind of relationship with our clients. So, if you ask me why I won’t do dual agency, I could give you four rationales — the moral, the practical, the marketable and the defensible.

Or instead I could give you one comprehensive, thoroughly entrepreneurial answer:

It’s bad for business…

There. That’s a start, at least. Do I feel my position is unassailable? Frankly, no, but it is up to you to ferret out the weaknesses. This is the challenge set before Russell, but it is lain before you, too.

Where am I right? Where am I wrong? Going forward, what makes the best sense to you as a universal policy — one that would achieve the greatest good and the least harm were it to be practiced by everyone? Does the problem of Dual Agency even admit of a rational solution? Take the time to think about this and to record your thoughts. We’ll hash this out until we have a broad understanding, even if we never get to a broad agreement…

Further Notice: I’ve invited some heavy hitters to weigh in as Guest Bloggers on this topic. San Diego broker and weblogger Jeff Brown may take a swing at the ball, as may others. If you have a lot to say and you’d rather say it in a post than a comment, drop me an email and we’ll work it out.

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