Dual Agency Smack-Down, how about sub-agency?

by Russell Shaw

Mega-Producing Realtor

Author website

It has been said that democracy is the worst form of government except all the others that have been tried. – Sir Winston Churchill

Thank you to Jeff for responding SO well to Greg’s points and issues. I do understand Greg’s points and in a perfect world – almost everything he has to say is just fine. We don’t live in a perfect world and I don’t expect to anytime soon. All of the various arguments about single agency seem analogous to a single agent describing how his service is better than mine because he – and he alone – is going to be the only person to respond to his buyer or seller. When they deal with me it is set up more like an assembly line – with different individuals taking care of each of the different aspects of taking care of the client.

Who is right?

Well if the single agent has only the one customer or client and is willing to devote all of his time to that client, then he is right. I’ll not spend a lot of time pointing out how this is not a viable business model.

If that same agent has just one additional client or customer he now can “have a conflict” concerning his two clients. Say client # 1’s house just got a sign call and there is a buyer who wants to see it right now – and client # 2’s property just had an offer written on it and the other agent wants to present that offer right away. The single agent is only offering single agency to both of those sellers so he does not need to worry about agency conflicts.

Just add one new customer into the mix and there is the potential for conflict. So, why do I bring up SUB AGENCY? Isn’t it the most awful thing to ever have happened in the history of the world? Not really. And you might be surprised at what actually killed the beast – it wasn’t the “single agency issue”. I am blessed to live in Phoenix (for a vast number of reasons) where – thanks to our forms committee people and MLS committee volunteers – we have one of the more progressive real estate practices in the country. We were offering buyer agency compensation in our listings as soon as it was being offered anywhere. Sub agency was almost all gone here for years while many boards and Realtor associations around the country were still debating the merits of the seller having to ever pay a commission to an agent who was not representing him. Very early on our MLS forms allowed us to offer commissions to sub agents and buyer brokers – in fact they still do today. Some agents still offer sub agency in their listings – but I don’t think very many agents accept it. I’m not sure they even understand what they are agreeing to or having their client agree to, when they offer it – but they still do it.

Why is sub agency so awful? What caused the large firms to stop allowing it?

I remember that Coldwell Banker offices here in the Phoenix area stopped allowing it the same week I stopped (please – if anyone from the FTC is reading this – I did NOT enter into a pact with Coldwell Banker branches to deny the public full access to all enriching types of agency). What drove the stake into the heart of sub agency? An appellate court decision in Texas would be the correct answer. Maybe somebody with a much better memory than mine can post the specific case. The relevant details were: a real estate salesman on his way to show a house had a car accident. As it turned out that real estate salesman didn’t happen to have car insurance. Please remain seated – the lawyer representing the “buyer” (I don’t believe he actually purchased the home he was going to see) sued the listing agent and the seller. Under a legal principle known as “Joint and Several Liability” the plaintiff can go after anyone in the chain who has insurance or money. As the real estate agent with no car insurance was performing an act of sub agency for the listing agent, who, by virtue of placing the listing into the MLS, was performing as an agent of the seller – the seller was liable for the “buyer’s” medical costs. What was remarkable is that this was upheld by an appellate court in Texas.

The day I heard about that was the day I went in and changed every listing I had in MLS and sent my sellers a notice that I had done just that. We also immediately stopped offering or accepting contracts with sub agency. But prior to that it had not really been much of an issue for us. It was after this event occurred that sub agency became known as the most awful thing ever to have happened to mankind. But this was revisionist history and oddball inductive logic. No one who knew what was right wanted to do it anymore so it must be JUST AWFUL.

Even Dual Agency isn’t “good” or “bad”. And “single agency” is the same – neither good or bad, except by observation of the results – after the fact. As a point – it ISN’T dual agency that really gets one in trouble. No no. It is (drum roll please) UNDISCLOSED DUAL AGENCY. You can lose your license for that – and rightly so. What was “wrong” with sub agency was really undisclosed dual agency. The agent pretending to represent the buyer and not telling them they only represented the seller. THAT really was very wrong. But it was also the agent being a damned liar by withholding vital information from the buyer. Many times I had a good buyer client prior to buyer agency even being an option. It wasn’t the end of the world. I would tell them that I legally represented the seller (who I did not know) and that they could not tell me anything they would not want the seller to know. If they started to tell me something about what they would pay (a higher number than the offer they were making) I would gently remind them that they can’t say that to me. And in the case of me representing a family member – just disclosing that relationship to my “seller client” was notice to them of my dual agency relationship. So there was no UNDISCLOSED dual agency.

All the little back and forth on the nuances of dual agency vs. single agency make for wonderful fodder for lawyers and courts. I believe the best defense against having to explain those nuances to a judge or plaintiff attorney is to always really treat each customer and client exactly how I would like to be treated. This is of course modified by how THEY would like to be treated – but you get the idea. Are there endless possible problems from the “ignorant Realtors” who will never read this here (or any similar version of it anywhere else)? Sure. But vastly reducing one’s income to “avoid looking like you might have stolen from somebody” is madness. If you believe that your clients now love single agency – explain it differently. I put this post in the marketing category. One of the things I learned to do some time back was to position everything we do as a benefit to the client. If you are with Re/Max – explain how Re/Max has the most incredible referral network in the world. If you are with Realty Executives, explain how Realty Executives sells more houses than any other company in the state of Arizona. If an agent working alone – show them why that is best thing for them. If you like open houses (I don’t and promise we will never do one for them) let them know the terrific benefits of open houses. You get the idea. Whatever one is doing has SOME benefit. Find it and make that a reason to do business with you.

I personally have (other than knowing it well enough to avoid any problems) always found agency a boring subject. There are several thousand people who could debate the issue far better than I could – and I’m OK with that.

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Jonathan Dalton writes: (in response to my first agency post) Well stated, Russell, on everything from the pointless quest for a National MLS to who pays the commissions to dual agency being a viable option in some transactions. Couldn’t have said it better myself, although I certainly tried.

He included three links where he “tried”. I disagree with Johathan. I think he did say it better. Here are those three links: link 1, link2, link 3

John K writes: Thanks for the post, it was helpful. Sort of off-topic, how does it work in your office when it goes from co-broke at 6% to in-house at 4%? What would be the effect on the agent’s final split? Say your company had to do a co-broke, you you as seller’s brokerage ended up with 3%. Assume the agent who sold the home was on a 50% split – so the agent would end up with 1.5%. Now, if you do a direct sale, the total commission goes down to 4%. If you are on a 50% split, will the agent end up with 2%?

“The agent” in your first question would be someone working for me – one of my buyer agents and if a 4% deal we would pay them 1% (but they only had to show one house) instead of splitting, say a 3% commission 50 – 50. So it would make no real difference to me (personally) if a Realty Executives agent brought the offer or my Buyer Specialist did.

Doug Quance writes: Although you make some good points, Russell… I’m not yet sold. Does Arizona not have Designated Agency? Do the agents on your team not specialize in sellers and buyers, respectively? In Georgia, I can list a home… and another agent in our brokerage can represent the buyer – and true Dual Agency does not exist (well, it does in the strictest sense… at the Designated Broker level). This way, the Buyer’s Agent does not possess the intimate
knowledge of the Seller… and the Listing Agent does not possess intimate knowledge of the Buyer. The goals and objectives of Buyers and Sellers are not occasionally at odds with each other – they are often consistently at odds with each other. The Buyer wants to purchase a property at the lowest price – and the Seller wants to sell at the highest price. A single agent representing the interests of both of these parties can not, by definition, do so to the fullest extent. They can only do so to a limited extent.
Dual agency is like being charged with a crime… and allowing the Prosecutor to represent you.

I work for a company with about 925 agents. If we list a house and any one of those agents were to bring us an offer (not just the agents on my team – who DO specialize either buyers or sellers) we are dual agents – period. Both I and the other John Hall agent represent both the buyer and seller – and both must consent to it in writing prior to the contract being presented. When an agent in my office (works for me) is the agent writing the offer we have sort of a “Chinese wall” system. We don’t treat our own Buyer Specialist any differently than an outside broker with regard to what information they will or won’t get.