What Dual Agency Means in Real Estate

23 Jan What Dual Agency Means in Real Estate

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The following article reflects solely the personal opinion of Paragon’s Chief Market Analyst, Patrick Carlisle, who is not an attorney at law and thus not qualified to provide legal advice of any kind, nor is he an official spokesperson of the Paragon Real Estate Group in this matter. There are many differing opinions regarding the issue of dual agency. Please see the excerpt from the state “Disclosure Regarding Real Estate Agency Relationships” following the article.

Note: Except in the term “dual agency” or “dual agent,” in the following article, I will use the term “broker” to signify the real estate firm or brokerage, such as the Paragon Real Estate Group, and the term “agent” to mean an individual real estate agent, such as Patrick Carlisle of Paragon Real Estate.

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Dual Agency: Two Agents at One Brokerage Representing both Parties

The term dual agency in real estate legally describes the situation where one brokerage firm represents both the seller and the buyer in a single transaction. Both seller and buyer must be explicitly told that the broker will be acting in this capacity and consent for it to occur. Usually, when an agent takes a listing or starts working with a buyer, the client signs a form giving this permission. With some caveats, it is typically in the client’s best interest to allow this form of dual agency to occur, otherwise one Paragon agent representing a seller could not market and sell the listing to any of the hundreds of buyers represented by other Paragon agents, and vice versa. This would not be advantageous to either buyers, who want the widest selection of options in buying, or to sellers, who want to reach every potential buyer in the attempt to achieve the best price and terms of sale.

In this situation at Paragon, the agents owe fiduciary duty to both clients and must maintain complete client confidentiality. Though working at the same brokerage, there is a so-called “Chinese wall” separating the two agents, and they act much the same as in any other transaction, working with each client individually to facilitate the successful completion of the transaction. This form of dual agency, at least in my opinion, is fine as long as the brokerage firm does not try to orchestrate a dual agency situation solely for its own financial benefit (twice the commission), instead of representing the clients’ best interests to the highest possible degree.

An example of improper dual agency would be a brokerage firm encouraging its agents and clients to buy and sell listings within the firm, perhaps as a so-called pocket listing, even when it would be more advantageous for the seller to market the property comprehensively to the buyers and agents of every brokerage. Typically, the best way to achieve the best sales price is to market the property as widely as possible and then choose the best offer regardless of whether it originates from the buyer of an agent at the same brokerage. On the buy side, it would be improper to steer buyers to the brokerage’s own listings instead of providing them with the full range of purchase options and opportunities.

Dual Agency: One Individual Agent Representing both Parties

The colloquial and more commonly used meaning of the term dual agency is when a single individual agent represents both buyer and seller in the transaction. This is also called double-ending the deal, as in “Joe Jones double-ended his listing at 123 Main Street.” This is more problematical than the typical dual agency situation where two agents from the same firm are involved. In this situation, the single agent owes fiduciary duty – the duty to protect the client’s interests above all others – to both clients, who of course have opposing interests: the buyer wants the lowest possible price and the seller wants the highest. Some people believe it’s impossible for a single agent to represent the best interests of two opposing parties in a negotiation, and think this form of dual agency should be illegal. However, it is legal in California, albeit with the caveats that the agent must keep each client’s confidentiality, demonstrate no greater loyalty to one client nor the other, and as written in the statutory disclosure, “may not, without the express permission of the respective party, disclose to the other party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered.” That can be a challenging role to live up to, but it is not impossible.

In this form of dual agency, the agent becomes less an aggressive protector of his or her client’s interests and more a facilitator in the transaction. And, if the agent makes efforts to orchestrate a dual agency situation for the main purpose of earning greater commissions on the deal – perhaps by limited marketing, lack of cooperation with other agents, violating confidentiality during the offer negotiation process, telling a prospective buyer they could get a better deal or an “inside track” by writing the offer through the listing agent, or improperly trying to influence the seller to accept the offer of the agent’s own buyer when other offers might be superior — it is likely that the interests of one or both of the clients are being sacrificed to that end. This would be illegal, as a violation of the agent’s fiduciary duty to clients, as well as a violation of the Realtor Code of Ethics.

If both buyer and seller each felt he or she had the ability to negotiate effectively on their own behalf without any help from the agent, and wanted the single agent to represent both parties because of that agent’s experience, honesty and capability to manage other aspects of the transaction, that might be a valid reason for consenting to or even requesting dual agency.

Some individual agents will not act as a dual agent ever, typically because they feel they are paid to represent a single client’s best interests aggressively—and they don’t believe it’s possible to represent two opposing clients’ interests effectively. If they have a buyer for their own listing, they will typically refer that buyer out to another agent for a referral fee that will be paid if that buyer’s offer is accepted and the transaction closes. They should disclose the referral fee arrangement to the seller, so that the seller understands that the agent may be incentivized to influence the seller to accept the offer from that buyer instead of the offers of other buyers (even if they are superior). This is generally not a big concern because of the agent’s issues with dual agency in the first place.

Some agents prefer to act as dual agents, most often due to the large financial incentive of receiving both sides of the total commission, in other circumstances usually split between separate listing and buyer’s agents. Again, this is not illegal, as long as it is disclosed to both parties, informed consent is received from both parties, and the agent conducts him or herself strictly according to the statutory rules governing dual agency. However, it is not a bad idea, when interviewing agents to represent you in one of the largest financial transactions of one’s life, to ask how often the agent has acted as a dual agent in the past year or two, if the agent will act as dual agent if the opportunity presents itself in your transaction, and if so, how he or she will act in that capacity and whether the agent sees any diminution of service to you because of it.

Generally speaking, in my opinion, a principal is better served by having an agent dedicated to protecting the principal’s own interests. One thing I believe is absolutely true: The quality of agent one hires to represent one can make a huge difference in the outcome of the purchase or sale of real estate.

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Excerpted from the statutory California “DISCLOSURE REGARDING REAL ESTATE AGENCY RELATIONSHIP”. Note that In the below text (unlike the article above), when the disclosure refers to the “agent” they are referring to the brokerage. (Per the state’s definition, the brokerage is the legal agent, and what we typically call agents are actuallysubagents of the brokerage — and are referred to as such below.):

SELLER’S AGENT

A Seller’s agent under a listing agreement with the Seller acts as the agent for the Seller only. A Seller’s agent or a subagent of that agent has the following affirmative obligations:
To the Seller:
A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Seller.
To the Buyer and the Seller:
(a) Diligent exercise of reasonable skill and care in performance of the agent’s duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties. An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.

BUYER’S AGENT

A selling agent can, with a Buyer’s consent, agree to act as agent for the Buyer only. In these situations, the agent is not the Seller’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Seller.
An agent acting only for a Buyer has the following affirmative obligations:
To the Buyer:
A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Buyer.
To the Buyer and the Seller:
(a) Diligent exercise of reasonable skill and care in performance of the agent’s duties.
(b) A duty of honest and fair dealing and good faith.
(c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the parties. An agent is not obligated to reveal to either party any confidential information obtained from the other party that does not involve the affirmative duties set forth above.

. AGENT REPRESENTING BOTH SELLER AND BUYER

A real estate agent, either acting directly or through one or more associate licensees, can legally be the agent of both the Seller and the Buyer in a transaction, but only with the knowledge and consent of both the Seller and the Buyer. In a dual agency situation, the agent has the following affirmative obligations to both the Seller and the Buyer:
(a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either the Seller or the Buyer.
(b) Other duties to the Seller and the Buyer as stated above in their respective sections.
In representing both Seller and Buyer, the agent may not, without the express permission of the respective party, disclose to the other party that the Seller will accept a price less than the listing price or that the Buyer will pay a price greater than the price offered.

The above duties of the agent in a real estate transaction do not relieve a Seller or Buyer from the responsibility to protect his or her own interests.

 

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