Double Agents - What is Dual Agency?
There are a few certainties in Massachusetts real estate. Number one is that you as a home buyer need to do your homework to secure a real estate professional who is committed to looking out for your best interests.
Disclosed dual agency has emerged in the real estate industry as a self-serving practice benefitting the industry at the consumer's expense. Disclosed dual agency is a practice where a broker, or one firm, seeks authorization to represent both the buyer and seller on the same transaction.
Would you hire the same divorce attorney as your spouse?
Disclosed dual agency is confusing because of the terminology. When a broker seeks permission from his buyer-client and seller-client to become a dual agent, he is really asking to be a "non-agent." He is asking both parties to waive their rights to his exclusive representation. He cannot negotiate or be an advocate for either party and must shift into a neutral position, leaving the clients without the protection they contracted for initially.
Disclosed dual agency generates more money for the broker but does not resolve the conflict of interest between the public and the brokerage firm. Disclosed dual agency is not in the best interest of the buyer or the seller.
Proponents of disclosed dual agency argue that current law has a provision for dual agency. There is a provision in the law but it was intended to be used for those occasional and accidental situations where an agent discovers he represents two parties who want to do business together, and therefore, he must disclose this conflict of interest. The real estate industry has taken this "legal loophole" and is attempting to use it as the solution for conflicting client relationships, i.e., when one firm represents both a buyer and seller on the same transaction.
Where does this leave the consumer? Regardless of confusing labels and double talk, buyers and sellers can sort out the situation by asking brokers critical questions:
- Will you pledge to exclusively represent me by putting my interest first throughout the transaction?
- What is your policy when you discover that your firm represents a buyer and a seller who want to do business together?
In a dual agency situation, both the buyer and the seller lose the protection of their advocate (the agent) and suddenly find themselves on their own. Therefore, the buyer and the seller have given up their rights while the broker has managed to keep the sale "in-house" and avoid a cooperative sale with another firm. This, of course, generates a higher fee. Consumer protection advocates have criticized the real estate industry for this, but such practices will continue until buyers and sellers refuse to give their consent. A dual agency transaction cannot happen without the consent of both buyer and seller.
Big Firms and Dual Agency
Many of the nation's biggest real-estate firms now regularly practice dual agency.
Dual agency evolved because of radical changes in home selling in the last decade. Once, all real-estate agents represented the seller - though buyers often didn't know that tidbit until they were ready to make an offer. To address buyers' needs, a breed of brokers sprang up to represent buyers only.
That put large real estate agencies in a bind. About a third of the time, agents from the same firm work with both the buyers and sellers of a house. If the big firms continued to pledge allegiance to sellers only, they risked losing the business of customers purchasing homes.
Their compromise: Many big firms say they will represent buyers in their search for a house and sellers in their quest to sell. But if the buyer's agent and the seller's agent come from the same firm, then the agents will act as intermediaries, rather than as advocates, for their clients.
Among other things, dual-agent situations means brokers can't tell clients how to best negotiate or pass on information that may be useful, but is confidential. Is this the service you want from a broker? Learn more about types of agents.
A group of customers sued Edina Realty Inc., a Minneapolis area firm with about 2,000 sales associates, in 1992, charging that it hadn't adequately disclosed dual-agent relationships. Though the firm denied the charges, it agreed last year to pay more than $14 million to thousands of customers who bought or sold homes when Edina agents represented both sides.
In response, Minnesota lawmakers have bettered defined what real-estate agents must tell customers, and about a dozen other states have passed legislation that makes dual agency easier. An Illinois law, for instance, allows a real-estate firm to designate one agent for the buyer and another for the seller, skirting altogether the fact that they work for the same firm.