No consensus on real estate dual agency, double-ending

Beyond Dual Agency

Editor’s note: This article is part of an ongoing series focusing on dual agency and other forms of real estate representation. View a full list of "Beyond Dual Agency" articles.

Consumer groups frown on it, calling it, at best, "nonsensical," at worst, "legalized fraud," but to the real estate industry, the practice of "double-ending" real estate deals, in some states referred to as dual agency, is a more nuanced practice — one that is fairly common and often acceptable under certain circumstances, though perhaps at times difficult to navigate.

Inman News recently conducted an online survey of agents and brokers — "Real Estate: Behind the Curtain" — that asked real estate professionals about the frequency and acceptability of more than three dozen customs and practices, including the practice of agents engaging in dual agency and other forms of "double-ending," or representing both buyer and seller in the same transaction.

Dual agency can carry a different meaning in different states — it can refer to the practice of a single agent representing both buyer and seller in the same transaction, and it can also refer to the practice of two agents from the same office who separately represent a buyer and seller in the same real estate transaction — that form of representation is referred to as "designated agency" in states that have implemented rules governing the practice.

Also, every state allows some form of double-ending, and many states that don’t allow dual agency permit "transaction brokerage," in which an individual real estate licensee can work with both buyer and seller in the same transaction in a non-agency capacity. Transaction brokers do not serve in a fiduciary capacity for any party in the transaction and simply work to facilitate the transaction.

Nearly 3 out of 4 respondents to the Inman News survey said it’s "common" for a listing agent and buyer’s agent from the same office to separately represent both the buyer and seller in the same real estate transaction, and 41 percent said the same about individual agents double-ending a deal.

Over half (58.3 percent) said it was either unacceptable or "not desirable" for a single agent to represent both sides of the same transaction, though more than 1 in 3 said it was acceptable.

Two-thirds (67.1 percent) said it was acceptable for a listing agent and buyer’s agent from the same brokerage to represent buyer and seller in the same transaction, though a quarter said it was either unacceptable (13.9 percent) or not desirable (11.4 percent).

Agents and brokers in states that allow an agent to be the facilitator of a transaction but not an advocate and true representative for either the buyer or seller — often called transaction brokerage — generally found little fault in that practice, whether it involved one agent or two.

Dual agency

Most real estate professionals contacted by Inman News said it is not possible for one person to act in the best interests of both parties in a transaction because sellers and buyers inherently have conflicting interests: Mainly, buyers hope to pay as little as possible for a home, while sellers hope to sell their home for as much as possible.

"Dual agency is very much like hiring your spouse’s attorney to represent you in the divorce proceeding," said Patrick Armbrust, a real estate broker and owner of Armbrust Real Estate Institute in Denver.

"Let’s say an agent for both the buyer and seller (in the same transaction) knows the seller would accept less than the listed price.

"Should the broker reveal that fact to the buyer in hopes of remaining loyal to the buyer? If so, does that broker violate his/her agency with the seller? If the broker does not tell the buyer, in hopes of remaining loyal to the seller, would the broker violate agency with the buyer? An interesting conundrum."

The state of Colorado does not allow "dual agency," but "non-agent" transaction brokerage — which allows a real estate licensee to work with both buyer and seller in the same transaction — is the default form of real estate representation in the state.

"I believe from a strictly legal standpoint the fiduciary goes out the window with dual agency. It simply is not possible. That does not mean the agent cannot be honest and fair with both parties. They just cannot have undivided loyalty, which is part of the fiduciary duty," said David Welch, a broker at Re/Max 200 Realty in Orlando, Fla.

"I am a transaction broker 100 percent of the time. I have to be honest and fair, account for all funds, use skill, care and diligence in the transaction, disclose anything that may materially effect the value of residential property, and present offers and counteroffers in a timely manner" — all of those duties are required of transaction brokers under state law.

"I also must keep motivation(s) of buyer and/or seller confidential as well as the price they are willing to pay (or) accept unless in a written counteroffer, and I must keep seller financing terms confidential unless in a written counteroffer."

Some real estate professionals said it would be difficult for an agent not to be biased in favor of the seller in a dual agency transaction involving an individual real estate agent, since typically the agent has signed a listing agreement with the seller before meeting the buyer.

"For me … I’ve either sold (the sellers) the house and been in touch for years, they are friends or referrals, or a simple lead that needs to sell. We’ve typically spent time with them preparing their home for sale, all the while getting to know them," said Debe Maxwell, broker-owner at Savvy Plus Co. Real Estate in Charlotte, N.C.

"A (yard) sign or Internet buyer call is an unknown customer and our ‘relationship,’ if you want to call it that, has long since been established with the sellers."

Nonprofit consumer advocacy group Consumer Advocates in American Real Estate (CAARE) calls dual agency involving one agent "legalized fraud" and "the ultimate ‘bait and switch.’ " The group’s argument is that when a previously represented buyer becomes interested in a home listed by the same agent, that agent can suddenly cease to be an advocate for the buyer.

"Dual agency is potentially one of the worst ‘bait and switches’ possible because it involves the ‘switch’ (abandonment) of a trusted adviser and advocate. Even with disclosures, consumers rarely expect the change in relationship that comes with dual agency and they are almost never prepared for the complete abandonment that defines dual agency," the group said on its website.

Gary Herbst, president and principal broker at Buyer’s Edge Realty, a brokerage in Tarrytown, N.Y., that works exclusively with buyers, used similar terms to describe dual agency.

"(Dual agency) is self-serving, it’s a conflict of interest, it’s legalized fraud … and it’s very unprofessional. (Dual agents are) representing their own interests rather than the interests of their clients, all because of money and transaction control," Herbst said.

"Dual agency … is a nonsensical concept since there is no way a broker can represent the financial interests of both seller and buyer," the Consumer Federation of America (CFA) said in a June 2006 paper.

Nevertheless, some real estate professionals say dual agency — of the type in which one agent represents both buyer and seller in the same transaction — is acceptable when the agent is honest and fair to both buyer and seller.

"At the end of the day, the seller wants to get (the home) sold and the buyer wants a home. If an agent is honest, (that agent) can easily put a deal together that both parties are happy with," said Stephen Long, a broker at Premier Realty, NC, in South Advance, N.C.

He compared the practice to mediating between two sports teams: for example, a "red team" and a "blue team."

"The blue team (the buyers) has a coach called a buyer’s agent. The red team represents the sellers, and it has its own coach: the listing agent. Aside from the two teams, who is the only other person allowed on the field during the game? The referee.

"In a dual agency (transaction), I would be like the referee. If I know the blue team is throwing a long pass, I can’t go tell the red team, and vice versa. I would be required to call a fair game," he said.

Ines Eiras, an agent and real estate consultant at Better Homes and Gardens Tri-Valley Realty in Livermore, Calif., said another benefit to dual agency is increased assurance that a transaction will close.

"Dual agency is very common in our marketplace, because knowing the transparency, commitment, ethics, and competency of the other agent, whether it is you or a colleague from your office or brokerage company, is key to the success of closing a transaction — in particular, those transactions that are more risky or more difficult to close," she said.

Buyers will often consent to dual representation in order to avoid dealing with a middleman between themselves and the sellers, Eiras said. Sellers, in turn, consent "because they feel like their agent has better control of the transaction," she said.

She said dual agency works well when both parties have "win-win" attitudes.

"It is more difficult to represent dual agency when one party always has to win or have the upper hand of the transaction," Eiras said.

Disclosures

State laws vary on whether and what kinds of dual agency are allowed. And all states that allow dual agency require agents to provide buyers and sellers with disclosure related to dual agency.

Many states require agents to provide buyers and sellers with disclosures regarding agency relationships.

Most states require brokers to provide buyers and sellers with written disclosures of agency relationships. In Florida, licensees are presumed to be acting as transaction brokers and are not required to provide consumers with agency disclosures unless they are representing clients under a single agency relationship.

Those real estate professionals who say dual agency is an acceptable practice — regardless of whether it involves one agent, or two agents from the same office — generally say clients have a right to choose the type of representation they want as long as agents provide them with the proper disclosures.

"I would not hesitate to practice dual agency. The reason for this is simple: If the customers get all of the disclosures, understand them, and agree to them, then they know what they are doing," said Brian Rayl, an agent at Keller Williams Elite in Dallas.

Texas law allows for an "intermediary" relationship similar to transaction brokerage, in which an agent can act as a neutral facilitator between both parties.

Whether consumers fully understand the disclosures and types of agency representation is an open question, though many real estate professionals say the disclosures provide an opportunity for agents to educate their clients.

"Typically, (consumers) are emotionally charged and ready to write the offer, so that is their focus. But this is where the issues can come into play, so it’s critical agents take time to help the customer really understand what they are reading and signing," said Jason Lopez, broker-owner at Smart Real Estate Solutions in San Diego, Calif.

"It’s a really great opportunity to show your experience, help them understand why this is important, and ultimately help you really build that relationship," he added.

Limited services

Dual agents are often limited in the services they can provide their clients, especially when it comes to offering advice and negotiating. Disclosures often spell out, both for agents and consumers, what dual agents may or may not do. For example, the Chicago Association of Realtors’ exclusive listing agreements and buyer-broker agreements spell out nine services agents can provide during dual representation and five services they cannot provide.

"When representing the seller and the buyer on a transaction, I provide the exact same (comparative market analysis) and give each a copy. I explain to them that I am basically a middleman delivering offers and counteroffers based on the duplicate data each of them have in their possession," said Alexis Eldorrado, managing broker of Eldorrado Chicago Real Estate LLC. She said dual agency is "extremely common" in the Chicago market.

Some real estate professionals argue that dual agency flies in the face of true real estate representation.

Sam Chapman, an agent at Private Label Realty in Austin, Texas, where an "intermediary" relationship is allowed, said such agents "just hand paperwork back and forth" and consequently "are of little use aside from getting the contract together."

"There is no longer representation for either side. Imagine going to a pharmacy and getting your prescription filled and the pharmacist not giving you any information about side effects, interactions and other cautionary information," Chapman said.

"At the very least, (dual agency doesn’t) provide services to consumers that they could easily receive by avoiding a dual agency situation," said Kimberly Kahl, executive director of the National Association of Exclusive Buyer Agents (NAEBA).

Dual agency can be risky business

In addition to reduced services to both parties, the pitfalls of dual agency can include a diminished sense of trust between agent and clients and an attendant risk of liability, some agents and brokers say.

"Not having practiced dual agency, it is my belief that an informed consumer would question the loyalty and advocacy of a dual agent. In my opinion, supporting the validity of dual agency as it is typically defined requires some creative mental gymnastics," Armbrust said.

Stephanie Kelley, an agent at Keller Williams, Legacy in San Antonio, Texas, said when buyers and sellers are represented by a lone intermediary in a transaction, "risk is likely to occur when one party to the transaction becomes disgruntled. The client is more likely to seek mediation or sue because (the client doesn’t) feel (he or she has) been properly represented. Even if the agent is proven not to be at fault, it can cost valuable time and money."

Property defects can be a particular concern when it comes to liability.

"Something is bound to break after the purchase of a home," Maxwell said. "When the buyer finds the defect, the immediate thought is that ‘(The agent) tried to pull the wool over (my) eyes!’ "

The risk of legal repercussions especially apply if a brokerage offers incentives, such as higher commission splits, to agents who sell in-house listings to their buyers.

"My broker doesn’t endorse this practice, as it may lead to an agent ignoring the best interests of the client in favor of the best paycheck," said Chris Dowell, an agent at Re/Max Premier Realty in Prairie Village, Kan., a Kansas City, Mo., suburb. Dual agency and several other forms of representation are permitted in Missouri.

"There is a large, local brokerage that pays a significant bonus for selling in-brokerage listings, and because of that, faces … lawsuits, as well as a buying public that is very cynical toward that brokerage’s actions."

Some agents will agree to take a lower commission when they handle both sides of a transaction — an approach endorsed by consumer groups. Others say the extra risk involved in double-ending deals merits they take the full commission.

"I personally do not offer discounts to buyers or sellers for double-ending my own deals, as the liability and exposure is greater, therefore the compensation should be normal to match the exposure," Eiras said.

Acceptable dual agency

As the Inman News survey results suggest, there is at least one form of dual agency that is relatively less contentious: dual agency that involves two agents from the same brokerage office.

"Two agents from the same company, each having a fiduciary relationship with their client (one with the buyer and the other with the seller) is perfectly acceptable. It is assumed that (they) can each advocate for their client without the logical inconsistencies inherent in (single-agent) dual agency," said Charles Roberts, a director at the Denver Board of Realtors and co-owner of Your Castle Real Estate.

Although the state of Colorado does not allow "dual agency," "non-agent" transaction brokerage is allowed. The state also permits "designated agency" — which allows agents at the same firm to separately represent a buyer and seller in the same transaction as fiduciaries without creating dual agency for the employing real estate broker. (The term "designated agency" can carry different meanings in different states.)

Exclusive buyer’s agents may take issue with this form of representation, in which two agents from the same office represent parties on different sides of the same transaction, as clients often sign contracts with brokerages, not individual agents, and in most states agents act on behalf of their broker, NAEBA’s Kahl said.

"If the brokerage and therefore the broker is representing both the buyer and the seller, it is still one party negotiating with itself, and true representation can’t be provided," Kahl said.

"In addition, in brokerages where agents work in one office together, conversations can be overheard and faxes and emails can be seen. This is not necessarily intentional, but having worked in offices for nearly 20 years, I can tell you that it is easy to overhear or inadvertently see something that could compromise one party or the other," she added.

In that situation, office culture can play a role. Michele Guss, an agent at Thompson’s Realty in Phoenix, said that in her brokerage, agents don’t "sit around gossiping about their clients and transactions."

"With that said, I will say when I was with (another brokerage), agents were always telling other agents what listing they had and what a seller would be willing to accept. This is not OK. Agents are not authorized to give any (information) unless the seller or buyer specifically authorizes them to do so," she added.

When a particular brokerage dominates a market or a brokerage is particularly large, situations in which agents from the same office are involved on either side of the same transaction may be difficult to avoid.

Rayl, who works in an office with 160 agents, said that if two agents from the same office working on either side of the same transaction "was not allowed, then I would not be able to sell any of their properties. If the real estate industry put an end to (that practice, it) would effectively be putting an end to large offices."

Dual agency is not allowed in Texas, though individual agents on each side of the transaction can work as either an "intermediary," owing no fiduciary duties, or work in a "single agency" capacity, owing fiduciary responsibilities to the client. Also, a single real estate professional serving as an "intermediary" could work with both the buyer and seller to close a real estate transaction.

Texas requires that intermediaries treat all parties honestly and not disclose confidential information unless authorized in writing to do so.

Why it persists

Often buyers will agree to, or even pursue, situations in which one agent works with both buyer and seller in the belief that it will save the buyer’s agent portion of the commission paid by the seller, thus reducing the overall cost of the house, agents and brokers say.

"It’s all about saving money. Most buyers think they can save on price by asking a dual agent to knock down his or her commission. Most don’t understand that commissions are negotiated at the time of the listing," said Stephanie Crawford, an affiliate broker at Zeitlin & Co. Realtors in Nashville, Tenn., a state that allows single agency, dual agency (called "limited agency"), designated agency, and transaction "facilitator" forms of real estate relationships.

In Tennessee, licensees are presumed to be providing services as non-agent facilitators unless they have a written agreement to provide services in another relationship.

"Many people think they are saving money by going directly to the listing agent. A good buyer’s agent is worth their weight in gold — even at today’s prices. I don’t really think (consumers) understand about the different levels of service or obligations under the varying relationships," Kelley said.

An exception may be when, in anticipation of possible dual agency, a seller negotiates a reduced commission in the event the listing broker also is working with the buyer.

"Presumably, in this case the dual agency functions to the seller’s advantage, as well as to the buyer’s — if he or she is able to purchase at a reduced cost," said Roberta L. Golubock, senior vice president at Sotheby’s International Realty in New York City.

The accessibility of real estate resources on the Internet has actually contributed to the prevalence of dual agency, some real estate professionals say.

Kansas agent Chris Dowell said he believes that there is a "trend toward unrepresented buyers purchasing through listing agents directly," and that it is "the result of two major influences or trends: 1) as more and more buyers find properties on the Internet, those same buyers are contacting the listing agents directly; and 2) while fewer part-time agents are entering and staying in our industry, there is a growing trend toward the ‘do-it-yourselfer’ mentality as more buyers attempt to represent themselves."

Nevertheless, that same technology may also spur dual agency’s demise, said some others.

"I think (dual agency) is a holdover from the days when both agents represented the seller, and the buyer was technically not represented. It was customary to ‘double dip’ and earn both sides of the commission," said Roselind Hejl, an agent at Coldwell Banker United Realtors in Austin.

"In today’s world, agents may get away with this once in awhile, but dual agency is rapidly coming to an end. The public wants more information and transparency. It is up to us to respond to that," Hejl said.

Matt Carter contributed to this report.

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