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My love-hate relationship with dual agency began about 10 years ago on a flight from New York to LA. The conversation with the guy in the seat next to me turned to what we each did for a living.
When he said he was a real estate attorney, I thought maybe I’d found a good source of leads and asked him if he represented investors or sellers. “I represent clients to sue brokerages when they mess up,” he said. “What do you do?”
I squirmed in my seat. “I’m the Broker of Record for a brokerage.”
“Do you allow dual agency?”
“Yes.”
He laughed. “Keep doing dual agency; it’s how I’m putting my kids through college.” This was going to be a long flight.
Before going any further, let’s define the “dual agency” he was talking about: It’s the one in which the buyer and seller are represented by the same individual agent, or even members on the same team.
Dual agency and fiduciary duty
I have no problem with the basic form of dual agency in which agents from the same brokerage represent the buyer and seller in a transaction; in this age of monolithic brokerages, it would be unrealistic and impractical even to suggest ending this form of dual agency.
But when a single agent or even a single team represents both sides, it strains the ability of an agent to provide even the barest level of fiduciary duty owed to each client.
In the aftermath of the National Association of Realtors commission lawsuit settlement, there was a lot of talk about dual agency. At that time, Jim Dalrymple II broke down the legal landscape surrounding the practice:
The U.S. is a patchwork of differing laws when it comes to dual agency. According to ARELLO [the Association of Real Estate License Law Officials], most states do allow dual agency, albeit while requiring the parties involved to sign a written agreement. A handful of states allow dual agency with no agreement.
A total of nine states prohibit dual agency. The first to do so was Texas, in 1993, and the most recent was Maryland, in 2016, according to ARELLO.
In practical terms, if you’ve ever double-ended a deal, you know how difficult it is to maintain confidentiality when you know what the seller would take and what the buyer can spend. It’s even harder to maintain neutrality when a deal gets contentious and you need to strategize opposing goals, advising each client as if you didn’t know what the other side truly wants.
It’s like playing chess against yourself; one can’t forget what the other side plans by simply moving to the other side of the board. (In a cartoon world, this selective amnesia could be induced with a well-placed anvil to the head, but in real life, the resulting CAT scans and MRIs would be cost-prohibitive.)
Just as parents are not supposed to favor one child over another, dual agents are not supposed to favor one client over another. And if at times a parent finds it hard to maintain impartiality, how much more so for an agent and their client?
Some brokerages solve this conundrum by allowing different team members to represent each side. This is certainly better than having only one agent, but even when agents are from different companies, things can get a bit fuzzy with confidentiality to “grease the wheels” to move a deal along.
Yes, I’ve seen some teams handle this version of dual agency exceptionally well, with written policies of a “Chinese Wall” and guidelines on when to bring in the broker or manager. However, more often than not, I’ve witnessed teams do a pretty terrible job by breaching confidentiality, and even worse, I’ve seen both sides team up against the buyer or seller. So much for our duty to always act in our clients’ best interests.
Agents like dual agency because it leads to higher commissions. Brokerages like dual agency because it leads to higher company dollars. Win-win, right?
I’m sure that the companies pushing the value of private networks are doing so because they sincerely believe it serves the best interests of the client. That it also increases the likelihood that those agents will double-end a deal is a very fortunate, unintentional side effect. (Did I mention that these networks serve the best interest of the client?)
In all honesty
Let’s get real — private networks are not going away anytime soon; the companies pushing them have too much influence. But, what if the National Association of Realtors (NAR) instituted a policy banning “single agent” and “same team” dual agency?
Sure, it would be unpopular with many brokerages, but NAR didn’t mind being unpopular when they sprung the Clear Cooperation Policy (CCP) on us. At least in this case, NAR can make the very credible argument that such a ban would truly be in the best interests of the general public.
Plus, if states were to take a long, hard look at dual agency and were honest about whether or not it served the public good, I think you’d see the dual agency reins being pulled in pretty tight.
Tightly restricting dual agency won’t harm business. Of the states that restrict some forms of dual agency, Texas does an exemplary job by having the broker assign an agent to each side, with the broker serving as an intermediary or referee.
The result is dual agency in which both the buyer and seller are fully and equally represented, and an agent’s self-interest (at least in terms of dual agency) is not a part of the mix.
As for the private networks and portals, restricting dual agency might take away the incentive to keep listings off the multiple listing service (MLS) in the hopes of double-ending a deal. The CCP-MLS-private network debate could possibly fade into the background, freeing the industry to tackle other important issues, such as getting a carve-out from independent contractor laws to allow mandatory agent training. (A broker can dream, can’t he?)
To be perfectly transparent, it’s in my own self-interest to allow and even encourage agents to double-end deals. Huh?
See, I exchanged contact information with that attorney on the flight, and a few months later, he called to get my opinion on a file. And so began my career as an expert witness and consultant (mostly in brokerage defense).
Every time I get a new case file, the first thing I check for is dual agency. And I’ve found that a lot of the dual agency files have some serious issues.
That’s when I lean back in my chair, look at the photo of my two children and remember what that attorney said: “Keep doing dual agency; it’s how I’m putting my kids through college.”
Writer’s note: The opinions in this article represent the author’s opinions and do not reflect those of Side.
Spencer Krull is a Managing Broker with Side, and also works as a real estate Expert Witness and Consultant for attorneys.
