Editor’s Note: This was originally published on RISMedia’s blog, Housecall. See what else is cookin’ now at blog.rismedia.com:
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In an ideal world, you would be able to do a quick search for a REALTOR® and pick the first one you find to get knowledgeable, effective representation in your real estate transaction. Unfortunately, there are certain business relationships between real estate agents and clients that can present problems for the client—in many cases without the client ever being aware of it.
As a potential client, it can be helpful to understand the types of relationships REALTORS® can have with their clients, and how to tell the difference between an arrangement that serves your interests and one that doesn’t. One such arrangement that does not benefit the general public is referred to as dual agency.
Dual Agency – Not in Your Best Interest
So what is dual agency? In most states, dual agency refers to a situation where the same REALTOR® represents both the buyer and the seller in a real estate transaction. The term, however, can have different meanings in different states. For example, in California, what they refer to as dual agency is called designated agency in many other places. The two terms can have vastly different meanings. For our purposes, we will use dual agency to describe using the same agent for both the buyer and the seller.
There are very few people knowledgeable in the real estate business that will claim dual agency is good for clients. In fact, many professionals question why dual agency is even legal in some states. The reality of dual agency is that the agent is put in an impossible situation—one where he or she cannot meet the requirements of a REALTOR® serving a client.
One of the fundamentals of acting as an agent for a buyer or seller is that you seek the best interests of your client. A single agent cannot seek the best interests of both a buyer and seller negotiating over the same property.
A Conflict of Interest
As a buyer’s agent, the REALTOR® is attempting to purchase the home for the lowest price possible for their client. As a seller’s agent, the REALTOR® is attempting to sell the home for the highest price possible. It is easy to see how dual agency could create conflicts. Does the agent focus on buying for the lowest price or selling for the highest? You can’t do both.
To further complicate matters, in many states, REALTORS® working as dual agents are prohibited by law from negotiating on behalf of either client. It is not clear what else the agent has left to do in such a situation. Without negotiation skills, there really is not much point to having an agent.
The dual agent cannot counsel the client on price, negotiate inspection issues or do pretty much anything else that would justify the commission the client pays. Even more outlandish, the dual agent is more than happy to collect a full commission from both buyer and seller. He or she gets paid double for doing virtually none of the things they would do if they were an exclusive buyer’s or seller’s agent.
Not Telling Clients About Dual Agency
Perhaps the most disturbing thing about dual agency is that many times, the clients will not be aware that their agent is working for both the buyer and the seller. Maybe the REALTOR® does not realize the conflict of interest. Maybe he or she is just doing a lousy job explaining agency. They sugarcoat what is really happening for the chance to get both sides of the transaction. Whatever the reason, it is quite possible to wind up with a dual agent without even being aware of it.
When choosing a real estate agent to represent you in your purchase or sale, it is important to make it known that you are not interested in employing a dual agent under any circumstances. If the agent attempts to negotiate on the matter, go somewhere else. Real estate agents who are less concerned about their wallet do not work as dual agents. Instead, when this situation arises, they refer clients to someone else who can represent their best interests.
Judging by some of the arguments you see in online forums about dual agency, there are some real estate agents who clearly put money before what is best for consumers. Over at ActiveRain, you can see some varied opinions from real estate agents on dual agency. Take a look at the transparency of this subject in many of the comments from agents. If you are thinking of buying or selling, you may enjoy the banter.
What you can take away from some of the comments:
- Many real estate agents don’t know what they are able to do and not do in a dual agency relationship.
- There are a number of agents in the business who don’t want to see dual agency go away.
- A good percentage see dual agency through rose-colored glasses and not the consumers’ perspective.
Designated Agency – A Workable Arrangement
Designated agency refers to a situation where the buyer and the seller each have their own agent, but both of those agents work for the same real estate company. Some argue that designated agency is just as bad as dual agency, because the focus of the agents is on what is best for the real estate firm and collecting the commission from both clients; however, designated agency does not have to be a negative arrangement for the clients if the real estate company is reputable. As long as the company allows agents to work freely for the best interests of their clients, there is no reason why the agents would do otherwise. The big difference with designated agency is both clients have someone fighting hard for them. It is often claimed that designated agency is bad for clients—but if someone is in your corner working on your best behalf, who cares if another agent in the firm is working for the opposite side?
When you are buying or selling, you want the best real estate agent you can find. Sometimes designated agency is the only way to get the kind of top-performing agent you need to accomplish your real estate goals. Just be sure when buying or selling a home you are completely aware of how agency law works in your state. It is a requirement that agents explain agency in depth so you understand it. It makes sense to work with an agent who has your best interests at heart! Disclosure is always paramount, especially with a topic as important as agency.
Bill Gassett is a nationally-recognized real estate leader who has been helping people buy and sell Metrowest Mass real estate for the 30-plus years. In 2016, he was the No. 3 RE/MAX real estate agent in New England. Connect with him on Google+.
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