ground splitting in two, house above

© Stuart Miles - Fotolia.com

Dual Agency Doesn’t Benefit Consumers

Asking clients to sign an agency disclosure form isn’t enough. You must explain what dual agency is and why it’s problematic.

March 26, 2019

The topic of dual agency stirs many opinions within the real estate community. There are some agents who are dead set against it. Others say they have absolutely no problem with it. But having been a real estate professional for 32 years, I can unequivocally say that many real estate agents have no idea how dual agency truly works.

To clarify, when I say dual agency, I’m referring to one agent representing both the buyer and the seller in a transaction. In some states, dual agency can mean two agents working for the same company, each representing a buyer and seller (often referred to as designated agency).

Most real estate agents understand the basics of agency law. If you are a seller’s agent, you represent the seller. If you are a buyer’s agent, you represent a buyer. When dual agency comes up, many real estate agents either tend to ignore the laws in their state or pretend not to know what they actually mean.

Dual-Agency-Does-Not-Benefit-Buyers-and-Sellers

© Bill Gassett / andrewgenn - Deposit Photos

First, you should know what it means to “represent” a client. You become his or her fiduciary, and everything you do should be in the client’s best interests—even when it conflicts with your own. You are their confidant. This means counseling on price, negotiating in their best interests, advising on decisions such as home inspections, and whole myriad of other things that come up in a sale. These are the normal duties of a real estate agent.

How do you, then, counsel a seller on setting the list price when you also must help the buyer get the best deal possible? Under dual agency situations, the real estate professional’s interests collide head-on with their clients’. So, agents who practice dual agency either don’t understand the gravity of this conflict—or they don’t care.

What Kind of Real Estate Agent Are You?

Though the National Association of REALTORS® does not have a stance on dual agency, the association cautions its members to be professional and transparent with clients in these types of transactions. You should educate your customers about your fiduciary duty to them and thoroughly explain the pros and cons of dual agency to consumers. Indeed, states with dual agency laws may require agents to explain exactly how dual agency works. Here’s the problem: The agent explaining dual agency has a vested interest in the client accepting it. But real estate agents who practice dual agency don’t explain the downsides, including the fact that they may not be able to protect the client’s best interests while also representing the other side. How do you think these agents will approach the discussion with their clients? If the word “sugarcoat” comes to mind, you’re right.

Unfortunately, many buyers and sellers are duped into dual agency transactions, stoked by the fact that, according to a recent survey by the Consumer Federation of America, most consumers are clueless about dual agency. There is a reason why consumers don’t have a clue about dual agency—the agent explaining it often isn’t up to speed on what they can and can’t do either. Putting an agency disclosure form from the local board and asking the client to sign it is not living up to your duties.

If an agent were being honest about this conflict, he or she should tell the client: “Mr. or Ms. Seller, I want you to know that when the buyer makes an offer on your home, I can’t help you make a counteroffer as the buyer’s representative. I also want you to know that when the buyer presents a laundry list of inspection items, I can’t give you any guidance.”

The best real estate agents never make money the basis of their decisions. They always put their clients’ best interests first. Practicing dual agency is a function of greed.

Decide to Focus on Clients, Not Money

What if, in the course of working with a buyer, you also list a house that meets that buyer’s needs? On that rare occasion, you can and should refer the buyer to another agent. You will get a referral fee if the sale takes place. You won’t make a double commission—and that’s the point. An agent should never be of the mindset that making a commission is the goal at all costs, which is exactly what happens in dual agency. The only fiduciary in the transaction is the real estate agent.

Dual agency offers no benefits for consumers. Even if the agent offered a $2,000 commission discount, it doesn’t make up for the client potentially losing thousands of dollars in a transaction when their best interests aren’t being represented. The problems arising from these transactions have become so prevalent that eight states—Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont—have banned dual agency. My guess is more states will follow suit.

Dual agency flies in the face of the prominent discussions we have in this industry about the vital importance of ethics. So, what kind of real estate agent do you want to be? Do the right thing and reject dual agency.


Editor’s note: Opinions expressed in commentary articles do not necessarily reflect the position of the National Association of REALTORS® or REALTOR® Magazine. Submit commentary ideas to Managing Editor Wendy Cole at wcole@realtors.org.

Bill Gassett

Bill Gassett with RE/MAX Executive Realty in Hopkinton, Mass., covering the Metrowest market, is one of the top RE/MAX salespeople in New England. See all his real estate articles at www.maxrealestateexposure.com.

Related