There’s always something to howl about.

Dual Agency Smack-Down: Buyer’s and Seller’s Informed Consent to Limited Dual Representation

I really don’t like Dual Agency. I think that’s pretty well established. Even so, Russell Shaw convinced me — in person, not on BloodhoundBlog — that BloodhoundRealty.com would have to offer Dual Agency if it is to list effectively in the historic districts of Downtown Phoenix.

Right about the same time, we undertook the Dual Agency Smack-Down, an attempt to explore the issue in detail. At a certain point in that debate, I hit what I thought was an insuperable wall. The problem was the complexities of a represented real estate transaction:

The only workable way even to achieve Disclosed Dual Agency is by repeated, overt agency violations against either the buyer or the seller, or each in their turn. In other words, you would have to hint at them what to “order” you to do, and each one of those hints would be a betrayal of the interests of the other party.

The problem, as I came to see it, was the word “detriment” in the Arizona Association of Realtors Consent to Limited Dual Representation form. If a broker could not act in any way detrimental to either party, then he could not offer any meaningful or useful advice to either party.

As it turns out, that word “detriment” turns up in Dual Agency disclosures from all over the country. I had a Realtor in Florida send me a disclosure for Transactional Brokerage (that is, no agency for either party) and the word “detriment” even appears there.

Interestingly, the statute law of Dual Agency in Arizona is not nearly so restrictive. The law requires disclosure and informed consent, but it does not insist that the Dual Agent cannot act in ways that might be perceived as being detrimental to one party or the other. Obviously the common law dictates of agency come into play, but the point of a Dual Agency Disclosure form is to modify agency for both parties in such a way as to permit the transaction to take place.

The problem — in Arizona, take careful note — was not Disclosed Dual Agency but, rather, the impossible restrictions that were being imposed by the Dual Agency Disclosure form we have been using. At the time, I made this point about the AAR Dual Agency Disclosure:

What that language says, in my opinion, is that no Arizona brokerage that has undertaken Disclosed Dual Agency using that form has done so in a way that would withstand the questioning of a plaintiff’s attorney.

I believe it is impossible for any brokered real estate transaction to close according to the strict terms of that language. Instead, every Arizona brokerage that has undertaken Disclosed Dual Agency using that form has routinely, repeatedly and serially acted in ways detrimental to both buyers and sellers, each in their turn, throughout every one of those transactions.

This was not malicious. To the contrary. The Disclosed Dual Agent was acting in the best interests of each client, each in their turn, and each of those clients had an absolute veto power over everything that was done at each step of the process. The problem is simply that a brokered real estate transaction is too complicated to be effected without expert advice. In tendering that advice, in all good will, the Disclosed Dual Agent will have acted to the detriment of the other party every time he gave good, solid, useful advice to the party before him.

This is actually funny. It is not possible to do a Dual Agency as the form requires, but no one would want such a thing anyway! To comply with the terms imposed by the form, the Dual Agent’s answer to every detailed question would have to be, “Search me…” For this, the sales commission would be doubled.

The solution to the whole nasty problem is simply to rewrite the form. I promised to do this in November, but events intruded. I’m just getting to it now. If you will download this file, you’ll see what I came up with. It’s not radically different from the Dual Agency Disclosure you are already using. The key difference is that Buyer and Seller are consciously acknowledging that the Listing Broker is going to be advising each of them in their turn about the courses of action each might take, all the while protecting the confidences of each from the other.

The major changes, from what you’re accustomed to, are these:

Definitions and Disclosures:

Dual Representation, also known as Dual Agency, is a mutual agreement among the Buyer and the Seller that either the Listing Real Estate Broker or one or more Licensees of the Listing Real Estate Broker will advise both Buyer and Seller in the sale of a particular piece of real estate. While Dual Representation can afford Buyer and Seller certain advantages, there is substantial risk in a Dual Representation. These risks are disclosed in detail below.

1. In the normal course of events in a complicated real estate transaction, the Licensee working with the Buyer or the Seller may suggest certain plans, procedures, tactics or stratagems that may advance the interests of the Buyer or the Seller. In a Dual Representation, that same Licensee or another of the Broker’s Licensees may then in turn advise the other party as to how to respond to these overtures, in turn suggesting other plans, procedures, tactics or stratagems that may advance the interests of the responding party.

2. In all such cases, in a Dual Representation, Broker and Broker’s Licensees will zealously protect the confidences of both Buyer and Seller, and in no circumstance will any suggested plans, procedures, tactics or stratagems betray any confidential information shared by Buyer or Seller.

3. While Buyer or Seller might perceive that such suggestions of plans, procedures, tactics or stratagems to the opposing party in this transaction might work to Buyer’s or Seller’s disadvantage, in fact both Buyer and Seller retain their full rights to direct the actions of Broker and/or Broker’s Licensees, to include, in accordance with the terms of the Purchase Contract, the unilateral right to cancel the transaction.

4. The intent of this disclosure is to acknowledge, ratify and grant Buyer’s and Seller’s mutual consent to Broker’s efforts to assist both Buyer and Seller in identifying and obtaining the best attainable results for each party in this real estate transaction while simultaneously protecting the interests and confidences of each party.

5. If you are not completely comfortable with this disclosure of Dual Representation, you are encouraged to obtain separate representation in this transaction.

And:

Duties and Limitations: The Broker now represents both Buyer and Seller equally but separately. Both parties understand that Broker or Broker’s Licensee(s) may advise each party separately as to how best to proceed with this or any subsequent negotiations, subject to the restrictions delineated below, even though such advice may be perceived to be disadvantageous to the opposing party. Both parties understand that Broker or Broker’s Licensee(s) will be working actively and equally for each party, with no bias toward either party, to help each party obtain the best attainable, mutually-satisfactory outcome from any negotiations between the parties.

All we’re doing is taking account of and getting explicit consent for what is already happening in real life.

Some caveats: This is all about Arizona. If you’re in another state, and if you want to play with these ideas, take them up with your broker or your attorney. And: I am not an attorney, nor do I play one on TV. This language has never been tested in court, and, god willing, it never will be. The Arizona State Constitution empowers me to write whatever language I might need to effect a real estate transaction, but it doesn’t warrant that my language is any damn good. You proceed at your own risk.

But: I think this solves the problem of Dual Agency, to the extent it can be solved. At least we have managed to jettison the impossible fantasy of “representing” each party without doing anything “detrimental” to the other…

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