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Practical dual agency in real life: It is possible to have a fiduciary duty to your sellers — that you cannot get away from — that feels like a complete betrayal of your buyers. What then?

There is a debate on dual agency going on at VARbuzz. This is my contribution to the conversation.

I abhor dual agency — notoriously so. I make no distinction between one licensee or two in the same brokerage, and I am more than prepared to be suspicious if there is any relationship that might seem more important to the practitioners than the fiduciary relationship to the client.

Even so, Russell Shaw convinced me in person that there could be circumstances in which I might have to do a dual agency, like it or not.

What circumstances?

Like this: I’m at open house at my listing, some buyers come in, fall in love with the house and insist they have to put it under contract right away. I would prefer they got their own representation, but my fiduciary duty to my sellers is clear: I owe them the best possible chance at these buyers.

The question is, what duty do I owe to the buyers? The state and federal governments have so gummed up the process of transferring real property that ordinary people cannot competently represent themselves. Moreover, the due diligence process demands expert oversight and advice.

In short, if both parties are unwilling to countenance the idea of separate representation, I’m stuck. I cannot betray the seller’s interests, and I cannot in good conscience permit the buyers to betray their own interests. (And it is plausible to me that I have created an Implied Agency with the buyers in any case.)

This has nothing to do with compensation, and, if we ever have to do this, we will probably split the buyer’s agent’s commission three ways — a point each to the buyer and the seller, in consideration for suffering with limited representation, and a point to us for the extra work. But even that would be at Close of Escrow. My Buyer-Broker Agreement would specify that the buyers could obtain separate representation at any time, even down to the last minute, and I would joyfully pay the buyer’s agent’s commission.

But wait. There’s more. We had a multi-party debate about dual agency at BloodhoundBlog, and, while I would not rate that as having been a great success at promoting mutual understanding, I was able to explore my own positions in a way that I had never done before.

I determined that there is no way to practice disclosed dual representation, as it is presently understood, without committing gross agency violations:

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.

A modern real estate transaction is too complicated for sellers and buyers to direct the actions of a marionette-like, putatively “neutral” dual agent. The agent would have to advise the parties as to what to do, and, in offering that advice, would necessarily be putting the other party at a disadvantage. In other words, the NAR’s idea of disclosed dual agency is a complete bill of goods. It cannot possibly withstand a court challenge by a smart attorney.

It’s a problem, ain’t it? There can be circumstances where you cannot avoid dual agency. And yet, to practice a disclosed dual agency as we are advised to do by the NAR and our state associations is impossible in se: We must either do nothing in consultation with either party — which is not practicable — or we must serially advantage each party to the transaction, to the disadvantage of the other — which constitutes serial violations of our agency agreement with each party. We must either do as we cannot do or as we must not do — an impossible mess.

So what do we do?

Think harder, that’s what.

Here’s what I came up with: I rewrote the dual agency consent form, specifying in advance that I will be helping each party, possibly to the detriment of the other party, but that I will keep the confidences of each party from the other. In other words, I rewrote the form to acknowledge what is going to happen anyway:

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.

Caveats: I am not an attorney. I am a broker, but I am not your broker. This form language is intended to be used in Arizona. Your state laws may vary — wildly. Even so, if you want to see my full and final language, you can download my Consent to Dual Limited Representation form as a PDF file.

The good news is, we’ve never had to use this form. We make all of our sellers sign it, just in case. But buyers, god bless them, are smart enough to seek out their own representation.

But the better news is, if we ever have to do a dual agency again, we’re prepared to do it in the way that real estate transactions are actually conducted — and not as the NAR wants to pretend they are done.

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  • 8 comments

    8 Comments so far

    1. laurie mindnich March 12th, 2008 8:46 pm

      Some buyers ARE smart enough to locate their own representation, and some want to make a purchase from the listing agent (for whatever reason- it’s their choice). If full agency disclosure has been provided to the buyer, there is absolutely no reason not to clearly articulate, and have them sign off, that the listing agent represents the seller. Dual agency has no place or time, period. In my estimation, dual agency supporters have one of two possibilities for not refusing dual agency: they are either unable to shoot straight with the buyer, and honor an unshakeable commitment to the seller, or they want both ends. Just an opinion.

    2. Doug Quance March 12th, 2008 8:50 pm

      “The Broker now represents both Buyer and Seller equally but separately.”

      I just don’t see how this will be possible in practice. If you coach both sides of a game of chess… someone is still going to lose.

      Like you, I prefer that the buyers obtain their own representation.

    3. Greg Swann March 12th, 2008 9:27 pm

      > If you coach both sides of a game of chess… someone is still going to lose.

      1. That would be true with two coaches, too.

      2. Free-market transactions are not a zero-sum game. No matter what, both parties should come away feeling like they won.

      Even so, I hope I never have to do another dual agency.

    4. Doug Quance March 12th, 2008 9:41 pm

      “Even so, I hope I never have to do another dual agency.”

      Amen.

    5. Carl Minicucci March 13th, 2008 7:27 am

      A Skunk by any other name…

      The cornerstone of any Profession is fiduciary duty.

      Until such time as the issue of multiple representation is addressed with a strong arm, the Real Estate industry will always continue to suffer from the “P” envy of other Professions.

    6. Sean Purcell March 13th, 2008 7:37 pm

      Greg,

      As often as I agree with you (and that is quite often), I must disagree with your solution as well as your premise. The premise:

      There can be circumstances where you cannot avoid dual agency.

      This is, prima facie, an indefensible premise. One can avoid dual agency just as one can avoid any act of volition. You yourself have made this exact point in previous comments.

      Your solution:

      I rewrote the dual agency consent form, specifying in advance that I will be helping each party, possibly to the detriment of the other party, but that I will keep the confidences of each party from the other. (emphasis mine)

      The fact that you can codify your compromise does not lend it validity. There is no way to practice dual agency and maintain a fiduciary relationship. Or, to put it in your own words:

      …we must serially advantage each party to the transaction, to the disadvantage of the other — which constitutes serial violations of our agency agreement with each party…

      You are practicing moral equivalency when you compare that to:

      …do nothing in consultation with either party — which is not practicable…

      Practical and moral are not the same and no amount of discomfort will ever equate them. My practial solution to your scenario, BTW, is simply to ask the buyers to look around the house for another ten minutes while you call one of twenty agents you know and trust to refer them. In this market especially, they will be lining up outside your door.

    7. Kevin Warmath - Alpharetta Real Estate March 13th, 2008 7:57 pm

      I see the issues with dual agency, of course, but my experience is that Sellers actually WANT dual agency. They are hiring YOU to sell their house and to them that means YOU bringing the buyer.

      Sellers often times hire an agent who has lots of buyers; and when Sellers interview you they ask: “How are you going to attract buyers?” When their house hasn’t been shown in three weeks they ask you where your buyers are.

      Sellers discount all the other things you do as a listing agent. All they care about is that buyer and IMHO they don’t really care where the buyer comes from.

      Buyers on the other hand…they don’t want dual agency…they want someone who knows the area, who will negotiate them a good deal and who won’t allow them to make a purchasing mistake (if the buyer doesn’t know the area).

      What about the broker? If I as a listing agent don’t like dual agency (for all Greg’s reasons), what if my broker practiced it in the form of designated agecny.

      I actually believe that there isn’t much brokering going on in real estate today. If I’m a broker, I’m supposed to be a match maker between buyers and sellers. But with the large national chain brokerages that most of us work for, what is the first thing you do when you get a listing? You put it in the MLS.

      My view is that if the broker is really adding value, the first step in taking a new listing would be to canvas the agents in my brokerage to see if any of their buyers might want my listing. My brokerage should have a pool of buyers and a pool of sellers that they are constantly trying to match and that perhaps for the first 5-7 days of a listing it is made “internally available” before it is released to the population of buyer’s agents.

      In this scenario, my broker actually has value to add to both parties: local area specialization for buyers and a portfolio of clean, show condition, well priced homes and a pool of ready to buy, qualified buyers for sellers.

      Instead, we just throw the listing up on the MLS – and actually our MLS in Atlanta has a REQUIREMENT that it be on the MLS within 48 hours of taking the listing.

      Designated agency is still the net result, it is just that the agents were designated by different brokers – and you get agents working all over town, which i think is stupid, too.

      My perhaps naive view is that everyone is so afraid of dual agency that we have created a system where there are just a bunch of independent agents running around and the role of the broker is to manage, settle disputes, RECRUIT and COLLECT COMMISSON SPLITS.

      And from a customer’s (seller’s) perspective, it looks like we just put a sign in the yard, post the house on the MLS and wait/hope that another agent will bring a buyer. That’s bad karma, makes listing a home look easy and has resulted in the recent proliferation of discount brokerages.

      OK, now I’m rambling, but you get my point: Sellers want Buyers. Couldn’t dual agency be the best way to deliver on that wish? I love showing my listings to my buyer clients…god forbid one would ever like one. Then what? ;->

    8. Zonie March 14th, 2008 12:18 pm

      Kevin,
      When you don’t put a house on the MLS and instead try (for a limited time) to sell it among your own brokerage first, you are doing your client a disservice by failing to maximize exposure of the property, thereby failing to maximize the price received. Be sure to have adequate disclosure to your clients of what you are doing and why, perhaps with a discounted commission, lest you face a complaint for your breach of fiduciary duty.