There’s always something to howl about.

Dual Agency Smack-Down: Bullied By Perception

Thanks to Greg Swann for his gracious invitation. Posting on the 900 pound gorilla known as Bloodhound is a feather in anyone’s cap. I’m not sure there’s more than five sites in the country creating more ripples than he does. You set the bar pretty high Greg.

Before I begin – God bless Russell Shaw. Until he came along I almost always felt like the Lone Ranger on most subjects the real estate blog-world considered earth shatteringly important. I’ve enjoyed his posts on various subjects, and have found myself wondering if my dad had another son he never told me about. Anyone who has ever read my comments on blogs discussing the latest ‘hot topics’ will easily discern how much he and I agree with each other.

Buyer representation? National MLS? Dual agency? NAR for heaven’s sake? Give me a break. Until I became a blogger I was both ignorant and apathetic about what opinions were held by others in the industry on those subjects. The only thing that has changed is the entertainment I sometimes enjoy while reading about them.

I read Russell’s dual agency post and laughed so hard I spewed my morning coffee all over my wife’s cat. He absolutely nailed it to the wall. Remember the Clint Eastwood movie, Suddent Impact? That was Russell’s way of saying, “Go ahead, make my day.” But, I was invited to post my take on dual agency, and I’ll do that now.

In the 1960’s I worked for a real estate firm that had six offices and give or take 40 agents. About 75% of the agents were full time. In the two years I was the janitor, and printer (mimeograph) of new listings, they closed over 1,000 transactions – 100% of which were dual agency sales. (Quick, get Greg a chair, he’s looking a little pale.) That same firm also escrowed the sales. And if an agent was caught showing another broker’s listings, he was fired on the spot. The company’s broker/owner didn’t cooperate with outside brokers – as policy. How could that work you ask? His company always had more listings under $20,000 (the magic number back then) than the entire MLS. He didn’t need them. They needed him. And everyone knew it.

(Note: Just for the record, this broker didn’t employ nepotism very well either. Starting your son in the family business as the janitor for two years sends a pretty clear message, don’t you think? Dad was one of a kind.)

When inevitably the green monster of envy emerged, in the form of an anonymous complaint to the DRE – he was unceremoniously audited within an inch of his life. The auditor handed his card to the broker when he’d concluded his work, and said, “If you are contacted by the DRE about any broker’s complaint ever again, give me a call. Your files are the cleanest I’ve ever seen. If I ever decide to move, you will get my listing.”

It seems when the smoke cleared, integrity was what mattered. Integrity is the ultimate trump card.

Because Russell literally made most of my points for me, especially his last paragraph, which simply said agents must be honest, I’m going to give examples. I find it silly to even have to debate this subject, since most of the time it revolves around a perception and not reality. Marketing deals with perception. Our behavior in the service of our clients must be more valuable than that. It must be real. Our clients must have faith in us and our integrity, not merely a perception.

I work in the investment side of real estate. A large part of my business is tax deferred exchanges. But simply put, I make people wealthy. They pay less taxes, retire very well, and retire early.

Without boring you with tax law details, there are times in an exchange that can put investors at risk of owing capital gains taxes. If a deal falls through at a critical point in the exchange, it can result in huge tax consequences, regardless of whose fault it was. In my experience this usually comes up when I’ve sold a clients income property as the first stage of an exchange. There is a 45 day window from the time that sale closes in which the seller must ‘identify’ the property they will be exchanging into, using the equity from the recently closed sale. If that property is listed by an outside broker who somehow causes the escrow to fall out, and the 45 days has passed – my client is rendered helpless. He can no longer take advantage of a tax deferred exchange, and will now owe whatever capital gains tax applies to that property.

This is why my clients PREFER to purchase properties I’ve listd. They know the other client is also exchanging for tax reasons and are equally motivated to perform. They also like that I’m in control of both sides. Wait, it gets better.

I tell my clients, in writing, that if I sell their property myself it is likely to be at a lower price than if another broker from the MLS brought their buyer to the table. Now this is where the chorus chimes in – “That’s at least the perception of evil! This is why dual agency is so wrong. Blah blah blah, yadda yadda yadda. The next question is why sell for a little less, right? I’m glad you asked.

90% of the properties I sell for my clients are 1-4 unit rentals. Most of the buyers are represented by agents who couldn’t find their backsides with two guides, a map, and a GPS when it comes to income property. They pay more than my clients would. My clients make the decision to sell for a tad less, (usually 1-3%) because of the peace of mind they have knowing the sale, and therefore the tax deferred excchange is going to conclude successfully. Paying $50-100,000 in capital gains taxes because some house agent wannabe decides to dabble in investments isn’t worth getting $10,000 more for their property.

And for the record, I charge six percent – period. Of course, all this is disclosed to the max. I usually end up introducing the clients to each other, and some have become friends. They all have a signed, written disclosure by me on my letterhead, making my relationship with all parties nakedly transparent. One of the common denominators that makes this attractive to my clients is the knowledge that they’re buying property that hasn’t been broadcast to the public. (Yes, Greg, I have letters in the file specifically instructing me NOT to put their listings on the MLS.) They don’t have to compete with other buyers, making it even more of a seamless transaction. And the sellers prefer this approach for the above mentioned reasons. (I’ve always been told repitition is the best teacher.)

When I give ‘mini-seminars’ in their homes, attended by their friends, neighbors, and family, it’s more lkely than not that they’ve actually invited another client of mine to attend. It’s pretty effective when investors hear from satisfied clients that dual agency is the way to go. This is especially true when some of the attendees have experienced exchanges gone sideways do to an outside house broker’s poor performance.

Ultimately the reasons my clients do business with me is the same reason Russell’s and Greg’s clients do business with them: They both offer solid value, expertise, and results. And both operate with INTEGRITY. My clients come to me because they want to increase net worth, retire as soon as possible, and with as much tax sheltered or tax free income as they can possibly create. I give them just that. Or, like Russell said so eloquently – When an investor hires me to make these things happen for them, and are willing to pay me for it, (pause for a little drama) they expect me to MAKE THOSE THINGS HAPPEN.

I’ll end with a very quick summary of an actual case study.

The Carters came to me almost six years ago with just under $70,000 to invest, solid credit, and great ambition. They’re now both retired at the ages of 42 and 37, making more than the combined $100,000 they were making from their previous day jobs. We’ve now done roughly six major transactions involving over three dozen properties in two states. All but one of the transactions were tax deferred exchanges. The first four transactions included dual agency 75% of the time. The Carters are now worth just under $2Mil, and live on $150-200,000 a year – tax free. They have so much tax write-off they can sell properties for cash at will without paying a dime of capital gains taxes. They’ve gone from a little starter track home to a home worth just under a million bucks.

Mention dual agency to them and they get happy feet while singing the song, “I don’t wanna work, I wanna bang on the drum all day”. πŸ™‚

Dual agency is a non-issue debated by folks who are either jealous or, to give them the benefit of the doubt, afraid of what others might think of them. I have no problem with those who disagree with me and avoid dual agency as policy. I admire them for walking their talk. I think most of them are sincere in their beliefs.

I just think they’re sincerely wrong. Integrity should always triumph over perception. When perception wins, we all lose. Perception is a bully that doesn’t have anything else to say, so the issue is framed by how it might appear. To those who are on the fence, I say, grow a pair. Look others in the eye and stand on the platform of your integriy.

Dual agency is simply not an issue worth of all this drama. And Russell – thanks for riding with me!