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Dual Agency Debated Outside of the Echo Chamber

Google News plopped a link to a Blog post on SFGate.com (The San Francisco Chronicle’s Web site) about dual agency in front of me today.

It’s always interesting to see a discussion about what Greg calls “…the insane way we compensate buyer’s agents in the residential real estate market” in the MSM, even if the arc of the dialog is predictable (“Agents are whores and criminals!”, “No we’re not”, “The traditional Real Estate model is dead!”, “No it isn’t!”, ad nauseum)

Discussions in the Real Estate blogosphere on this topic have a certain navel-gazing quality to them. That is not the case when regular people, many of whom have been involved in a recent transaction have their say. My favorite comment from the thread:

No conflict here. Just get the highest price for a seller and the lowest for the buyer at the same time. This is great!

The way the Realtors, some of whom identify themselves and some of whom just embarrass themselves by shilling for the status quo in such an obvious manner that their identity is transparent, jump all over these discussions just adds fuel to the fire.

The Realtors doth protest too much, methinks.

Related posts:
  • Dual agency duel across the deserts . . .
  • I like dual agency so much that I’m writing a commercial for it — and you can help!
  • Dual Agency Smack-Down: The RE.net smacks back . . .

  • 23 comments

    23 Comments so far

    1. Jeff Brown February 27th, 2009 5:07 pm

      Before I say anything else, let it be known I’ll not debate dual agency here. I broke in on this site going head to head with Greg on this subject, and realized then what Dad had told me decades earlier remained true.

      “When you perform with integrity and straightforward professionalism, dual agency as an issue is rendered irrelevant. It cracks me up how folks want our economic system to remain ‘free enterprise capitalism’ until that is, they wish to legislate their form of morality.”

      Between us, since May of 1959, we’ve closed over 2,500 dual agency transactions. Not even a complaint to the DRE between us in 50 years.

      I’ll go ya one further. We’re all free to have an opinion on the subject. Though I will admit, what has provided me with consistent comic relief over the years has been the underlying assumption proffered by the anti-dual agency crowd — that the consumer is protected by Angels when represented via single agency. Back to going one further.

      Very often our investment clients prefer their tax deferred exchanges be with our clients’ properties if possible. Why? Because they’ve spent too many sleepless nights dealing with RE investment broker wannabes who’ve left them high and dry with a week to go in a delayed exchange. How would you feel if some gold coat wannabe failed to perform as promised, causing your client the tax liability of a six figure capital gain?

      About 1/3 of our clients have, at one time or another, literally refused to begin an exchange with anyone other than one of our clients. They insisted upon dual agency.

      Dual agency isn’t the problem. Dishonest behavior, and a dearth of integrity is the problem, and that problem isn’t limited to dual agency.

    2. John Rowles February 27th, 2009 5:29 pm

      @ Jeff: You have gotten to the point where you have earned the trust of your exchange clients, and that is great. It’s beyond great…That is the kind of client relationship I aspire to in my own business.

      The problem with Dual Agency, in my view, is that perception really is nine-tenths of reality. That is to say, while there may be Realtors who can navigate the treacherous currents of Dual Agency with professionalism and grace, there are those who see it as nothing more than a bonus to the bottom line, which it, in fact, is.

      Consumers, thanks to the Web, are more of aware of that than ever, so whether or not it can be done ethically in the best interests of both parties is almost beside the point: The perception I glean from the comments on that SFGate post (even from people who benefited) is that its a Realtor’s conspiracy designed to defraud the public.

      At the end of the day, I think it boils down to standards. As long as Real Estate has low barriers to entry, Dual Agency will be abused to the detriment of the consumer, whether or not the true professionals are capable of handling it in a way that benefits both parties.

    3. Jeff Brown February 27th, 2009 6:04 pm

      Hey John — I don’t say this with a mean spirit, but what the ignorant public perceives as reality is worth less than the used Starbucks cup sitting next to me. :) We’re all ignorant about different subjects to be sure, but catering to those whose depth of ignorance is immeasurable isn’t my idea of sanity. :)

      One of my best friends nearly killed himself once when he was about to jump off his garage roof, dressed as Superman. He was five at the time. His perception wouldn’t have changed the reality of gravity one iota. :)

      I very much appreciate your observations on what we’ve been able to accomplish over time.

      At some point, John, we must take back control of the asylum.

      This whole perception is reality thing has never cut with me.

      Reality is reality works every time it’s been tried.

    4. Greg Swann February 27th, 2009 6:29 pm

      Jeff’s demurrer is less than persuasive to me, inasmuch as he is dealing with very experienced buyers and sellers. If you talk about rare properties — mines, cattle ranches, desert roadhouses — you’re also going to find yourself in situations where dual representation is virtually unavoidable. But this has almost nothing to do with real life.

      When we list a home for sale, the sellers will have had 90% or more of every benefit they are going to have from us before we hit the MLS. There is no possible way that buyers can achieve an equal benefit, certainly not from us, but, truthfully, not from anyone. Buyers are at a huge disadvantage in negotiations except in a market like this one. Even so, buyers should have their own champion, and they should never have cause to doubt that their interests are being represented faithfully.

      Nevertheless, it is plausible that a buyer could show up at an Open House, could insist on writing a contract at once, buy only if we would handle the transaction by dual agency. This has never happened, but it could, and our fiduciary duty to the seller would leave us no option but to proceed. We would entreat the buyer at every step to get his own agent, and we would pay that agent even if he didn’t do a lick of work. But — because we could still be stuck, despite everything — when we talked about this two years ago, I wrote a truly truthful Consent to Limited Dual Representation form. We’ve never used it, but we drag it out at listing appointments as a way of talking about dual agency and demonstrating that we’re thinking ahead.

      Meanwhile, we don’t do dual agency, and if you pursue the Dual Agency category, you can see the very compelling arguments I have made against the practice.

    5. Thomas February 28th, 2009 5:55 am

      Ignorant consumer here! While Jeff’s anecdotal experience is his reality, the consumer is getting informed. And as more and more information becomes available, Greg’s model (of compensation and transparency) will eventually win. It will take time, and some good journalists, but eventually the stranglehold of developers and real estate personnel in the statehouses will lose on this critical area. Maybe we should have lawyers represent both sides in civil litigation or in criminal trials. It is an inherent conflict of interest, but what do I know, I’m just ignorant of rocket science and real estate.

      While there are 50% of consumers on the left hand side of the bell curve in intelligence, it is the other 50% who are yelling from the rooftop (social networks, blogs, etc) and damaging the REA brand. Eventually, that kind of energy gets harnessed and converted into political action. Voting rights and civil rights took time for the information loop to form, this kind of reform in all of our financial transactions (RE, mutual fund fees, etc) is out there as a gathering force and the action/time ratio has been shortened in my opinion.

    6. John Rowles February 28th, 2009 6:23 am

      @Thomas: That is what I was getting at with the comment re. perception. It does matter for exactly the reason you mention. Thanks for putting a finer point on it.

      I bought the house I am sitting in now from an agent who worked for the broker who listed it. We got a good deal ($35k below asking) after the place sat for a while, and this was at the height of the madness in 2005. I like our agent, I’d use him again, but I would have done that transaction differently knowing what I know now.

      So while it *can* be done without abusing the buyer it is a system designed to benefit the seller and the listing broker on the face of it. From the buying public’s perspective, if it walks and quacks, it’s a duck, and this particular duck walks crooked and quacks out of both sides of its beak.

    7. Greg Swann February 28th, 2009 8:29 am

      Thomas, I’m so glad to see you.

      The other consideration with Dual Agency is clients who are only relatively satisfied — which is to say, relatively dissatisfied. You don’t have to file a lawsuit to feel you were cheated. And you don’t have to feel you were cheated to have doubts that you might have been. And your doubts don’t have to rise to the level of conscious thoughts to nag at you — for years. My take from the very early days of BloodhoundBlog: Caesar’s wife on the witness stand: The moral, the practical, the marketable and the defensible approach to forbidding dual agency…

    8. Thomas February 28th, 2009 10:01 am

      Greg, thank you. As usual, I’m learning so much from the great people that write for this blog. It isn’t just RE where people have those nagging doubts. The ‘insider’ knowledge in the whole financial system is maddening. With the collapse of so many banks, there is only two options to restoring trust: massive regulations or complete transparency. Since I prefer freedom, I prefer transparency. Dual agency is the buyer and seller whispering to the same person and the person being whispered to is compensated on the sale and nothing else. I trust there are good people that maintain their ethical core but it sure seems tilted.

    9. Jeff Brown February 28th, 2009 10:36 am

      Everyone — I’ve been hearing this same speech in it’s various forms and versions since I was 17, and 40 years later I’m still waiting for the cataclysmic change.

      My experience over two generations of watching, but mostly doing, hasn’t ‘created’ any reality. I live in the real world where erroneous perception eventually runs off the tracks when met head on with reality.

      I can’t count the times so-called perceived reality has cost, or nearly cost investors five and six figures in real, not perceived dollars. I’m not sure of where the truth lies when it comes to internet dustups concerning dual agency, as my default is to suspect it’s a pretty small, but loud minority talking mostly to each other, encouraged by industry insiders who agree with them.

      This reminds me of the ‘known’ reality connecting eggs with damaging cholesterol. Real scientists told me in the early 70′s it was garbage science. Turns out they were right on the money — except they were laughed at for decades. Yes, perception does indeed create ‘a’ reality. The problem, is how many times it turns out to be a false reality.

      I predicted three years ago not much if anything would change, and sure enough, not much if anything has. Will dual agency be one of those things from the ‘old days’ I tell my grandkids about? I’m open to that possibility. Or maybe my kids will tell their kids how Grandpa died waiting for dual agency to disappear. Dad predicted dual agency wouldn’t go away in his lifetime. He died last year at 79 — dual agency still intact. :)

      Either way, I respect you guys and your opinions. Your predictions could be right, and I could be wrong. Have a good one.

    10. John Rowles February 28th, 2009 11:10 am

      @Jeff: With so many connected, entrenched interests in Real Estate it is not surprising that change which threatens the livelihoods of those interests moves at a glacial pace.

      It may be that the industry can deflect systemic reform from the top down with smoke and mirrors indefinitely, as the traditionalists are still in charge of the NAR and state licensing boards.

      What is new is that the brokers, like Greg, who have concluded that Dual Agency is toxic, have the Web as a vehicle to shed light on the topic and their position on it.

      This is happening in conjunction with a wider trend of “information as empowerment” across the Real Estate category — whether its addresses being included in IDX feeds or the availability of automated valuations.

      All of these advancements have been resisted by the old school and remain controversial. It may be that Real Estate is somehow immune from the larger forces that have permanently changed industries like travel, music, and software but I, for one, wouldn’t bet on it.

      If it takes longer, perhaps that is simply because people buy airline tickets, music and software much more frequently and in much larger numbers than they engage in Real Estate transactions. The death by a million tiny cuts is just going to take longer as those cuts are coming more slowly, but the lifeblood of the old school — control over information and the political oversight of the business — will bleed out eventually.

    11. Greg Swann February 28th, 2009 12:10 pm

      > people buy airline tickets, music and software much more frequently and in much larger numbers than they engage in Real Estate transactions.

      And those are much simpler transactions. Personal representation in real estate will survive. Hustling the client is dead already.

    12. Jeff Brown February 28th, 2009 12:14 pm

      Hey John — You make some excellent points. Speaking only for myself, this isn’t about control, unless we begin to talk about consumers right to control how they do business. And yeah, I understand how contrarian that sounds. :) The whole ‘control of information’ thing has always intrigued me when it comes to real estate. But that’s a box I’m gonna leave untouched for now. :)

      You said, ‘All of these advancements have been resisted by the old school and remain controversial.’

      True enough — but the evidence against dual agency is basically founded upon massive amounts of faux evidence, most of it emotional, very little if any, empirical. And there’s the rub. Take the ‘rational’ discussions we have here on the subject, and substitute the designated hitter rule as the topic.

      It’s all opinion dressed up as evidence. Dual agency has had such a long life because its opponents have little if anything resembling empirical evidence — they’ve been firing blanks for generations now. They have logic and a rationale built upon, here’s that word again, opinion.

      The egg died the death of a thousand cuts by the same sort of ‘logic’. Obviously they had no empirical evidence, though they claimed so. Real science trumped them. Unfortunately for me, dual agency has nothing as empirically powerful as science to back it up. :) I only have experience, which in this discussion doesn’t have much value those who disagree with my take. Still, I’ll stake Dad’s experience and my own, which includes over 5,000 dual agency sides against anyones ‘logic’. And yes, Greg makes an excellent distinction between investors and those for whom the primary residence is the center of the transaction.

      And yet, the importance of integrity, expertise, and straightforward professionalism carries with it the same value in both arenas.

      And for the record, my livelihood wouldn’t change if dual agency was eliminated tomorrow. I have no financial dog in that fight. :)

    13. Greg Swann February 28th, 2009 12:38 pm

      > but the evidence against dual agency is basically founded upon massive amounts of faux evidence, most of it emotional, very little if any, empirical

      Dual agency results in an enormous number of lawsuits against residential real estate brokers. It may be the number one source of real estate-related lawsuits.

    14. Jeff Brown February 28th, 2009 12:48 pm

      Hey Greg — Enormous? May be?

      Sounds empirical to me. :)

      If It was indeed the leading cause of lawsuits against brokerages, one would think the anti-dual agency wave would be at least big enough to surf. Hardly the case, at least so far.

    15. Greg Swann February 28th, 2009 1:36 pm

      Our Errors and Omissions insurance rules are very stringent. Not “can’t do” but “pay more if you do.” I don’t know if Dual Agency is on their list, but I wouldn’t be surprised. We qualified for every discount available without having to change a single policy. ;)

    16. Thomas February 28th, 2009 2:33 pm

      Jeff, I respect your experience. I am an objective realist who believes reality exists without our presence. The ‘perception’ comes from our experiences. Yours is deep in investor transactions. Mine will be two or three transactions over my life. I just want a system where I can have faith that my interests are being represented. Unfortunately, brand degradation has occurred to the RE industry during this cycle. People will still need agents but change will occur. You may be right however about the rate of change; with the likes of bought and paid for Dodd and Frank, I’m slowly losing hope.

    17. Jeff Brown February 28th, 2009 3:24 pm

      Thomas — I share you lack of confidence in those two guys.

      As many of my clients have remarked, ‘We didn’t hire an industry, a brand, or a company, we hired one man in whom we trusted.’

      The brand, IMHO, wasn’t either better or worse in ’69, ’79, or ’89 than it is in 2009. It’s always been and always will be the one person you choose that will define the quality and success of your transaction.

      I suspect my son Josh will be defending his generous participation in dual agency transactions, laughin his butt off as he quotes both his dad and his grandpa. :)

    18. Mike Rohrig March 1st, 2009 1:02 am

      How do I get try to get the best terms for my client when I represent both?

      Until I can resolve, that I can’t work under dual agency.

    19. Dan Connolly March 1st, 2009 2:35 am

      I believe that if you are honest and ethical that dual agency can be done honorably and fairly. I have been a dual agent many times and will continue to do so. (23 years and counting)

      I don’t reveal to the buyer anything that I am not authorized to reveal by the Seller. I do the same for the Buyer’s “secrets”.

      The Seller has a bottom line, and the Buyer has the most they will pay. In nearly every negotiation there is a final dead zone across which neither party will walk. Sometimes it’s the last $5,000 on the price, and sometimes its the repairs after the inspection. When there is only one agent involved, it is considerably easier for the agent to bridge the gap.Remember, by law, commissions are negotiable! With transparancy and honest disclosure, the deal can often be made to everyone’s benefit. The participants are aware, educated, willing and appreciative. They tend to be well educated, lawyers, doctors, and the like, and are usually experienced homebuyers.

      I think those opposed believe that somehow the buyer’s agent can force a seller to sell below their bottom line or good listing agent can somehow make a buyer pay more than they want to pay. The truth of the matter is that neither the buyer or the seller has to make any deal they are not happy with. The agent is there to facilitate the conversation, and not repeat anything the seller or buyer wants you to keep private.

      I guess if you don’t believe in dual agency, you probably don’t think a seller can ethically sell a house directly to a buyer, since both parties need representation in order to get the “best deal” for themselves.

    20. jim canion March 1st, 2009 8:08 am

      This discussion reminds me of a small town near where I
      live. There had only been one attorney in town for most of its existence. He had represented both sides of almost every type of transaction for years. People buying and selling businesses,homes,land,and even when
      a divorce was needed. This system seemed to work fine
      for all those years. No one hardly ever complained and
      he was seemingly a very honest man. Then one day in the
      mid 90s one of his clients felt cheated and hired an
      attorney to sue the small town barrister. What was
      uncovered during the suit changed the towns attitude forever.Now several new attorneys have come to town
      and are accepted as insiders for the first time.
      Both systems worked but in todays fast paced society
      finding honesty may be more difficult so until
      we have a fullproof test we will be better off
      hiring advocates..

      Jim Canion

    21. Greg Swann March 1st, 2009 8:18 am

      “What’s the best date for us to close?” If you answer that question, you have worked to the detriment of your sellers. If you don’t answer it, you have violated your fiduciary duty to your buyers. There is no honest way to effect Dual Agency as the NAR and most if not all state boards portray it. In giving your best advice to each party you are necessarily working to the detriment of the other party, each in sequence. If this is not disclosed to both parties in advance, as discussed above, I think Dual Agency is a betrayal of both parties to the transaction.

    22. Todd Covington March 1st, 2009 5:19 pm

      After getting into the real estate business 2 years ago my opinion has changed greatly.

      When I first jumped in head first, I though dual agency was perfectly fine. Everyone would be up front and honest. After two years of watching WAY too many crooked people with real estate licensees, I have now changed my tune.

      In a perfect world dual agency works great. The problem is real estate agents, as with most Americans now, are a bunch of lazy, short-sighted people. Instant gratification has put a huge dent in the morals of this country. More than a handful of times I have watched an agent ILLEGALLY disclose either the buyer or seller information to get the sale done. It makes me sick that we as a people have to stoop so low.

      Yes, I do dual agency because it’s legal and I do it with both clients best interest at heart. While this is the case, I’d be willing to make less money to see dual agency done away with. That is unfortunate as it’s often a benefit to the buyers and sellers. If agents were more honest I certainly would love to see it remain.

    23. John Rowles March 2nd, 2009 7:31 am

      @Todd:

      The problem is real estate agents, as with most Americans now, are a bunch of lazy, short-sighted people. Instant gratification has put a huge dent in the morals of this country.

      Jon Stewart addressed this to devastating effect in response to Obama’s assertion in his speech last week that Americans “…don’t do what is easy, we do what is necessary.”

      Stewart starts by asking “Have you met America?”

      It’s about 3:45 into this clip…