Andrew Wetzel's Musings

March 22, 2019

Dual Agency: The Pros and Cons

Filed under: Buying,Ethics,Hiring an agent,Price,Selling — awetzel @ 5:52 PM

Let me start with some background and definitions.  Of course you know that this is not legal advice!

According to RELRA, the Real Estate Licensing and Registration Act of 1980, Chapter 2, the word “agency” is defined as a relationship whereby the broker or licensees in the employ of the broker act as fiduciaries for a consumer of real estate services by the express authority of the consumer of real estate services.  The legal definition of agency from merriam-webster.com is “a consensual fiduciary relationship in which one party acts on behalf of and under the control of another in dealing with third parties; the power of one in such a relationship to act on behalf of another.”  Dual of course means two.

In the NAR Code of Ethics and Standards of Practice, Article 1 requires that REALTORS “protect and promote the interests of their client” and says that this obligation is primary.  Further, we have 6 fiduciary duties owed to clients, meaning people with whom we have a formal representation contract.  Briefly, the six are obedience, which requires that we obey their lawful instructions, our giving them our undivided loyalty, our disclosing all information concerning the transaction that might affect their decisions, our not revealing their confidential information, our accounting for monies involved in a transaction and using reasonable care and due diligence to protect them from foreseeable risks or harm.  In most Real Estate transactions each party has their own exclusive agent making these responsibilities easier to understand although conflicts will still arise.

According to the PA Consumer Notice and RELRA, Chapter 2, “dual agency” is defined as occurring when an agent represents both the buyer and seller in the same transaction.  In Chapter 6, Duties of Licensees, Section 606d, it states that a licensee may only act as a “dual agent” with the full disclosure and informed consent of both parties to the transaction.  Further, it states that an agent may not take any action that is adverse or detrimental to either party’s interest.  Can you see how this concept may cause a conflict in terms of our properly carrying out our fiduciary duties to both parties in the same transaction?

The concept of “dual agency” is inherently complicated when you have two parties trying to do business with each other and perhaps at the expense of the other, meaning that a buyer and seller are not always equally happy with the outcome even though a deed may have transferred from one to the other.  A single agent is in the middle of what may well evolve into a “tug-of-war” with either or both sides trying to exert their will on the other party by manipulating the agent.  This can happen with two agents as well.  This is why many agents question how one agent can properly represent two parties with potentially opposite goals.  Some refuse to be “dual agents” even though the practice is perfectly legal in PA.

When we represent both parties, how can we make each party’s interests primary?  Can they be equal?  By definition, “dual agency” requires that we adjust our fiduciary duties.  Can we obey the lawful instructions of two parties?  I think so although there may be some conflict.  We may not be able to provide undivided loyalty to more than person unless their combined goals complement each other.  Accounting for money would seem easy to accomplish.  The two duties that are compromised are disclosure and confidentiality:  I cannot disclose to another what one party considers confidential.  Frankly, what does confidential even mean?  I take it to mean protecting something that could cause harm to another although many people simply demand more privacy than others and want information or details kept private which would not affect a sales transaction or even be of interest to anyone else.

With respect to buyers and sellers working with the same agent, the best way to explain this conflict is to say that an agent cannot reveal how high a buyer is willing to go or how low a seller is willing to go.  Absent “dual agency”, it is common for our clients to ask what to offer or what to accept although I generally respond with advice about how to negotiate based on where they want to end up rather than what to offer or accept.  In “dual agency” we should provide each client with the same market analysis and are told not to advise beyond that.  Unfortunately, many if not most people hate having to negotiate anything let alone money so they may want to rely on their agent.  What is interesting is that sellers expect and deserve to see that a buyer is financially qualified to execute their offer but do they prove they can finance their offer or do they show the maximum amount for which they are qualified?  Some buyers only want to show their ability to execute what they are offering and that could be a problem if the seller wants more and there are multiple offers.  A seller might think a buyer’s offer their “highest and best” and move on.  Frankly I like to show a buyers’ maximum qualification and try to assure them that I want the seller to feel at ease with my client’s financials while making sure that just because a buyer could go higher does not mean they have to.  What about the seller?  The contract language shows that they can transfer title but there is no information that would in any way suggest how low a buyer could go and that is just the way it is.

Both clients should have accepted “dual agency” prior to my “introducing” them and, hopefully, both will continue to accept it and my role as the process goes from showing a property to making an offer, and then negotiating it and the remainder of the terms as the process plays out.  There may well be conflicts at the outset or later on as each party assesses who is winning or losing each step of the way.  Many like to “keep score”.  I have had conflicts where I suggested that I would put everyone in a room and walk out so they could work it out.  I have generally found sales where I acted as a “dual agent” to be the best although not all were perfect.

What happens when either party or the agent starts to question the viability of remaining in a one agent-two party scenario?  The concept of “designated agency” allows someone to ask a broker to assign a different agent to a buyer or seller when a conflict arises that cannot be resolved.  That is a good thing.  However, my opinion goes further.  While I understand and embrace “dual agency”, I do not see how an agent can be separated from one client and still represent the other.  While expanding the number of agents to two seems to allow both parties the opportunity to have exclusive representation, the former “dual agent” still knows more about their “separated client” than a typical non-dual agent does and that could be a problem.  In my opinion, if you cannot represent one, regardless of it being your choice or that of a client, you should not represent either.  Removing yourself entirely seems to be the only fair thing to do.  Of course the broker will be accountable for how either or both parties feel about the agent now designated to represent them.

So, what is the benefit of “dual agency”?  If you think it is the commission you are on the wrong track!  Some buyers like to work with the listing agent although some of them may be trying to leverage that relationship to their advantage.  Same goes for some sellers.  Simply put, the biggest advantage for me is that it removes a body from the process.  While some sellers and buyers may be harder to deal with than others, most conflicts I have seen were made worse by having an extra mouth involved.  Of course, if there is only going to be one agent, they have a lot of responsibility and it is not for everyone.

As far as avoiding “dual agency”, that may be harder than it sounds.  If you have a property listed and someone contacts you to see it or a buyer you are working for likes it, what do you do?  Chances are that most buyers will want their own exclusive agent but you never know and you may be working with two parties now who are destined to meet later.  Life is unpredictable.

I often describe “dual agency” as being like a “Tale of Two Cities”:  it can be the best of times or it can be the worst!

Agency is not always pretty and it is not always easy to explain but it is expected in client relations and its misapplication can and will cause harm, which is the antithesis for our entering into such a one-to-one relationship in the first place.

There is no time for inexperience, empty promises or false expectation! 

Remember:  HIRE WISELY.  We are not all the same!

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