Real Estate

Why Buyers & Sellers Should Avoid it

How Does Dual Agency Work?

 

 

 

 

 

 

 

 

 

 

 

 

One of my duties as a real estate agent is to explain how agency law works in Massachusetts. In fact, I am required by law to explain agency law at my first meeting with a prospective buyer or seller client. Real Estate agents can essentially do one of three things; represent a seller, a buyer or both.

When a real estate agent represents both parties in a real estate transaction, it is what’s known as dual agency. Over the years many buyers and sellers have asked me how dual agency works. They are asking for a good reason – it can be extremely confusing to laymen. Unfortunately, many real estate agents don’t explain it properly either which makes things even more difficult.

Most people recognize the benefits of working with an exceptional real estate agent. You get a representative that fights for your best interests, helping you seek your real estate goals while protecting you from situations that would be detrimental. From finding the perfect house to negotiating the price, negotiating the home inspection and closing the deal, your agent is there for you.

Unfortunately, it is possible to wind up with an agent that is legally prohibited from looking out for you and representing your interests as a fiduciary. With dual agency – when the agent represents both buyer and seller – the agent can’t push for what is best for you or the other client.

The agent collects twice the commission but does almost none of the specific work of a seller’s agent or buyer’s agent. Dual agency only benefits the agent and should be avoided at all costs if you want a positive buying or selling experience.

If you do an online search for “what is dual agency” or “how does dual agency work” you are bound to see some articles from real estate agents saying dual agency is perfectly fine. Do you know why a real estate agent would ever tell anyone that dual agency can be done with no problem? In a word GREED!

Who wouldn’t want to get paid a double commission? There are a lot of hands going up in the room. The problem is dual agency benefits nobody but the real estate agent!

This is kind of like the real estate agent who says an open house is needed to sell a home. Wrong! It is an archaic form of marketing that benefits the agent far more than the client. It puts the owners home in danger of theft, all for the chance for the agent to score clients for other properties or double side a deal.

Dual Agency – A Departure From The Duties Of A Realtor

What is Dual AgencyIn a standard relationship with a Realtor, you can expect many benefits for agreeing to pay a fee for professional help. You know that your agent will be beholden to you in all aspects of the transaction. He or she will listen to what you have to say, giving you the final word on the decisions that are made.

Your Realtor will keep your information confidential, and be accountable to you as the buying or selling process progresses. He or she will also disclose all the information that is relevant to you as a client. Ultimately, your agent will be loyal to you – seeking to find the best path to what you want as an outcome.

With dual agency, all the standard rules and expectations go out the window. To explain this better let me give you the definition of each type of agency.

Seller’s agent – A seller can engage the services of a real estate agent to act as a seller’s agent in the sale of the owner’s property. The agent represents the seller as a client. The agent owes the seller client undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality, and accountability. The agent must put the seller’s interest first and attempt to negotiate terms acceptable to their seller client.

The agent must put the seller’s interest first and attempt to negotiate terms acceptable to their seller client.

Here are what sellers should expect from their listing agent.

Buyer’s agent – A buyer can engage the services of a real estate agent to act as a buyer’s agent in the purchase of a property. The agent represents the buyer as a client. The agent owes the buyer client undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. The agent must put the buyer’s interest first and attempt to negotiate terms acceptable to their buyer client.

The agent must put the buyer’s interest first and attempt to negotiate terms acceptable to their buyer client.

Here are some things you should expect from a buyer’s agent.

Dual agent – A real estate agent may act as a dual agent representing both the buyer and the seller in a real estate transaction but only with the express consent of both parties. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.

Consequently, a dual agent CANNOT satisfy fully the duties of loyalty, full disclosure, obedience to lawful instruction. A dual agent does, however, still owe a duty of confidentiality of material information and accounting of funds. Written consent for dual agency should come from both the buyer and the seller.

Does dual agency sound like anything you would be interested in? If I haven’t made it perfectly clear that dual agency is the DUMBEST thing ever invented for the real estate industry keep reading.

Designated Seller’s and Buyer’s agent – In Massachusetts, designated agency within a real estate firm is allowed. Designated agency is when one agent within the firm represents the seller and another represents a buyer. Only your designated agent represents your interests. A real estate licensee, typically the broker of record, is the one who designates the agents to represent separate parties in the transaction.

In this arrangement, the broker of record becomes a dual agent. Consequently, a dual agent cannot fully satisfy the duties of loyalty, full disclosure, and obedience to lawful instruction which is required of a seller’s or buyer’s agent. Written confirmation and agreement is mandatory by both a buyer and seller in a designated agency relationship.

With this arrangement each of the parties has representation.

Representing Both The Buyer And The Seller

Why Dual Agency is Bad For Buyers and SellersWith dual agency, the Realtor takes on the role of buyer’s agent and seller’s agent at the same time in a specific transaction. A home is for sale. The Realtor offers to sell the home for the seller, while also offering to represent a buyer who is interested in the home.

If the situation seems confusing, that’s because it is. How can a Realtor effectively represent either side while also serving the needs of the other?

You can’t. It is impossible to serve two masters in a real estate transaction who are sitting on the opposite sides of the table.

What makes it even more strange is that there are often laws and regulations that prohibit dual agents from doing their duty for either client. The Massachusetts Board of Registration of Real Estate Brokers and Salespeople dictates that “a dual agent shall be neutral with regard to any conflicting interest of the seller or buyer.”

So, not only does the basic arrangement of dual agency make it quite difficult to serve the interests of either buyer or seller, regulations state that the agent can’t even make the attempt to represent the interests of one or the other.

Participating in dual agency as an agent would be very comparable to an attorney trying to represent both a plaintiff and a defendant in a lawsuit. That would work out well wouldn’t it? Being a dual agent is the same dam thing!

During the transaction there are going to be times where one party feels like the other is getting preferential treatment. This however, isn’t even the worst of dual agency.

Here is a good example of how dual agency does not work for either a buyer or a seller:

I list a home on Main Street for $500,000. I go about marketing the property. Someone calls me from seeing it online and asks me to show it to them. I show the buyer the property the home and they absolutely love it. The buyer says “Bill I want to make an offer”. I say that’s great. The buyer says “so what should I offer?” I say sorry I can’t help you with that, remember I am a dual agent.

The buyer is on their own. After a few blank stares the buyer says I want to offer $490,000. I then take the offer to the seller and they say to me “Bill what do you think?” “Should I give them a counter offer and if so what should it be?” My legal response should be “I can’t help you with that as I am a dual agent.”

Legally no party has any proper representation when practicing dual agency. It is a LOSE-LOSE situation for both buyer and seller. At $490,000 the buyer could be significantly overpaying for the property. They might also be underpaying as well. Nobody has any guidance. One of these parties could be making a big mistake. In this situation, the only person making out is the real estate agent.

This is just one example of how dual agency sucks for both the buyer and the seller. And just think the transaction is just getting started.

Want more examples of how dual agency is a horrible arrangement is a real estate transaction? Take a look at some of the questions below a dual agent cannot answer.

When purchasing a home, not having a buyer’s agent is foolish and could cost you lots of money. The same can be said of not having representation as a seller.

One of the major reasons a buyer or seller hires a real estate agent is to get solid counseling and advice from an expert. When you agree to dual agency you can kiss that luxury good bye.

Improper Handling of Dual Agency

Why Dual Agency Sucks For Buyers and SellersNow that you have a firm grasp of why dual agency is so bad for consumers, let me tell you what happens ILLEGALLY everyday in the world or real estate. There are thousands upon thousands of real estate agents who don’t follow the law.

Many agents will do as they please and give advice to one party or the other throughout the transaction. One day they could be acting as a sellers’ agent and the next day the buyer’s agent.

For example, do you know how many times agents illegally give both the buyer and seller advice on an offer? A ton! From the agents perspective, all they care about is consummating the deal in order to get paid DOUBLE. Realtors are supposed to follow a strict code of ethics but many choose not to.

If you are lucky and the agent likes you, they might even show you some favoritism. Kind of a horrible arrangement to be wondering whether today is the day you will be favored or not!

Folks this happens every day and all for the ability for the agent to make double the money in a transaction.

A Harmful Arrangement

If you are wondering why dual agency even exists, you are not alone. Some states have made the practice illegal, but many other states – like Massachusetts – still allow the practice to occur. As a buyer or seller, you will gain no benefit from dual agency. In fact, the chances are great you will be harmed by it.

All the benefits you would get from hiring a real estate agent, why you agree to pay their fee, are lost when you work with an agent that is representing both you and the other side. You as a client are harmed by the practice.

When you consider that buying or selling a home is probably one of the biggest financial transactions of your life, it becomes even more baffling why dual agency is allowed at all. Part of why you are hiring a professional real estate agent is because you know that buying or selling a home is a big deal, a decision that will affect you for years or even decades.

It only makes sense to want reassurance that your representative has your best interests at heart.

Dual Agency Can Happen Under The Radar

One of the big risks with dual agency is that it can’t control what is being said by the dual agent throughout the transaction. Some Realtors may not even consider the damage done to their clients – they may only see the doubled paycheck. The chance for dual agency can pop up at pretty much any time in the home buying or selling process.

Are There Any Pros to Dual Agency

How Does Dual Agency WorkIf you look online for the pros and cons of dual agency you’re bound to see someone a Realtor trying to sell you on dual agency. The title will be “the pros of dual agency.” I am going to flat out tell you they are grasping at straws. Here are some of the pros of dual agency from the mouth of babes:

  1. You will get better communication because there is only one agent – Yahoo! With a big grin. Really?
  2. The listing agent will have more information than a buyer’s agent would. Ya phone calls or emails are hard to make asking questions.
  3. A dual agent may agree to a lower fee because they have both sides of the transaction. OKAY –  that may be true but who is getting the discount buyer or seller? Is saving a few dollars worth it for what you give up. I don’t think so!

There are far more cons to dual agency than any of these potential advantages.

What About Designated Agency

Designated agency is when two agents from the same firm are involved in a real estate transaction. One agent represents the buyer as a buyer’s agent and the other represents the seller as a seller’s agent.

I have no problem with this arrangement whatsoever, as each party has representation. Some people have issues with designated agency because the owner of the company becomes a dual agent representing neither party. I say so what!

How often does the owner of a real estate company get involved with negotiations in a sale? Try almost never! Even if they do you would want them to be a neutral party not someone who favors one party over another.

The folks that have a problem with designated agency are usually those who are advocating for firms that just do buyer’s agency.

Designated agency and dual agency are two very different things!

Insist On A Dedicated Real Estate Agent

The best way to avoid dual agency is to hire a Realtor from a trusted company in your area and to discuss the issue of dual agency before you move forward with any agent.

You can demand that the agent that you choose not engage in dual agency with you. As long as the agent is reputable and honorable, he or she is unlikely to promote dual agency.

If you are selling a home, you should outright reject dual agency. You should insist that the agent you hire is a seller’s agent and that’s it. If the agent has a problem with that then you know you’re dealing with someone who cares more about their pocketbook than your best interests.

You’ve probably guessed already one of my biggest pet peeves as a real estate agent are other agents who put their interests ahead of the client. This happens all the time in real estate when Realtors push open houses without explaining the drawbacks to homeowners.

Final Thoughts

Agency law differs from state to state. It is important to understand how agency law works in your state and specifically dual agency. The bottom line is that dual agency offers far more disadvantages than advantages to consumers. Make sure you understand any document you are signing when it comes to agency.

Frankly, dual agency should be outlawed in every state. Dual agency = conflict of interest. Real Estate agents who practice dual agency dramatically increase their chances of being sued.

Hopefully, you now understand how dual agency works and why you should avoid it.

Additional Helpful Information on Dual Agency

Use these additional references for even more information on the inner workings of dual agency.

 


About the Author: The above Real Estate information on the what is dual agency and why buyers and sellers should avoid it was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 30+ Years.

Are you thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service Real Estate sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

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