Dual Agency is “Bait and Switch.”
Dual agency is a way for brokers to unfairly get paid double. It is most prevalent at large brokerage firms (we recommend avoiding these). Commissions are already arguably too high and savvy consumers can avoid paying a double fee while also preserving their right to representation.
Dual agency occurs when real estate agents from the same firm claim to represent both the buyer and the seller in the same transaction. Representing adversarial interests at the same time is a legally impossible situation (“serving two masters”) and is illegal in every other profession. Worse, brokers are incentivized with a double fee if they manipulate you to agree to this.
Dual agency (also known as Designated Agency) is often branded (even marketed) to consumers by large brokerage firms as a thing of value – it is not. Although the term “dual agency” seems to infer an important relationship of trust and reliance, dual agency is a betrayal in which the firm becomes a secret double agent that only gets paid double if they can convince you to do it.
In order to avoid dual agency, seek out smaller, highly qualified and independent brokerage firms that understand and agree to other more favorable relationships such as Exclusive or Single Agency representation.
Negotiating Tip: Sellers, instead of negotiating a bundled commission, negotiate each part of the commission. Do it yourself (“unrepresented”) buyers typically receive no financial benefit for their work. Instead the listing broker confiscates the entire amount (a hogger). So instead of negotiating a 5% commission, negotiate how much your listing broker will get (2% for example), negotiate how much will be offered to buyer brokers and do it yourself buyers (3%). When buyers are searching, yours will stand out because buyers stand to save 3% only on your house by doing it themselves. Listing brokers should not care whether the 3% is paid to buyer brokers or buyers. If they claim that they have to do more work, then keep shopping until you find a listing broker that is willing.
Looks like this:
Listing Broker: 2%
Buyer Broker or Do It Yourself Buyer: 3%
Bait and Switch
Dual agency is potentially one of the worst “bait and switches” possible because it involves the “switch” (abandonment) of a trusted advisor and advocate. Even with disclosures, consumers rarely expect the change in relationship (and often never even know that it occured) that comes with dual agency and they are almost never prepared for the complete abandonment that defines dual agency. And despite the degradation in the level of services in a dual agency situation, the client ends up paying double.
Should Less Service Equate to a Lesser Fee?
The Consumer Federation of America came up with a recommended fee schedule that suggests a sliding downward scale to align the degradation of services that results from dual agency with a lowering of the fee Realtors charge. According to them, less service should translate into a lower fee.
It is Illegal for Attorneys to Practice Dual Agency
It is illegal for attorneys to engage in dual agency in adversarial relationships. Yet, attorneys possess far higher entry level licensing standards and education requirements than do Realtors. In addition, attorneys are trained in how to manage conflicts of interest. Realtors are not.
Attorneys must have a post graduate doctorate degree and pass a State Bar Exam in order to become licensed. They also have a meaningful Code of Ethics that provides substantial and public penalties for infractions. Even with their thorough training in agency relationships and conflict management, attorneys avoid dual agency because it places too much risk on their clients.
Licensing requirements for real estate agents are essentially non-existent. The minimum standard to obtain a real estate license in the United States doesn’t even require a high school diploma and an individual can often obtain their license after taking only a 30 hour class on how to pass the exam. And their “Code of Ethics” is designed to protect Realtors, not clients and is enforced by peers who are members of their trade association and all decisions are kept private. Real estate licensing laws are typically lax as is enforcement of those laws.
There really is no comparison. Realtors do not possess the necessary training or education to engage in such a complex relationship as dual agency.
Despite the complete lack of minimum standards and the incredible complexity and danger of dual agency, it is now legal in most states for Realtors to practice dual agency.
Attorneys run conflict checks to avoid dual agency and have for the most part bifurcated their profession into plaintiff and defendant firms. Nothing like that system exists for Realtors. We believe that it should. To make matters worse, Realtors don’t understand dual agency, they have little training in conflict management,and disclosure forms are misleading and inadequate. Consumers don’t understand it, are highly vulnerable and typically rely upon their Realtor for skewed and inconsistent “advice” about dual agency. And to totally drive the malfeasance home, Realtors are financially encouraged to practice dual agency and fondly refer to the bagging of dual agency clients as a “hogger.”
The Worst Kind of Swine Flu
Dual agency (aka “Hoggers”) exist to enable real estate brokerage firms to grow to enormous size and to unfairly collect double commissions. It’s greedy, dishonest and anti-competitive. Similar to theft by swindle, dual agency is highly profitable and relies upon the vulnerabilities of its victims to succeed. We call these double agents “predatory fiduciaries” because their practices differ little from those of the predatory lenders. Ironically, dual agency was a response to an innovative entrepreneurial business model called exclusive buyer agency that was quickly gaining market share and improving the real estate marketplace. Exclusive buyer agency offers a legitimate and substantial benefit to consumers in that agents refuse to expose clients to dual agency and offer only exclusive loyalty their buyers.
Exclusive buyer agency still exists and is promoted by a trade organization called the National Association of Exclusive Buyer Agents (www.NAEBA.org). We have a list of Exclusive Buyer Agents listed in our Service Providers section in the upper right sidebar of this page.
Excessive Realtor Lobbying Power
The National Association of Realtors is the post powerful lobbying group in the United States. They claim that 97% of the legislators they support get elected. It is considered political suicide for legislators to go up against this group. Add in the lobbying power of its sister and subservient industry groups and you will understand why it is a truthful remark to state that, “No real estate related law will get passed unless the Realtors sign off on it first.”
Legalizing dual agency allowed the Realtor Associations’ membership to get paid double while betraying their own clients. Legalizing dual agency is akin to legalizing fraud. In fact, the courts describe “undisclosed dual agency” as fraudulent conduct. We find it incredulous to even try and state that consumers receive dual agency disclosures even close to what the common law requires of other professions. Consumers certainly are not giving their informed consent (another common law standard).
Without an all powerful lobbying group behind them (National Association of Realtors “NAR”), it never would have been possible to legalize conduct that is more accurately described as a betrayal. The common law standard to permit dual agency requires a full disclosure of all the material conflicts of interest (an almost impossible standard) and the informed consent of the client (another almost impossible standard). Rather than adhere to these common sense standards, Realtor Associations across the country changed the law so that they could double dip. They amassed a colossal lobbying effort to rewrite state laws to allow for dual agency. In one lobbying effort they defiled two hundred years of common law and eliminated an important and already successful point of redress for consumers who were harmed by dual agency – class action lawsuits.
“Dual Agency is a Totally Inappropriate Agency Relationship”
Hypocritically, it should be noted that the National Association of Realtors previously took the position that, “Dual agency is a totally inappropriate agency relationship for real estate brokers to create as a matter of general business practice…The disclosures and consents necessary to make a dual agency lawful are so comprehensive and specific that a typical real estate broker cannot undertake them as a matter of routine.” Taken from “Who Is My Client? *– A Realtors Guide to Compliance with the Law of Agency” 1986 National Association of Realtors. See attachment below. The Executive Vice President of the Association also wrote a letter about the topic.
Dual Agency Should Be Banned
CAARE’s position on dual agency is that it should be banned. It is an insurmountable conflict of interest that results in the abandonment of the client when they need their agent the most – right when they find the property they want. We believe that banning dual agency is possible with enough public support. We have drafted petitions and have lots of information to help provide imepetus for this change. At the very least, investors who loan mortgage money should forbid dual agency in their transactions. In addition, HUD should forbid dual agency on all federally funded loans that involved especially vulnerable distressed home sellers (short sales). When mortgage fraud is rampant, consumers need more than ever to be able rely upon their Realtor for exclusive representation and unbiased and untainted advice. We would like to see the elimination of disclosure statements that disclose bad conduct like dual agency and see in its place the elimination of bad conduct like dual agency.
*The National Association of Realtors’ Official position on dual agency in 1986, “Dual agency is a totally inappropriate agency relationship…”
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