The Advent of Dual Agency is the Biggest Consumer Scam in Real Estate
Big Real Estate Firms Are Addicted to Dual Agency/Double Commissions
When we recommend that consumers avoid big brokerage firms, we do not make that recommendation lightly. Using a big brokerage firm almost guarantees that you will forfeit your right to representation and increase the likelihood that your broker will collect a double commission. Double commissions occur when the brokerage firm represents both the buyer and seller in the same transaction. The likelihood of this happening is multiplied when consumers choose a big brokerage firm. Big brokers are so addicted and adept at manipulating their clients into risky dual agency/double commission transactions, that sophisticated and almost undetectable schemes that increase the frequency of dual agency have become routine. Those schemes have robbed consumers of the ability to make informed home buying and selling decisions and have subjected them to absurd conflicts of interests that are illegal in every other profession.
With a dual agency, the broker collects a double commission and the broker’s interests are placed in direct competition with their own client. Brokers are so financially addicted to a dual agency that it influences their ability and responsibility to supervise the agents who are licensed to the broker. Note: Designated Agency is another form of dual agency that is even worse for consumers because it misleads consumers that their broker represents them when they do not.
Brokers want dual agency because they collect a double commission (typically an extra $7000-$15,000 per transaction). Consumers do not want dual agency because they lose their right to representation and because it taints the advice that they will receive – brokers are heavily incentivized to manipulate their clients into a double commission transaction. If we want to avoid another foreclosure crisis, then we need to ensure that consumers receive the advice and counsel of experts who actually represent them.
Dual Agency is Illegal in EVERY Other Profession
Brokers have successfully lobbied for and had laws passed that have mostly eliminated their liability for the harm that dual agency causes to consumers. Consider that dual agency is illegal for all other professions and that the conflicts of interests are so severe that common-law often presumes that dual agency involves fraud. Yet the least educated of all the professions (real estate brokerage) is exempt from liability for this fraud on the largest and most risky consumer transaction of a lifetime.
Dual Agency Makes Brokers Obsolete
In real estate, legalizing dual agency through Realtor lobbied for licensing laws makes the need for real estate licensing and brokers obsolete. Real estate brokerage licensing law exists to protect consumers and maintain a certain level of competency and responsibility for which consumers should be able to rely. However, removing liability for dual agency essentially provides brokers with a license and financial incentive to betray their clients. Since there is little hope that the largest lobby organization in the U.S. (click here to see NAR’s lobbying numbers) is going to back off dual agency, it is up to lenders, lawyers and consumers to take actions to avoid and litigate dual agency violations (click here to learn more about legal liability for dual agency).
Lenders Are At Higher Risk in Dual Agency Transactions
Dual agency eliminates the expert advice that consumers need to make informed real estate decisions. The financial incentives are so great for brokers to engage in a dual agency that it should be presumed that market manipulation occurs in every dual agency transaction. Perhaps the worst part of the dual agency is that it often occurs with little warning and provides consumers with few alternatives. Brokers who promise that borrowers will receive their representation and expert advice become victims of one of the worst bait and switches possible – their agent is no longer on their side. For these reasons, lenders should either refuse to fund dual agency transactions or provide extra scrutiny into the viability of transactions that involve dual agency. The risk is magnified even more if broker affiliated title firms are used to examine title and close the transaction.
It is imperative that a study is conducted to determine the frequency and role of dual agency in foreclosed properties.
Routine and Deceptive Schemes That Artificially Increase Frequency of Dual Agency
One does not need to look far in order to find the anti-competitive, anti-consumer and deceptive schemes that exist which increase the frequency of dual agency at large firms. In fact, large brokers have collectively abused their power at their local trade associations to impose anti-consumer and anti-competitive trade practices at their Realtor owned Multiple Listing Services that artificially increase the frequency of double commission transactions.
Scheme 1 – Copyrights on Client Data (click here for story). There is a current Court Action in which it is being alleged that MLSs have claimed copyrights on Realtor client data, that MLSs have conspired to limit free redistribution of that data, that MLSs have conspired to manipulate access to that data in order to increase the frequency of dual agency. The success or failure of the defendant, in this case, will have significant consumer implications.
Scheme 2 – Intentionally Limiting Market Exposure of Listing Data (click here for story). Edina Realty, Inc., a Minnesota company, owned by American Home Realty Network, Inc. (a Warren Buffet corporation) has pulled all their listings from the top buyer frequented websites in America (Zillow.com, Trulia.com, Realtor.com, and others). The result is that online home buyers can only find those listings on the company website thereby dramatically increasing the frequency of double commission transactions while decreasing market exposure of those properties.
Scheme 3 – Pocket Listings (click here for story). Brokerage firms all over America are using their position of trust and reliance to manipulate their clients into pocket listing arrangements in which properties are intentionally withheld from the MLS. Key information and beneficial alternatives are omitted from the ‘advice” provided to clients.
Scheme 4 – Financial Consequences for Agents. In-house commission splits, floor time and other significant financial consequences exist for the broker’s agents who avoid dual agency.
Scheme 5 – Mis-information Campaign. Licensees are bombarded with misinformation from brokers, regulatory approved education classes, and forms. Real estate agents are often incorrectly taught by their supervising brokers that dual agency provides advantages to clients. Realtor drafted dual agency “warnings” are also severely misleading in this regard.
Scheme 6 – Brokers That Offer Substandard Commission Splits on MLS. The Multiple Listing Service (MLS) is a place where listing brokers can make a unilateral offer of compensation to cooperating brokers. Offering less than the going rate in your area will decrease the financial attractiveness of your home and increase the likelihood your house will take longer to sell and that your broker will collect a double commission.
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