Dual Agency and Broker Ethics
Dual agency is bad for clients, both buyers and sellers. If you do not know what dual agency is, then you should educate yourself on this practice before you hire a broker. If a broker defends the idea of dual agency, you know immediately that they are not honest. Some brokers love dual agency because they get paid more, often double.
~~~
So the neighbor’s dog escapes his fenced back yard and goes walk-about. He wanders into your yard, and while he’s digging up your tulips, that tree, the dead one you’ve been meaning to cut down, falls on the dog. The dog may be injured or worse, but now we surely have some very upset neighbors. The first thing they say is: Hey, we were just talking last week about how dangerous that tree might be.
Right? You get it. This is America…so off we go to court.
Yep, right on cue, you get served. What to do? Well who knows what to do? That’s why we have lawyers. So you ask around and hear great things about Attorney Fred. And you promptly schedule an appointment. You walk in and introduce yourself to Fred. And Fred asks: You’re the Smith’s neighbors? The one with the tree? Ah, er, yes. And Fred says, no problem, I will be delighted to represent you in this matter. But I need to inform you that the Smith’s hired me last week to file suit against you for their injured canine.
No rational person would accept this. You’d thank Fred for his time, and go hire another attorney. In fact, this situation is a violation of the ethics of the bar, and would never be allowed.
Yet…yet in the real estate business, this happens every day across America. We even have a name for it: Dual Agency.
To discuss this further, I am going to borrow heavily from Bill Gassett’s March 2019 article Dual Agency Doesn’t Benefit Consumers which appeared on the REALTOR® Magazine website.2
Let me start by paraphrasing Gassett:
To clarify, when I say dual agency, I’m referring to one broker representing both the buyer and the seller in a single transaction. In some states, dual agency can also mean two brokers working for the same firm, each representing one of the parties (often referred to as designated agency).
Now it is my belief that, with well thought out procedures, it is possible to responsibly practice designated agency. Though I should tell you, some scrupulously honest brokers do not agree. But in any case, it is my contention that single-agent dual agency is never responsible and never ethical. And should be illegal.
Gassett writes:
First, you should know what it means to represent a client. You become his or her fiduciary, and everything you do should be in the client’s best interests – even when it conflicts with your own. You are their confidant. This means counseling on price, negotiating in their best interests, advising on decisions such as home inspections, and the whole myriad of other things that come up in a sale. These are the normal duties of a real estate agent.How do you, then, counsel a seller on setting the list price when you also must help the buyer get the best deal possible? Under dual agency situations, the real estate professional’s interests collide head-on with their clients’. So, agents who practice dual agency either don’t understand the gravity of this conflict – or they don’t care.
Bill allows for the possibility that brokers do not understand the gravity of this conflict. Personally I am of the mind that they do understand it, but they just don’t care. Gassett points out that states require brokers to explain to their clients exactly how dual agency works. Then he continues:
Here’s the problem: The agent explaining dual agency has a vested interest in the client accepting it. [So] real estate agents who practice dual agency don’t explain the downsides, including the fact that they may not be able to protect the client’s best interests while also representing the other side. How do you think these agents will approach the [required] discussion with their clients? If the word sugarcoat comes to mind, you’re right.
And why? Why do brokers act this way? Well, look at the broker’s financial incentives. If the broker supposedly represents both sides, he gets paid on both sides. So as much as double.
Gassett concludes: Practicing dual agency is a function of greed.
The reader may be interested in a comment I posted to Bill’s article:
Explain dual agency to any other class of professionals, certainly attorneys, and then ask: Is this ethical? To others, the answer is obvious: No, that is unethical behavior. But if you put the question to a group of brokers, more than half will argue that it is ethical behavior. This is a problem.
And Bill responded:
One of the worst parts of dual agency is the person explaining it has a vested interest in the client accepting it. Guess what that means – it isn’t explained properly! What seller in sound body and mind would ever want someone they are paying thousands of dollars to, go from representing them to becoming a neutral party. How about zero! [emphasis removed]
Bill is quite rightly concerned about how dual agency is explained to clients. My concern is with the brokers themselves, who, I think, clearly understand the problems with dual agency. But who nevertheless practice this behavior anyway. And what this says about people in our business.
They are simply unethical.
I would like that to be the end of this chapter. But I think it fails to convey the scope of this problem. What the reader needs to understand is this: We are not talking about a few bad apples here. Dual agency is widely practiced. By how many brokers? If I had to guess, I’d say at least half, and probably quite a bit more. I am not sure if the financial incentives of the real estate business drive brokers to become unethical. Or, if unethical people are drawn to the business. Or both.
Finally as Bill Gassett points out at the end of his piece, it is worth noting that eight states have banned dual agency: Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont. I wish this list was longer.
So, want to find an honest broker? Ask them if they practice dual agency.
_____
2. Bill Gassett, REALTOR® Magazine: Dual Agency Doesn’t Benefit Consumers, 26 March 2019. https://magazine.realtor/news-and-commentary/commentary/article/2019/03/dual-agency-doesn-t-benefit-consumers
All quotes in this chapter come from Bill Gassett’s article and are used with his permission. Bill’s article is definitely worth reading in full. Plus, I think the reader will find the comments to his article prove the point I am making here. Really, have a look.
2. Bill Gassett, REALTOR® Magazine: Dual Agency Doesn’t Benefit Consumers, 26 March 2019. https://magazine.realtor/news-and-commentary/commentary/article/2019/03/dual-agency-doesn-t-benefit-consumers
All quotes in this chapter come from Bill Gassett’s article and are used with his permission. Bill’s article is definitely worth reading in full. Plus, I think the reader will find the comments to his article prove the point I am making here. Really, have a look.
Update (2024): I notice that REALTOR® Magazine has shamefully removed the comments to this article. These comments were so illustrative of supposed REALTOR® ethics, of course they had to remove them. Perhaps they removed comments from all of their articles; I have not checked. But if that is the case, the previous comments to this article were so ethically embarrassing, that I am sure it was instrumental in their decision to end commenting.
Allowing single-agent dual agency belies the whole concept of REALTOR® ethics and the so-called REALTOR® Code of Ethics. I will come back to this in Chapter Twelve.