Is Dual Agency in the Public’s best interest? Part 2 of 2

If we quickly look at some possible alternatives to dual agency we may learn something about, not only the feasibility of its removal but also about what truly stands in the way of  change.  Please keep in mind that designated agency involves dual agency as the broker acts as a dual agent in that scenario though the two agents involved in the transaction each represent their clients.

1.  Single Agency? –  Licensees can only be one type of agent (seller or buyer agents) but not both.

2.  Transaction Management Agents – licensees do not represent either side but merely perform ministerial duties.

3.  Optional  Designated Agency –  Either seller or buyer  choose to hire an agent from another agency to represent them in a transaction so as to avoid dual agency. This would not be mandatory in the event the seller and buyer elect to work with the listing office after full disclosure is made.

There’s a lot to be said about each of the above but they all involve radical changes to our business practice.  These changes, I  believe, would probably result in a significant drop in the number of active licensees as it will become harder to be successful and, therefore, less profitable for those who don’t adapt. We’ll only be eligible for one side of any transaction and that could mean a drop in income unless volume is increased.  It will also probably mean considerably less income for professional organizations due to significant drops in membership.

Does it look now like the movement for the elimination of dual and designated agency will come from the Realtor community?  There is no ground swell from membership so why would leadership seek to rock the boat?

In the end, like a lot of other things, it all boils  down to money…surprise!…..surprise!

That’s why I believe that the impetus for radical change, if at all, will not come from within the industry.  Like a lot of other things, such as all of the legal  requirements for the various disclosures we have to make, consumer demand can and probably will be an effective impetus for change at some time.    Who knows when?

On the other hand, I do believe that  improvements can be made in the existing laws governing the way dual and designated agency are practiced in our state.  Such changes might also lead to further adjustments down the road.

For example, let’s remove the words “represent” or “client” when referring to any agent or seller/buyer involved in a dual agency situation.  Those words imply advocacy as they do for attorneys and other professionals.  I don’t know what word can be inserted in its place but I’m sure there is an appropriate word that conveys the proper explanation of the ministerial services performed by the licensee.

Next, require “informed written consent” from  the seller or buyer to either dual or designated agency.  This means that somehow, perhaps in a disclosure, the seller and buyer are fully informed as to how the “representation” they originally agreed to retain will change if they agree to permit “their” agent to act as a “dual” agent.  It should attempt to explain with examples what the agent can and cannot now do for them and that his/her role will be reduced to a ministerial role without advocacy.  It should explain what he/she can and cannot do on behalf of the other party in any potential transaction and should be as specific as necessary to get the point across that an agent would be acting in violation of the law if he/she offered any advice regarding value, price, negotiation strategy, etc to either side.

Next, listing agreements and buyer agency agreements should not be permitted to include obligations for sellers and buyers to agree to dual agency in advance.  They should inform sellers and buyers of the potential for that situation to arise with detailed  explanations as outlined above but not bind them in advance to something completely out of context at that moment.  New home buyers, for instance, have no clue of the implications of what they are agreeing to.  The client should have the option to choose to have other representation without penalty at such time as the offer of dual representation is made to them.  Actually, this will also serve as a protection for the licensee if handled properly.

That also means that a written offer to change to dual representation should be made before any substantive discussion is conducted with a buyer client on a property listed by the buyer agent.  Even if agreed to by the buyer client, the seller should then be presented with a written offer of dual agency before a showing can take place with the same agent.  Of course, both offers of dual agency will contain the informed disclosure information.

Perhaps there are much better adjustments that can be made, however, the purpose of these suggested procedures is to make sure that both sellers and potential buyers be given the opportunity to understand and either accept or deny the use of dual agency by their mutual agent in advance of any services provided by the agent in connection with a potential transaction involving the two.  Anything  that helps accomplish this is a move in the right direction.  That’s about all we can hope for at this time.

Will these changes take a lot more of the agent’s time and effort?  Yes, but they are appropriate, in the best interests of all clients, and are the fair price paid for a choice to act as a dual agent. They will also, in my opinion, serve to protect the agent if properly complied with.

The preceding was written by Joe Vita.

Part 2 of 2.
Part 1 is here.

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3 Responses to Is Dual Agency in the Public’s best interest? Part 2 of 2

  1. Lem Marshall says:

    Many of you are aware of my dislike for dual agency, but I would take issue with some of the original comments here. Principally, I don’t think doing away with dual agency (as a practice) would be bad for a firm’s or an agent’s revenue, in fact, I believe the opposite. By refusing unnecessary conflicts of intetest that diminish the level of service to mere ministerial acts (the practical effect of dual agency), we tell our clients we put them ahead of our interest, we never have to tell them we can’t help them and we keep service levels consistent with fee levels. The anecdotal evidence is strong that single agency at full service levels results in levels of repeat business and referrals that more than offset the loss of the other side of the deal.

    But there’s no reason, in most cases, to lose the other side of the deal. Most cases of dual agency result from our imposition of the relationship, and not from the request of the second client (usually the buyer) for brokerage services. If we dealt with the buyer of our listing as a customer, we would earn the selling fee without having to become a dual agent. Remember, being the buyer’s agent is just about irrelevant as to who has earned the selling fee. It’s the person who made the deal happen (buyer agent or not) who is entitled to the fee.

    If the buyer should request brokerage services from the listing agent, the listing agent can refer the buyer to a colleague and allow the broker to designate agents appropriately. This keeps service levels high for both clients. The listing agent can work out the money in reciprocal arrangements that can make total revenue neutral over any length of time as against dual agency. The clients gain and the agents don’t lose.

    Now my most important point. The original post argues that there’s no consitutency for doing away with dual agency. I disagree. The consuming public has been telling us they dislike it for years, but we haven’t been listening. When fees are at full-service levels, but service is rock-bottom low (dual agency levels), consumers will resist and will seek a better deal. Anyone notice the proliferation of limited service brokerage models, or the growing number of web-based FSBO-type services for sellers and buyers? There will always be a market for these, but I maintain that market is much higher when the alternative is the low service levels of dual agency at full-service prices.

    You might not think of the dual agent as the ultimate limited service broker, and you have a point. The limited service broker matches fees to service levels. The public has noticed, it is responding, and we didn’t need a statute.

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  3. Lem, In reading your comment to this post, I noticed my head shaking up and down with a confirming “YES”.
    Why is it that a client (who may not even know to ask) is not “always” offered a designated agent vs Dual. The agents can easily work out an equitable fee arrangement. Just makes a lot if sense to me…

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