S.E.C. Real Estate Observer

• Tweet

• Tweet

A booklet entitled, “Who Is My Client?” published by the National Association of Realtors in November 1986 says on page 10: “Dual Agency is a totally inappropriate agency relationship for real estate brokers to create as a matter of general business practice. Undisclosed dual agency is a clear breach of a broker’s fiduciary duty to each of his principals and is generally viewed to be an act of fraud. 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.”

A bold statement, and correct. Unfortunately, the majority of NAR members have never read this significant publication. While NAR mentioned the term Single Agency in the booklet it was implied to mean that a firm should represent SELLERS ONLY or BUYERS ONLY. Their interpretation undermines legitimate Single Agency practice.

The answer to client representation is not Seller Only brokerage firms or Buyer Only Brokerage firms, but Single Agency real estate practice. Here the Agent represents only one party in a real estate transaction and is paid by the party being represented.

Then there is the California Association’s approach to Agency. California has the dubious distinction of having one of the worst agency disclosure laws in the country. It is confusing because agency disclosure is mandatory only for 1 to 4 unit transactions. California’s agency disclosure law attempts to legislatively bless Dual Agency by including it in the state mandated disclosure document. Contrary to the NAR condemnation of Dual Agency, California took the position that it’s OK as long as you disclose in writing to both parties and they agree to it in writing. While technically legal, it is very impractical. Such an approach totally ignores the major problem with Dual Agency practice: The handling of confidential information. As an attorney friend put it, “Once a disclosed Dual Agent receives any confidential information during a transaction they have just two choices. #1. Resign from the transaction or #2, Shoot themselves”.

If they disclose the confidential information to the other party they’ve breached a fiduciary responsibility to the person who gave them the information, IF THEY DON’T disclose it to the other party then they’ve breached their fiduciary responsibility to that person. It’s a Catch 22 situation. Either way they’re dead.

While some increase in awareness has been achieved primarily due to the impetus on Agency disclosure regulations, most licensees are still confused on the issue of agency. Disclosed Dual Agency runs rampant. A disclosed Dual Agent can do little more than run errands, carry messages and chauffeur people around. The minute they provide representation for either party they breach their fiduciary responsibility to the other party.

The most common situation in California today occurs when an agent can’t sell his own listing, or his company’s listing, and make the most money for themselves via Dual Agency (regardless of the buyer’s needs), they mumble something to the buyer about representing him but never ask the Buyer to employ them or pay their fee. The first time the seller or seller’s agent understands that a “Buyers Agent” is involved is when an offer has been presented. The disclosure statement says that the Selling Agent represents the buyer and expects to be paid by the seller. These amateur Buyer Agents who know how to be paid only by participating in fees paid by sellers are shortchanging their buyers by limiting their property search only to listed properties. The buyer in this case isn’t much better off dealing with a traditional agent.

The biggest benefit (of professional buyer representation) to the consumer is that it opens up the entire marketplace to the buyer. An employed Buyer’s Agent can pursue For Sale by Owner properties, Foreclosures (except in California where a new ill-conceived law works against consumers), probate situations and property that is not on the market at all. One of these may be best for the buyer but the buyer will never see it if they are working with an amateur Buyer’s agent because the agent has no commission protection.

A classic example is the turnaround sale where the agent’s listing sells and the seller/client asks the agent’s help in locating another property. In this scenario seldom does the agent ask former seller/client (turned buyer) to employ him/her as a buyer’s agent to locate a suitable property. Without an Employment Agreement there is no fee obligation on the buyer’s part and the buyer will not have access to all properties that might be available in the market. Most agents take the easy way out and conduct their search in a traditional sub agency fashion that is unrecognized by their former seller client, who is now in a buying mode. The scenario can be even more devastating in the commercial investment market where FSBO’s open listings and good situations that are not on the market are even more common.

Consumers seeking client level representation should find an agent who has had specialized training and experience in representing buyers. The best are those few who have training, experience and have made an EXCLUSIVE COMMITMENT to Single Agency real estate practice. The agent will ask to be employed under a written agreement with the fee to be paid by the buyer.

Organized real estate may continue to advertise themselves as professionals but the public will never believe it until they renounce Dual Agency and make an exclusive commitment to Single Agency real estate practice.

Single Agency offers a marvelous opportunity, especially for a small real estate company, as it is much easier for them to adopt. With fewer listings and personnel, smaller firms are better able to avoid conflicts of interest. Companies with large listing inventories have a greater chance for conflicts of interest when trying to represent buyers and sellers under exclusive Employment Agreements. Single Agency practice requires training and special orientation, which is available only outside of organized real estate. Progressive practitioners are not waiting for organized real estate to change. Those with the daring to do and permission of their Broker, if they are licensed as salespersons, are personally adopting a Single Agency posture. His/her clients will recognize a technically competent agent providing Single Agency Real Estate Representation as a professional within an industry that is sometimes NOT considered professional by the public.