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Dual agency: Why Would You Allow it to Happen to You?
January 26th, 2010 categories: Real Estate News
It is beyond me why the obvious conflict of interest inherent in dual agency hasn’t made it illegal in the state of Ohio.
Delicious Real Estate will never represent both sides of real estate transaction. Someday, all Ohio real estate agents will say the same thing but for now it’s perfectly legal. Ethical? Yes, according to the National Association of Realtors. That too will changes someday.
Bill Wendel, who wrote the following post, is a long time advocate of abolishing dual agency and he runs a client-centric outfit called Real Estate Cafe of which I’ve been a big fan for years…..Exposing the hypocrisy of dual agency, and it’s evil counterfeit buyer agency twin, “designated agency” has been a crusade for real estate consumer advocates, like The Real Estate Cafe, for more than 15 years. For the most part, proponents of buyer agency have stressed the financial benefit to individuals — something an article today in the leading real estate new service fails to even address. Instead, the article may give the mistaken impression that buyers can maximize their savings by working with a dual agent because of “…a commission reduction to cover repairs or a lower purchase price, if they represent both sides.”
Those savings are trivial by comparison to the deep discounts skilled buyer agents can negotiate for their clients. For example, The Real Estate Cafe saved clients over $1 million dollars during one recent year (see map of selected savings, all but one over $100,000).
Still, what’s more important from a policy perspective is to switch from debating savings at the micro-level to costs at the macro level, ie. the cost to society. With one in four mortgages underwater, it’s essential for legislators and regulators, both a national and state levels, to investigate whether dual agency, and related “blind” bidding wars, helped inflate the housing bubble and to enact reforms to prevent a repeat in the future.
Research findings from one snap shot, a Cornell study on dual agency, suggest dual agency helped create overvalued housing prices, which taxpayers are now being forced to bail out. More specifically, Cornell researchers found that listing agents increased asking prices by 10 percent “when an internal buyer with a high willingness-to-pay is available,” and generated sales prices 5 percent higher on transactions involving in-house sales. Ironically, researchers concluded that the net impact on the market was insignificant because “agents cut sale prices to capture both sides of the commission or trade favors with colleagues.” That’s one of the strongest arguments to outlaw inside trading, and require no conflict of interest agreements from any real estate agents involved in foreclosures. (As CNBC recently reported, short sales are already plagued by fraud and kick backs.)
Even if individual buyers don’t understand the financial benefit of using a buyer agent, shouldn’t taxpayers have an advocate to prevent buyers from overpaying any time government subsidies are used to purchase or finance a property? Yale Economist Robert Shiller may have had something like that in mind last year when he told ConnectNY that ever family in America should have a personal financial advocate. Fortunately, the cost of paying for that advice is already built into the typical real estate transaction. If you’re NOT using a buyer agent, you’re giving the listing agent / agency a double pay day whether or not they are acting as disclosed dual agent (something the article above also fails to mention).
Speaking as a real estate consumer advocate, my hope for the new decade is that (1) dual agency laws will be repealed, (2) any company involved in short sales or foreclosure disposition will be required to sign a no conflict of interest policy which includes dual agency, and (3) in the future, “blind” bidding wars replaced by controlled bidding environments, like N-Play, to maximize transparency and minimize deceptive buyer manipulation.
Until then, we invite readers to discuss what regulatory reforms are needed to protect real estate consumers; and if you are buying a home, we would be glad to discuss how The Real Estate Cafe can help you save money. Let us know when that’s convenient.
Posted via web from Sights and Sounds of Columbus, Ohio Real Estate
RealEstateCafe
January 26th, 2010
Bravo, Joe!
Good to see you taking the lead to protect home buyers in your market, and look forward to hearing your ideas about how to use social media, particularly Facebook fan pages like yours, to “Dump Dual Agency”
If you use Twitter, can you follow me and I will add you to the RECALL: Real Estate Consumer Alliance list I’ve set up. If we do a conference call to brainstorm ideas, would you like to participate?
Bill Wendel
The Real Estate Cafe
Cambridge, MA
Dean Ouellette
January 27th, 2010
Im going to agree with you when one agent representing both buyer and seller, but when you are talking about one broker representing both, but both having a separate agent I think it is easy for both buyer and seller to be fully represented. I know there are many times in my large firm I am showing houses for a listing from someone else in my office. Sometimes I know them, sometimes not. BUT always if I have the buyer I am 100% looking out for the buyer. Now if I had the buyer and seller then that is a much harder line to straddle and both feel they got the best deal possible.
Top 10 real estate posts of the day for 1/27/2010 : Tempe real estate and free home search
January 27th, 2010
[...] Dual agency: Why Would You Allow it to Happen to You? – I agree with his notion that the buyer and seller should each have their own agent in most [...]
Terry Shortt
July 12th, 2010
The Kentucky Real Estate Commission: no friend of consumers.
The Kentucky Real Estate Commission (KREC) along with other states, embrace real estate industry practices that are universally known to harm consumers in their states. In spite of the need to reform real estate licensing law to make it more fair and understandable to consumers, states like Kentucky and others endorse an industry friendly practice known as “dual agency” to the detriment of consumers.
“Dual agency” makes it possible for real estate agents to claim to represent two opposing parties (the buyer and the seller) simultaneously and remain in compliance with state real estate licensing law. The practice, which is a creation of and for the real estate industry, is favored by real estate agents because it enables them to claim to represent both parties and potentially earn larger commissions.
Proponents of “dual Agency” claim that a residential real estate transaction is more like a marriage than an adversarial situation and real estate agents can offer limited representation to all parties effectively. All states that allow the practice of dual agency also require agents to disclose their status to all parties prior to entering into a contract. Currently in Florida and Colorado, the practice of dual agency is banned entirely.
Opponents of the practice claim that it’s fundamentally flawed because it’s confusing to all parties and deceives them into believing that they have a dedicated advocate when they actually don’t. Some experts believe that although real estate agents are required by law to disclose their dual status that many of them don’t point out the likely pitfalls of this form of representation. Opponents, like the Consumer Federation of America and American Home Owners Grassroots Alliance, have called on the industry and regulatory bodies to join other states and ban the practice of dual agency.
The argument that dual agency is good for all parties and that a residential real estate transaction resembles a marriage more than an adversarial arrangement seems to ignore the fact that buyer’s and seller’s are in opposition in almost all phases of the transaction.
The defect with the practice of dual agency, according to outside experts, is that it’s a deceptive and unfair practice that often leads consumers to make decision that may not be in their best interest. Additionally, it’s legally dangerous for real estate agents to practice since many don’t fully disclose their status or even understand their state agency laws. Undisclosed dual agency, which is a serious violation in every state, is probably more common that industry insiders want to admit.
The states that have banned the practice of dual agency have opted to adopt either “single agency” or “transaction broker” as the accepted practice. The practice of dual agency is especially complex today with single brokerage offices spread over a wide geographical area.
Although dual agency is an outdated and deceptive practice it’s not likely to go away any time soon. The real estate regulator bodies are made up of industry insiders. In Kentucky, for example, the state REALTOR trade association has approving authority over all appointments to the Kentucky Real Estate Commission (KREC) by law.