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.

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