‘Dual Agency’ – Who Is Representing You?

— Two Recent Real-Life Stories:

1) A seller listed their property with a real estate agent who claimed to have the right buyer for the seller’s property. Sounds alluring. It’s also the oldest trick in the book by hungry agents to convince sellers to list their property with them. – The jury is still out if the agent indeed has the right buyer.

If you are the seller, do you think that you can get a better deal if your listing agent (or another agent from the same brokerage firm) also represents the buyer?

Let’s assume the listing agent does indeed introduce a buyer to the property, and the buyer decides to submit an offer through the same agent (or another agent from the same brokerage firm). Instead of representing only the seller’s best interest, the listing agent and the brokerage firm now also represent the buyer’s best interest. – Convenient? Except, both clients have opposing interests. It’s called a ‘Dual Agency’ representation and constitutes a conflict of interests.

See related article:  The Truth How Listing Agents Find A Buyer For Your Home

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2) A buyer requested to see all available condo listings in her favorite building, except the one unit which she had previously seen during an Open House. She promptly already had submitted an offer directly through the listing agent. The buyer asked me to represent her only for any of the other units she was about to see, in case her submitted offer would not get accepted. 

If you are the buyer, do you think that you can get a better deal if the listing agent (or another agent from the same brokerage firm) also represents you?

Remember that the seller hired the listing brokerage (and all its agents). In our real-life story, the buyer’s offer was not accepted. Instead, the seller accepted another offer. – So much for the buyer trying to gain a competitive edge by working directly through the listing agent.

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OLD CAR

Your real estate agent owes you six fiduciary duties that are best remembered with the acronym “OLD CAR.” Each letter represents the first letter of each of the six duties:

1) O – Obedience to promptly and efficiently follow all your ethical and lawful instructions.

2) L – Loyalty to your best interest, above all others, including the agent’s self-interest.

3) D – Disclosure of all known relevant info that might improve your ability to obtain the best price and best terms.

4) C – Confidentiality of your personal information, unless you authorize to share it.

5) A – Accounting and reporting of all funds, property, documents, reports, and communication logs related to the transaction.

6) R – Reasonable Care and Diligence to competently assist you with superior professional skills, knowledge, and expertise.

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Carefully look at 2) L- Loyalty, and 3) D- Disclosure: Your realtor is pledging “loyalty to your best interest, above all others, even the agent’s self-interest,” and “disclosing all known relevant info that might improve your ability to obtain the best price and best terms.”

Let’s review the following typical representations in real estate:

• In many real estate transactions, a real estate agent represents the buyer and another agent from a different real estate brokerage firm represents the seller. = Exclusive Agency, representation includes all six fiduciary duties.

That makes perfect sense for most transactions since the buyer’s and seller’s interests are typically opposing. The buyer often desires the lowest price possible and the seller often desires the highest price possible.

• In some real estate transactions, an agent represents the buyer and another agent from the same brokerage firm represents the seller. In that case, the same brokerage firm represents the buyer and the seller. = Designated Agency, limited representation. It’s another form of Dual Agency. – Each agent continues to advocate on behalf of their client. However, the brokerage firm acts as a ‘Dual Agent’. The agents’ broker that is responsible for all agents’ activity is no longer able to counsel each designated agent regarding price, terms, and negotiation strategy! Loyalty and Disclosure duties are compromised.

• On rare occasions, an agent represents the buyer and the same agent also represents the seller. = Dual Agency, limited representation. – Buyer beware of the danger zone. Loyalty and Disclosure duties vanished entirely in an instant. Say what?

Think about it. In a legal matter, would you want the same lawyer (or the same law firm) representing you and the defendant? I don’t think so. – Avoid the pitfalls and protect your best interest. Choose to avoid Dual Agency representation.

• Another type of Dual Agency is when two or more buyers are competing for the same property and are represented by the same real estate agent (Dual Agency), or by different agents from the same brokerage (Designated Agency). This happens more frequently, especially with the larger brokerage firms that have many agents.  

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The Two Most Common Types Of Dual Agency:

1. A real estate agent (or two agents from the same brokerage firm) represent(s) the buyer and seller in the same transaction.
2. A real estate agent (or more than one agent from the same brokerage firm) represent(s) more than one buyer competing for the same property.

Going back to our two recent real-life stories above. – Who is getting the short end of the stick?

• How could your agent (and brokerage firm) represent another client with an opposing interest in the same property?
• Are you getting the service you deserve?
• Who is representing you?

Consider working with the sharpest realtor representing your best interest exclusively.

Eight US states, AK, CO, FL, KS, MD, OK, TX, and VT, prohibit real estate Dual Agency representations.

All other states have strict Dual Agency disclosure requirements and guidelines on how a dual agent is to conduct business.

• Hawaii requires oral and written disclosure together with written consent from all parties to the transaction before entering into a written sales contract.
• Dual agents must remain neutral in all negotiations and can no longer advance one party’s interest over another.
• Instead of being a consultant and advocate for the client, a dual agent becomes an impartial facilitator to the transaction. 

In a Dual Agency transaction, the brokerage firm and all its agents must not compromise the duty of confidentiality. Agents cannot discuss or recommend to the buyer and seller:

• The client’s motivation and negotiating strategies.
• The price the seller might be willing to accept, and the price the buyer might be willing to pay.
• The price the seller should counter or accept, and the price the buyer should offer or pay.  

That is unless the client gives written permission to share the info with the other party.

A crucial aspect of an optimal client/agent relationship is trust and prudent counsel. Dual Agency representations lack both. With the duty of loyalty missing, a Dual Agency representation might put you in harm’s way.

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“Distorted Outcomes” With Dual Agency

A New York study published in 2009 in The Journal of Real Estate Finance and Economics analyzed 10,891 residential real estate transactions over 3 years to identify Dual Agency correlation with final sales prices. The study discovered and identified incentive misalignments and conflict of interests that influenced some agent’s behaviors.

Some Dual Agency representations resulted in ‘First-resort’ selling (showing to in-house buyer clients first) and ‘strategic pricing’ (agents inducing their seller clients to set a higher list price in anticipation of an internal client agreeing to it). In other deals, agents were leaning on sellers to accept a lower sales price.

The study provided some evidence of distorted outcomes associated with Dual Agency transactions. Surprisingly, there was little difference between a Dual Agency with one agent versus a Dual Agency with two agents from the same brokerage (Designated Agency).

• A few years ago, a buyer filed a claim against one of Hawaii’s largest real estate brokerages after being represented in a Dual Agency transaction. The buyer realized only after getting the keys that they had blindly overpaid by a large margin. The same dual agent representing the seller also represented the buyer and failed to provide comps (comparable sales data). – No kidding. The Dual Agency brokerage settled for several hundred thousand dollars. – Are you surprised?

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If Dual Agency is such a bum deal with substandard service and additional risk for the client, then why bother?

Are There Benefits To Dual Agency Transactions?

For most buyers and sellers, the risks outweigh the few advantages. However, consider these scenarios why and when a dual agency representation could work or might be desired and or beneficial to both clients:

1. The buyer and seller already established a clear understanding and agreement about the value and fair terms. Negotiations have largely been concluded beforehand. It might suffice to have one agent merely assist with the document preparation to facilitate the closing of the transaction.
2. Astute buyers and sellers, e.g. seasoned real estate investors, developers, commercial property owners, or anybody that is well accustomed to real estate transactions and the negotiation process might not require or desire the guidance a realtor would normally provide.
3. One dual agent could improve transactional speed and efficiency by acting as a single point of contact to simplify and streamline communication.
4. Since a dual agent provides ‘limited’ services, some dual agents might be willing to offer their assistance for a reduced fee.

How Does Hawaii Living LLC Represent Buyers And Sellers?

On our website HawaiiLiving.com, we showcase all available residential properties that are available for sale in Oahu’s MLS system.

That includes property listings where

1. we represent the seller, plus the many more properties where
2. the seller is represented by other Oahu real estate brokerage firms.

All available properties show which brokerage firm is representing the seller. Look for the listing agency disclosure towards the bottom of each individual property listing page, e.g. “45-030 Lilipuna Road – listing courtesy Hawaii Living LLC.”

However, if you are already working with an agent that is representing you as the buyer, then please continue to work with your agent. Your agent will be able to schedule the showing for you.

We are committed to excellence in all we do, but regretfully, we can only dedicate our 100% time and effort to the clients that seek our expert representation and are committed to working with us.

We are expert realtors delighted to represent you with the utmost professionalism. Call us when you are ready to sell your property, or ready to buy any of the properties listed on our site.

We rarely engage in Dual Agency representations, except when specifically authorized and or requested by both clients.

You deserve the best. Work with the sharpest real estate agent that is best qualified and dedicated to represent your best interest exclusively.

We are here to help. Contact us. ~ Mahalo & Aloha

Disclaimer: We are licensed real estate agents and experts in our field. We are not attorneys and we don’t give legal advice. For legal matters always check with your favorite qualified professional legal counsel.