September 9, 2008
Dealing With Dual Real Estate Agents
Be sure the exact nature of your relationship with a dual agent is clear.
Historically, real estate agents have represented the seller of a property. The seller, after all, is usually the one who pays their commission, and agents therefore have a fiduciary relationship with the seller. This in no way means that agents may operate outside the bounds of the law, regulation and ethical conduct. It just means that the real estate agent is just that, an authorized agent of the seller for a particular transaction.
More recent trends have introduced buyer’s agents, who usually work exclusively for the buyer, and dual agents. Dual agents represent both seller and buyer, particularly in cases where the agent’s company is the listing company. Dual agency is legal in Ontario (officially called Multipule Representaion) however, most consumer advocacy organizations recommend against using a dual agent. This is because there is an inherit conflict of interest for the agent – they receive a commission based on the selling price of the property. The higher the price, the higher their commission, so their reasoning is that dual agents never really have the buyer’s best interests at heart.
If you’ve decided to work with a dual agent, this will need to be disclosed to both the buyer and seller, and they both have to agree, in writing. Dual agents are bound by law and ethics to treat both buyers and sellers honestly, equally, and fairly. Dual agents can be prevented from divulging confidential information about each party to the other as that practice could severely harm negotiating positions.
The bottom line in dealing with a dual agent is to remember that the buyer and seller have conflicting interests in the price and other terms of the sale. It’s very difficult for an agent to truly and equally represent both parties, since the conflicting interests make that inherently impossible. If you do choose to use a dual agent, be sure the exact nature of your relationship with the dual agent is clear, know what services the agent will be performing for you during the transaction, how the agent will be paid, and how any conflicts that arise will be handled.
February 12, 2008
The Double Agent
I think we really need to talk more about dual agency, as my perception is that people really don’t understand it’s implications all that well. That’s because most Realtors are reluctant to talk about the negative aspects for their clients … or their potential income.
In an ideal real estate transaction there should be four parties – the buyer, the buyer’s agent, the seller, and the seller’s agent. A crowded room for sure, but important nonetheless. Often times the agents representing the seller, will receive calls or emails on their listings from potential buyers who are not working with an agent and who want to see the listing, or perhaps even make an offer. As agents working for the seller, how can we also represent the interests of the buyer? We can’t. It’s called Dual Agency, and it’s dangerous — like running with scissors.
Let’s call an agent working with a buyer a Buyer’s Agent, and an agent working with a seller a Seller’s Agent. When a Seller’s Agent writes an offer on his or her own listing, they are acting as a Dual Agent. The Agent must remain impartial to both Sally Seller and Barry Buyer, and must not disclose information that would harm one party’s position and benefit the other party. The mandatory disclosure statement says “The Agent agrees not to disclose (a) to Buyer information about what price Seller will accept other than the Listing Price, or (b) to Seller information about what price Buyer will pay other than any written offered price.” Meanwhile, Sally Seller and Barry Buyer understand that they now have no assistance in making their decisions as to what terms are to be included in any Agreement. That’s one of questionable aspects to me — how can the listing agent provide value to Sally Seller, if he can’t provide her any assistance with strategy?
He can’t. My position on dual agency is that it’s not a position I want to be in. And Sally and Barry should not be put in that position either. It could be argued that an agent working in a dual role is required to be even more attentive to details, taking even greater care in finessing the minutia of details that happen in a real estate transaction. That might be true, but I’m not willing to give up my professional representation standards just to make a little extra money.
Dual Agency requires Agents to compromise on their fiduciary obligations. If we’re willing to compromise on an obligation which is one of the core tenets of the common law, where else would we be willing to compromise? Do you really want to work with an Agent who’s willing to set his or her fiduciary obligations aside?
Full disclosure – I have represented both sides in a transaction many times in the thirty years that I’ve been a real estate broker. I don’t know of many successful agents who have not done so. But, in the future I will act differently. By not listing property, I will not be putting myself in a position were I cannot fully represent the interests of people who hire me.
February 12, 2008
Perils of Dual Agency
A judge has told an Ottawa real estate agency it does not deserve to be paid for acting on the sale of a home. He concluded the agency breached its fiduciary duty to a pair of home sellers by not fully disclosing the connection between one of its agents and the buyer of their home.
See full story in the Toronto Star »
January 28, 2008
Real Estate’s double agents
You’ve been searching for a new house, maybe buying for the first time or perhaps looking for something new. With all the paperwork and endless details, you’ve decided to hire a real estate agent, someone to represent and protect your interests as a buyer.
After weeks of hunting, you find the perfect house; it has everything you’re looking for, and you’re ready to make an offer. But your guide in this journey now has one more piece of paper for you to sign: disclosing a term you’ve never heard, “multiple representation”.
It seems that your dream house is listed by your agent’s brokerage office, which represents the seller. One company is now working both sides of the same deal. This situation is called dual agency or multiple representation, and experts say it can leave clients feeling mistrustful and agents facing sticky ethical dilemmas. But others say the practice can be regulated to avoid conflicts.
Obviously the legal community would tell you there’s a problem with dual agency because you can’t work for two masters. It’s pretty tough to make an argument that you can be on both sides.
Dual agency can occur when two agents working for the same broker each represent a buyer and seller. Less frequently, one agent may represent both parties. But both arrangements can result in crucial conflicts of interest.
The practice has become more widespread in recent years as the idea of buyer-representation taken hold. Traditionally, an agent or broker worked for the seller. In the last two decades, however, buyers have begun retaining real estate agents on their own. The increasing number of agents representing buyers has led to more instances of dual agency. A buyer might retain an agent to help find the perfect house, only to discover that it’s listed by same brokerage firm.
Although dual agency, or as officially called “multiple representation”, is allowed in Ontario. But a disclosure form is required that cautions buyers and sellers about the limits of a dual representation. The statement reinforces that the agent will not be able to provide the full range of fiduciary duties to the buyer and seller. As the law and regulations recognize the issues and perils of dual representation, it’s not something to be entered into unknowingly.
The conflicts of interest that expert say can arise from dual agency go straight to the core of the real estate transaction. For example, if a buyer tells his or her agent what his or her maximum price is, the agent now possesses information of value to the seller. On the other side of the deal, a seller’s agent might know that behind that new wallpaper lurks a big mold problem which the buyer isn’t aware of.
In summary, buyers should read and understand the fine print on every document associated with the purchase of a home. They should ask their agent explains what his or her other obligations in a transaction are and consult a real estate lawyer if they have any questions or concerns.
January 23, 2008
Be Smart. Hire a Buyer’s Agent.
If you are considering buying a home, it’s a good idea to give some consideration to who will represent you in the purchase of that home. While the agents you encounter while touring open houses are usually quite friendly and even eager to help, it should be understood that in most cases those agents actually represent the home sellers. This means that while they certainly have a duty to be honest and truthful to you as a prospective buyer their primary duty is to get the best possible terms and price for the home sellers.
In a buyer’s market there are surplus of homes; with far more homes listed for sale than qualified buyers looking to purchase them. This gives you as the buyer a unique bargaining position. Sadly; however, many first time home buyers and even some experienced home buyers simply do not know how to get the home they want for the best possible terms and price.
When the time comes to buy a home it is important to make sure that you fully understand exactly who is representing whom in the transaction. If there is only one agent in the entire transaction it must be understood that the only options are for the agent to represent only the seller or to be working as a dual agent who represents both the buyer and the seller.
In Ontario a home’s listing agent can represent the buyer in the same transaction as the seller. This is known as a dual agency in which the seller and the buyer both understand that a single agent will represent both parties.
If the agent is acting as a dual agent then he or she has a fiduciary duty of truthfulness, honesty and full disclosure to both the home buyer and the home seller. That said however, a dual agent is not permitted to disclose information such as the highest price and best terms the buyer is willing to offer and/or the lowest price and terms the seller is willing to accept.
Obviously this can create a conflict of interest that can easily develop into a situation which is difficult for even the best of agents to handle. As a result, real estate agents are required to provide written disclosures to both parties so buyers and sellers will know the exact nature of the agency relationships.
You may be wondering if it would be possible to cut through the confusion and simply hire your own agent. That is certainly possible. A buyer’s agent has a duty to look out for your best interest and will also assist you in determining both the advantages and disadvantages of each property you consider. This is something that a dual agent cannot do.
It should be noted that any agent or broker can act as a buyer’s agent in a real estate transaction. You should understand however, that most buyer’s agents do also handle residence listings as well. This means that if you wished to purchase a property listed with that agent’s company then they would become a dual agent.
How the commission fee is paid does not determine the nature of an agency relationship. While traditionally the seller pays the sales commission to the listing agent, in the event there is a buyer’s agent involved that agent receives payment from the listing brokerage.
When looking for a quality buyer’s agent it is important to do your research to make sure you find the right one for you. Avoid working with the first buyer’s agent you come across. Take the time necessary to find a buyer agent who comes highly recommended and one you feel comfortable working with.
Working with a buyer’s agent and avoiding working with agents who act as dual agents, due to the inherent risk of conflict of interest, can help you to avoid complications and obtain the best terms possible with your new home purchase.