1.1 "Don't Quit Your Day Job"
2. "No Sign of Reform in NAR Leaders"
3. "The Wrong in the Percentage Commission"
Reality in Realty: Part 1
When An "Agent" is not an Agent.by Ray Wilson September 17, 1999
© 1999 Ray Wilson
In this four-part series on agency, Part 1 examines dual "agency" and whether an individual agent can represent both buyers and sellers. Part 2 will reveal which licensees do what, for whom and to whom. Part 3 will place the job descriptions of "agents" in the setting of the firm or would-be "agency." Part 4 will show how real estate companies fish for both sellers and buyers with artificial lures like "transaction brokerage" and "designated agency" -- and identify the states which grant the fishing licenses.
It is a bad day when you can't give the correct answer to your own rhetorical question. September 17th was one of those days at the Inman News Consumer Help Desk when it featured this question and answer:
Well, some people might call it that -- those trying to slip new definitions of "agent", "agency", and even "represent" into both the law books and the English language. More accurately, it is called "fantasy". It is one way for desperate real estate professionals to escape the reality that increasingly aware consumers are just not going to pay one person to pretend to provide both sides with mutually exclusive services.Q: Can one real estate agent represent both parties in a transaction?
Once upon a time, agency was provided only to sellers. Unsuspecting buyers entrusted their search and price-negotiation to someone legally bound to give (a) undivided loyalty, (b) confidentiality, and (c)full disclosure to the seller! These are three of six "fiduciary duties" demanded of an agent by Common Law. Today people are learning they are entitled to agency when they are buying as well as when they are selling. Consequently, the professional brokerage tasks are now divided between those working on each side. The problem is that one side still wants to be paid for both.
The trick is to know what "agency" is, and what it is not. "Dual agency" is not agency. The phrase was a universally-recognized misnomer actually denoting non-agency practices openly scorned by the mainstream real estate profession for at least a century. For nearly all of the Twentieth Century, the answer to any question of an agent representing both sides of a transaction would have been:
The sudden (and blatantly convenient) shift to "Yes, it is called "dual agency" is true only if one defines both the words "agent" and "represent" as involving something less than the provision of full agency service. That runs head-on against several centuries of Common Law definition and common sense understanding of what an agent is and does. An agent is one who represents all of a person's interests not only in a transaction, but in all the activities leading up to it -- like marketing a property or searching for one. Certain of those interests on one side are "adverse" to counterparts on the other side. The most obvious adverse interest is PRICE -- how do you represent both buyer's interest in low price and seller's interest in high price?No! That would be dual agency!
The answer is you CANNOT, no more than you can represent both parties in any matter of negotiation. Nor can you be both loyal to one side's confidences and to the duty of disclosure to the other. The already mentioned fiduciary duties are the heart of what agency is all about and one person or one firm promising undivided loyalty, confidentiality, and full disclosure to both buyers and sellers gives rise to another well-known phrase -- conflict of interest!. (Actually, as Part 2 of this series will show, conflict of interest comes into play long before a particular buyer and seller are brought into a dual agency transaction -- way back when a firm promises any seller to channel buyers and any buyer an open home search.)
If there are no adverse interests between buyer and seller -- as in the transfer of property within a family (sometimes) -- then agency may not be needed. That's when dual "agency" (still really NON-agency) can work. Non-agency is certainly a fundamental right of buyers and sellers if they (1) knowingly choose it and (2) have not been led by self- serving professionals to where they have no apparent options. Common Law protected the consumer's right in each criterion, respectively, by (1) holding undisclosed dual agency to be illegal and (2) prohibiting a single firm from making agency commitments to both buyers and sellers.
Outrageously, both those Common Law protections have been crippled by regressive legislation putting industry interests above consumers in about half the states. Disclosure of long- discredited dual agency is now simply confused by endowing certain dual-agency practices with new non-stigmatized names. Thus, in these "States of Confusion" (specific list to be provided in a subsequent installment of this column), dual agents calling themselves "designated agents" and "transaction brokers" reach into the pockets of both buyers and sellers. In such places, even buyers and sellers far too wise to freely choose dual agency will increasingly find themselves trapped with no apparent alternative, and perhaps never see it as a circumstance engineered by the legislation allowing so-called "agents" for both buyers and sellers in the same real estate firm.
All is not lost -- one reason being enlightened professionals who will never pretend "one real estate agent can represent both parties in a transaction" or even buyers and sellers in the market activities that produce transactions. For the most part, these are "exclusive buyer agents" (EBAs), legal experts, and consumer advocates -- growing in number and organization almost daily and spreading their message. Laws passed are not immune to repeal, and damages caused by undeliverable promises are destined for court litigation. The biggest reason of all is that once consumer awareness is out of the tube, it cannot be squeezed back in -- and no law under the U.S. Constitution can ever take the twin powers of market choice and electoral vote out of their hands.
Next installment: Is You Is, Or Is You Ain't, My Agent?