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Dual Agents must be loyal to both Buyers and Sellers
By Amanda Campagna
Imagine you have been charged with a horrible crime and
are on trial for your life. Chances are, you will hire the best lawyer
you can find to defend you. Now imagine you walk into the courtroom and
discover that your lawyer is also working for the prosecution. How can
you be sure of the attorney's loyalty?
This type of predicament - albeit to a lesser degree - is similar to
what happens when a prospective home buyer finds himself represented by
a dual agent, many say. In a recent New York State Superior Court case,
Judge Thomas Stander held that a broker with agents representing both
buyer and seller in a real estate transaction must remain neutral in any
contractual disputes related to the transaction. That sounds reasonable
enough - until the word neutral is examined closely.
If agents treat both parties equally, how can they be of service to
either side? They can't, according to Tom, a buyer-broker. "No one is looking out for a
buyer's best interest in a dual agency situation." Others disagree. But
Tom says when buying a house, there are certain types of questions
you would like to have answered. These include: what the seller paid for
the property, how much similar properties are currently selling for, how
safe the neighborhood is and why the property is for sale. Dual agents
would be forbidden from answering many of these questions because they
are prohibited from disclosing information that might be detrimental to
either party.
In addition, when buyers use a dual agent, they
automatically give up two things - undivided loyalty and full disclosure
- that would otherwise be guaranteed by a broker. Philip Nothnagle,
owner of Nothnagle Realtors, Rochester's top residential real estate
firm, estimates his company practices dual agency in some 20 percent of
its transactions. Unlike Tom, he does not feel that using a dual
agent is to the disadvantage of a buyer. Nothnagle maintains that all of
his brokers operate only with informed consent, and that if a buyer
feels uncomfortable at any stage in the game, he or she has the
opportunity to use a different agency. In fact, Nothnagle feels that
dual agency offers an advantage to the consumer by expanding the pool of
both listings and buyers. In an agency with 500 salespeople, he says, it
is virtually impossible not to have a large number of dual-agent
transactions.
Tom concedes that if there is informed consent, dual
agency can be an acceptable arrangement. "I don't see a problem with it
as long as both sides go into it with their eyes open," he says.
However, he strongly feels that in the majority of transactions, brokers
do not fully explain the implications of dual agency to buyers. Instead,
he says, many agents disclose but do not fully inform, leading the buyer
to agree to having a dual agent without sufficient knowledge of what it
entails. Elaine Adams, chief operating officer of Nothnagle Realtors,
explains that the majority of Nothnagle's dual-agent transactions
involve designated agency. That is where the firm acts as the dual
agent, but assigns separate brokers to represent the buyer and seller.
The North Carolina Real Estate Commission says that the
rules of designated agency "permit real estate firms to practice a form
of dual agency, but avoid some of dual agency's more undesirable
aspects." Both Tom and Cusack, president of the Cusack Center
for Professional Development in Buffalo, disagree. They feel that
designated agency is essentially the same as dual agency because both
brokers in the transaction are governed by the same agency. Still, a
"substantial majority" of real estate firms have decided to represent
both buyers and sellers in transactions, according to the real estate
commission. And the practice seems to be growing more popular.
Nothnagle says his agency has seen an increase in the
number of dual-agent transactions in the last few years. Cusack, too,
says the transactions have been on the rise since 1992, when a law
requiring full disclosure was passed. Under this law brokers must
explain to potential buyers their right to representation. Cusack asks
this question: "If you come to me wanting to buy a property, and I tell
you that, as an agent, I can either work for you or for the person
selling the property, whose side are you going to want me on?" Most, he
says, would elect to have the agent on their side.
Prior to 1992, says Cusack, most agents were primarily
sellers' agent, so dual agency was rare. In the last few years, more
buyers have become aware of the option to have an agent on their side,
so more agents are put into the position of working as dual agents. It
is in the agency's best interest to be a dual agent, say Cusack, because
it stands to double the money made on each transaction.
Cusack offers some solutions to avoiding the potential
problems of dual agency. The first, although not very practical, would
be to divide the real estate community. If each agency represented
either buyers or sellers - with none representing both - dual agency
would be eliminated altogether. Another more practical solution would be
to change the role of the real estate agent. In Florida, says Cusack,
there are what are essentially “transaction” brokers, who facilitate the
deal without purporting to represent the best interests of either party.
In the end, the only way to guarantee a Realtor’s
loyalty is to ensure yours is the only side he or she is on.
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