Dual " Agency" - Risk vs. Reward

by Brad l. Boyd

In the evolution of how REAITORS@ are called upon to serve the public, the
trend has been that consumers desire fepfesentation of their interests. The
best case scenario is typically for the seller to be represented by a ListingAgent
(performing the listing, marketing, and transaction management responsibilities),
while the buyer is represented by a Selling Agent or Buyer's Agent (leading
the buyers through homes, refining their search criteria, and helping them select
the best value home within their budget). When negotiations arise or the parties
are sending counter-offers back and forth between the parties each side then
has a relatively balanced opportunity to obtain guidance and strategy from their
own agent-each has "representation".

However this ideal of balanced representation isn't always available.
In smaller towns where only one or two brokers are active in the market (where
it is likely a buyer and seller may both be using the services ofone agent),
or even in urban cities where large brokerages have a large number of
agents (creating the possibility of "in-house" dual agency), the model of
separate fepresentation gets complicated or fails to be available.Also, sorne agents
actually desire dual agency transactions, due to the possibility of keeping the
whole commission without paying a co-operating broker. The savlT agent
or broker must consider this "reward" in light of the increased risk and
responsibiliry.

Pitfall scenario #1-:
Rita REALIOR' is listing a home for Sam Selleq and Rita holds an open
house. Barb Buyer stops to check out the home and inquires with Rita
about the details. Barb indicates she is unrepresented and wants to make
an offer.The REAITOR@ in Rita's shoes might then help Barb with the purchase,
while still working for Sam (functioning as a dual agent, upon disclosure and
agreement by the parties).At that point, the fiduciary duties Rita owes both of
her clients, Barb and Sam, are very limited, yet highly important. Confidential
information about price, terms, and motivation must be kept confidential
unless either party instructs otherwise in writing. Rita can no longer advocate
for either party to the detriment of the other.

Pitfall scenario #2:
(a)An agent has listed a variety of homes, and also represents a few buyers
under an exclusive buyer's representation agreement. If the homes listed and the
homes those buyers want to see are in the same are ,or in the same price
bracket, it is possible the REALIOR@ will show a house to a buyer that the
REALTOR@al so listed on behalf of the seller-again creating dual agency.
@) Or, as the size of brokerages increase, particulady with franchises or large
companies with multiple offices in each ciry it is increasingly likely that
REALTOR@fAo rABC Company will list a home, and REAIIIOR@B forABC Company
will be representing a buyer who wants to purchase the same home. Since the
same broker/company bears responsibility for both agents and must supervise both
transactions, that cfeates anothef possible dual agency scenario.

REALIORS@as, professionals,h ave the very difficult job of understanding
the conflict dual agency presents, and mitigating risk by following the
requirements of the law. In scenario one above, Rita is no longer a trusted advisor
that can help actively pursue each client's best interest, because both of
her clients want opposite goals. Rita will face more challenges when confronted.
with questions from Barb, like:"What is the lowest priced offer I should make?"
or "How do I structure the finance contingency so I am protected if I can't
get the mortgage?"Also, Sam might be looking for help from Rita. He might ask,
"How much do you think the buyer is willing to pay", or "How do I make sure
the buyer loses her earnest money if she pulls out of this deal?" Rita then has
to carefully observe the law and duties restricting a dual agent-not saying
anphing that could compromise the position of either ptty,or that could
be used against the other. In scenario two (b), it is important for brokers to
m n ge the risk that a listing agent may unknowingly divulge information to
another agent in the company, not realizing that the second agent might
bring a buyer to the table (now knowing the motivations of the seller). Even
though an in-house dual agency scenario feels less likely to compromise the
position of either client, the risks and legal obligations to observe the dual
agency requirements are the same.

Ethics and des of professional conduct, not to mention a sense of fairness usually
prevent a dual-agent REALIOR@ from being able to use the knowledge gained
from either party to negotiate a deal based on each party's motivation and
ultimate bottom-line. However, sometimes the desire to "get the deal done" and
the incentive of not having to split the commission can cloud professional
judgment.

How can afiagetrt or broker manage risk?
It is imperative to understand and follow the rules and legal duties of dual agency,
and to make sure your client understands the differences between agency.


BROKER#.AGENT magazine | 16