Monday, 18 December 2017

When Dual Agency Can Be A Good Thing

Written by Posted On Monday, 14 April 2014 18:07

A man can't serve two masters, the Good Book says; but neither the law nor common practice precludes the possibility of both buyer and seller being represented by the same real estate agent. When this happens a "dual agency" situation is created; and dual agency is a subject about which both confusion and controversy abound.

First of all, how does dual agency come about? In what sorts of contexts does it occur? No doubt the example that most readily comes to mind is when an individual agent shows his or her own listing to someone who then decides to buy it (or at least to try). A most natural setting where this might occur would be at an open house.

Dual agency is not restricted to situations where there is only one individual real estate agent (i.e. person) involved. We have noted before that California law stipulates that it is the broker or the brokerage company that is actually the agent in a transaction.

Suppose, for example, that Jim Jones of the ABC company writes an offer for a buyer who wishes to purchase the property listed by Jane Jackson who is also an agent at the ABC company. There would be dual agency in this situation, because the ABC company is the agent of both buyer and seller. Moreover, this would hold true even if Jim and Jane worked out of different offices of the ABC company. It wouldn't matter if Jim worked in the Los Angeles office and Jane in the San Diego office; the ABC company would still be acting as a dual agent. (This is not the case when there are two independent franchisees represented, even though they share the franchise name.)

It is not hard to imagine why some people find dual agency controversial. "How," they ask, "can the same agent represent parties whose interests are in conflict?" "It sounds like asking the same person to be both prosecutor and defense attorney." "Surely," these critics say, "this can't be done; more precisely, it can't be done without at least one of the parties being at a disadvantage."

In response to this, let us note first what California law requires. (Other states may differ.) There are two primary conditions:

(i) Dual agency must be adequately disclosed to both parties. There are severe penalties for agents who fail to disclose dual agency.
(ii) The law specifically prohibits someone acting as a dual agent from telling the buyer how low the seller will go, or from telling the seller how high the buyer will go. (Not that agents always know these things, anyway.)

However, we know that all sorts of other information can influence what someone may offer, counteroffer, accept or not accept; and it is this fact that the critics seize upon. They will argue that insofar as the dual agent uses his skills and knowledge on behalf of the buyer, then in that respect he will be doing a disservice to the seller, and, of course, vice versa. How could this not be so?

Those who believe that dual agency does not entail unavoidable conflict reject the model that the critics assume. They do not believe that sales negotiations are what the theorists would call a "zero sum game" -- one in which every plus for one side means a minus for the other. That may be an appropriate model for the adversarial proceedings in a courtroom, where one party wins and the other loses; but it fails to take into account that sales negotiations are, after all, negotiations. The aim is not simply for one side to "win" and the other to "lose." The aim is to get a deal together, to create a transaction that is, of necessity, acceptable to both parties.

Not only is it the aim of sales negotiations to arrive at a mutually satisfactory agreement; but also, especially in residential real estate, there are often important considerations which have nothing to do with the ultimate price. There are matters of personal pride, emotional attachment, convenience, etc. All of these are factors which an agent, or agents, must take into account.

More than one transaction that could have happened didn't, because agents were not sufficiently sensitive to the personal nuances that play such an important role in negotiations. That is especially likely to happen when agents act like adversaries. Ironically, it is precisely because of their special relationship with the parties that dual agents can frequently be the ones who are most likely to assist the buyer and the seller in arriving at a mutually satisfactory result.

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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