Are the following statements true or false? 1. A real estate client can hire a broker's agent to act in his/her best interests, but the broker does not serve as the agent of the client. 2. Real estate brokers can serve as the agent of multiple clients who may come to oppose each other in the same transaction, without their knowledge or informed consent. 3. A client may hire a broker to represent his/her interests and be informed later that a conflict of interest exists, forcing the client to acquiesce to disclosed dual agency or choose another representative. These statements are all true and accepted business practices in most states. And they are each time-bombs waiting to happen. In California, statements number one and two are being put to the legal test by a disgruntled buyer's lawsuit. State legislatures are addressing the dual agency issues presented by statement number three, some voting to accept designated agency as a solution, and some opposing it. The real estate industry is the only industry in which agency, dual agency, and transactional agency are allowed to co-exist within the same brokerage firm, state regulations allowing. To make these types of agency co-exist without apparent contradiction, the real estate industry has evolved the disclosure form, in which buyers and sellers can be informed in advance of the types of agency relationships available in their states before they reveal potentially damaging information. Disclosures should work well in theory, but in practice they fall apart. According to the National Association of REALTORS® most recent buyer/seller survey, only 38 percent of home buyers were disclosed as to whom the agent represents at the first meeting. At the time the contract is written, 28 percent of home buyers were disclosed. Nineteen percent were not disclosed at all and a whopping twenty percent weren't sure. That's only a little over half which were disclosed as to whom the agent represents in the transaction. Because of the power of the real estate organizations which favor larger brokers whose business models are dependent on the income derived from both "sides," most state disclosures don't include the option of single agency. Single agency means that the agent will not represent the client and the other side in the same transaction. For those states with consumer watchdogs, single agency is being repackaged as designated agency, in which the broker behaves as a transaction facilitator, appointing an agent to act as an agent for the consumer even though there may be another agent in the firm representing the other side. Dual agent brokers and their agents don't see a problem with this type of representation, but they have yet to face a consumer in court and learn how the public and the courts perceive designated agency. Does designated agency absolve the broker of fiduciary duties? No one knows, but due to a California case, brokers may be let out of a case, but the Errors and Omissions insurance carrier must remain, even if the broker's agent stands alone at the docket. Some states have responded by insisting that agents carry their own E & O. That's the problem with disclosures - they are designed to protect the consumer and the agency should a dispute arise, and that is the very reason why single agency should be included in state-mandated disclosures. Disclosures should lay out clearly and simply what types of agency relationships are available in the state, what the advantages and disadvantages are of each, so that the consumer can make an informed decision. It should be up to the individual agent to explain that they do or do not offer single agency and why. It shouldn't be up to the state to restrain the trade of single agents by failing to include single agency as an option on disclosure forms. Consumers, due to inadequate disclosures and the failure of agents to ask them to sign representation agreements are still confused as to whom the agent represents. Half of home buyers were willing to sign representation agreements, according to the NAR survey, but one out of four were not sure whether they had a representation agreement or not. Restraint of trade is becoming a serious threat to the reputation of the real estate industry. RE/MAX International is already leading the way with its adverse commission lawsuits against large local brokers who try to restrain trade against buyer's agents. It's just a matter of time before single agents rise up and file a class-action restraint of trade suit against their state boards and regulators, too. The bottom line is that the common law of agency has proven in case law that what the consumer believes to be true is what the court will most likely believe. If a person believes you to be their agent, either by statement, action or documentation then the court will likely side with the consumer. Some states such as Florida, are taking disclosures one step backward, where Realtors have lobbied successfully to get their state legislatures to eliminate mandatory disclosure of agency relationships to potential buyers and sellers. Instead, agency disclosures will be given only when a relationship with a consumer begins. But there's the rub. When does the relationship with a consumer begin? When you first meet? When they call you? When they walk in the door of an open house? What if a potential client blurts out something that they don't know could be damaging to them in a negotiation? After you disclose them, isn't it too late to let them know you are representing the other side? The defense counsel in a current California lawsuit maintains that the client/agent relationship began when an offer was submitted. The plaintiff's counsel says it began when the client believed that it did. The court concurred and has allowed the case to go to trial. Attorneys to the Tennessee Association of REALTORS® are advising Tennessee agents who serve as seller's agents (listing agents) not to represent themselves as facilitators to buyers in order to serve both sides of the transaction. In a recent newsletter to TAR members, counselors called the practice "deceptive." There's no question that the driving trend in real estate is toward reduced broker liability in the form of reduced representation or the kind of non-agency known as transactional brokerage. Some states such as Massachusetts, under pressure from consumer groups and exclusive buyer's brokerage lobbyists, have failed to pass statutes allowing transactional brokerage as a means of facilitating real estate transactions. Other states such as Texas and Colorado happily co-exist with the concept by providing mandatory agency disclosures up front to potential clients. Michigan is attempting to install designated agency with a new bill which would allow brokers to appoint agents as fiduciaries for the clients, allowing clients to choose the agent they want regardless of agency positioning. Although buyers' agents are in the minority, some feel that transactional brokerage and designated agency is an open invitation for consumers to cut Realtors' fees and litigate with more frequency. Why would anyone pay the same fee for less liability and service if they could have from a true advocate? And why would anyone want to share an advocate with the opposing side? Like the complex tax codes that require the interpretation of CPAs and attorneys but are unfathomable to the taxpayer, transactional brokerage and designated agency may be said to serve big business interests at the expense of the consumer who can win or lose depending on their own understanding of the concepts. At the least, dual agency is poorly misunderstood by both practitioners and the legislators. Witness the Oklahoma Supreme Court which very nearly ruled single agency as illegal in 1999, until it came to its senses, coming down hard on the Oklahoma Real Estate Commission instead. The Court admonished the Commission for failing to understand its own "by-laws," and dismissed the case against the buyer's agent who had been accused of false advertising that he could save buyer's money. The industry, like a turtle on its back, is desperately trying to right itself by creating a compromise solution for consumers while retaining the right to serve both sides of the transaction. The battle cry of the dual agent is that the client should be able to choose the agent they want regardless of potential conflict of interests on the part of the agency - as long as the client is properly disclosed that such a conflict may arise. Is it possible to make a compromised form of agency acceptable to the public? These are issues that are being vigorously addressed by the National Association of REALTORS® (NAR) through its Presidential Advisory Groups, through The Association of Real Estate License Law Officials (ARELLO,) a voluntary organization of real estate licensing officials, and through industry organizations such as the Real Estate Buyer's Agent Council (REBAC) and NAEBA, as well as consumer protection groups. Until that time, the Internet is a perfect place to educate consumers. Put your state-mandated agency disclosure, along with an explanation of types of representation on your Web site. Whether you are a single agent, a dual agent, or a designated agent, you can help explain agency relationships so that your consumer can make an informed choice to use you and your services. As long as you present the choices fairly and objectively, there is nothing morally or legally wrong with presenting the benefits of your type of agency. Remember that many people will see your Web site, possibly from other states where things are done differently than in your state. Establishing a common language and understanding of agency in your state could go a long way toward cementing your client/service provider relationship, as well as helping you protect yourself from potential litigation.