Is Your Agent a Double Agent?
Let's say you walk into an open house and you're approached by the friendly real estate agent sitting at the dining room table. You're very interested in the house and she says that she can represent you in its purchase. If you agree, you could be giving up your right to an advocate who solely represents your interests by signing up with a dual agent — multiple representation in real estate parlance.
This exact situation also occurs when you see a property on the internet and call the listing agent directly. She then offers to represent you in the purchase. Again, you have given up your right to someone who only represents your interests.
Dual agency occurs when one agent represents both sides in a real estate transaction, or when two agents working for the same brokerage each represent one side. This type of relationship is very easily abused but is a major source of revenue for agents and their brokerages.
What Just Happened?
When you go to an open house, the listing agent or one of her representatives is there to answer any questions about the property. While the goal as understood by the seller is to get exposure for the house, another goal for the agent at the property is to generate new customer leads for themselves.
Where this relationship becomes dicey is when you express an interest in buying the house and the agent offers to represent you in the purchase. When the listing (selling) agent offers to represent a buyer, you need to be alert. It is the listings agents moral and legal obligation to get the best offer possible for the seller.
But when the person who offers to represent you works at the same firm as the listing agent, the risks are more subtle. After all, they have the same boss, who is privy to both sides and your information.
Why Dual Agency Is Controversial
Without going into the legal specifics, dual agents are supposed to protect the interests of both parties. Since the buyer and seller have diverging goals and are both represented by the same agent or brokerage firm (who has a great incentive to see the deal completed), conflicts of interest in this type of relationship are common.
Obviously, the buyer wants as low a price as possible and the seller wants the opposite. Who does the agent choose? The agent doesn't have to, right?
Not exactly, because the agent knows both sides of the deal. Let's say the buyer casually mentions his recent stock sale or how much he's willing to pay, what would a double agent's move be then? The best interest of the seller is to have this information; the best interest of the buyer is for it to be a secret.
The perils to consumers are well-documented.
Real estate agency has its roots in the legal system. There was a point in time, not one that you and I probably remember, when all real estate transactions had to be done by lawyers. Contracts weren't standardized so every deal became a custom job that had to be drafted and vetted: this was expensive and time-consuming.
The success of a free market often depends on how efficiently goods and services are transferred. Standardized legal forms and mandated programs were created so that real estate specialists could legally manage these real property transactions without having to pass the bar exam.
In general, buyers had one representative in the transaction and sellers had another. The sides negotiate back-and-forth towards a deal that would be acceptable to both principals but whose outcome depended on the quality of their representation and negotiation.
So, would you go to court with your opponent's lawyer representing you? Of course not. And in this case, buying real estate isn't mediation or arbitration. In those cases, the third party is neutral and gets paid no matter what the outcome is. The dual agent, on the other hand, only gets paid if the deal goes through.
Considering Dual Agency?
If you are a buyer and decide to use a dual agent, it's your responsibility to choose an agent who has earned your trust over time. If you want to test the double agent, start to tell her a story about how much you'd be willing to pay for the house (but don't give your real number). See if she interrupts you or reacts as if you shouldn't have mentioned that information. Then ensure that you are adequately compensated for the rights you are giving up.
Perils of Dual Agency
A judge has told an Ottawa real estate agency it does not deserve to be paid for acting on the sale of a home. He concluded the agency breached its fiduciary duty to a pair of home sellers by not fully disclosing the connection between one of its agents and the buyer of their home.