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Dual Agency Only Creates Conflicts & Increases Risks for All Parties

Dual Agency Only Creates Conflicts & Increases Risks for All Parties

Fiduciary Duty to Whom? Real Estate Teams Can’t Possibly Uphold Their Fiduciary Duties To Sellers

A dual agency real estate relationship exists when a real estate agent or a broker represents both sides of a real estate transaction.  A common theme in today’s marketplace is where a “Team” hosts an Open House and if a buyer walks in and wants to offer on the house the “Team” will provide a buyer’s agent.  Well, in this situation, the fiduciary duty owed to the seller goes right out the window because the “Team” has both “implied” and “actual” knowledge of the seller’s inside information.  It’s impossible for the “Team” to adequately and faithfully uphold their fiduciary duties to the seller in this fact pattern.  How can a “Team”  representing both the buyer and seller in the same transaction get the highest price for the seller and the lowest price for the buyer without communicating confidential information during this exchange?  It’s impossible.  By definition an agent is required to act as a fiduciary towards their clients, however, under a dual agency scenario it is impossible to be a fiduciary for both a buyer and a seller in the same transaction; and splitting up a buyer’s agent from the seller’s agent in a scenario where they are from the same “Team” such as this does not pass the smell test.

Black’s Law Definition of Fiduciary Precludes Teams In Real Estate

“Fiduciary” is defined by Black’s Law as a word derived from Roman law meaning, as a noun, a person or entity, holding the character and position as a trustee, with respect to the trust and confidence involved with candor and scrupulous good-faith towards their principal’s affairs and property.  A fiduciary has duties to their principal involving good-faith, fair dealing, trust, special confidence, and candor towards their principal’s interests.  Fiduciary duties are imposed by law on real estate agents and brokers.

fiduciary duty in real estateThe only way a seller can legally agree to a dual agency relationship is when; 1) they have been provided a Dual Agency Disclosure document; 2) have been fully informed as to all of the pitfalls and potential problems associated with dual agency representation including being told the relationship will be now be limited and no longer a relationship that they should expect to exist; 3) have been advised to seek legal counsel; and 4) and after all of this cautionary language has been disclosed and reviewed still agree to the dual agency representation.  We know that this does not happen in today’s fast-paced red-hot real estate marketplace.

Several States Prohibit Dual Agency Real Estate Transactions for Good Reason

For good reason several states including Colorado, Florida and Kansas strictly prohibit dual agency transactions because it is incredibly difficult to withhold confidential information about a seller or a buyer when an agent is privy to such information.  Moreover, it is never in a seller’s best interest to allow their agent to represent a buyer on their property.  The seller should insist that the agent refer the buyer to another agent such that each party has equal and fiduciary relationships which will help avoid conflicts that are inevitable in a dual agency transaction.

Potential Conflicts, Issues, and Unknown Problems are Prevalent

The potential conflicts, disagreements, issues and parade of horribles that can arise in a dual agency relationship are almost infinite.  The best practice for all parties concerned is to have each party represented separately and equitably.

Buyers Asking For Help at Open Houses Are Common

Finally, it is a common practice these days for a buyer to walk into an Open House and tell the listing agent that they are unrepresented and would like to have the listing agent represent them because they feel like they would have an advantage or upper hand on other buyers.  It is precisely this thinking that should alert a competent and seasoned listing agent to refer this type of buyer to another agent for representation because there are unreasonable expectations at the outset of this relationship on behalf of the buyer.  A seller who agrees to a dual agency relationship should also have second thoughts and consider their own interests first before they agree to this dual representation.  Several of the reasons stated above should give enough pause for sellers, however, those reasons are merely the tip of the proverbial iceberg.

Best Practice:  As a listing agent with 25 years of experience and over 625 closed transactions I always refer any potential buyer to another agent so I avoid this conflict and maintain my primary fiduciary relationship with the principal who hired me in the first place.

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  1. July 22, 2014 at 10:30 am

    Greetings

    Very sound argument with lots of legal back up to support. I would challenge this notion though because it really depends if you are completely honest & impartial with your view. Example: seller wants to sell for the highest price. Buyer wants to buy for lowest price. But how does one agent act to bring both together? benchmark & market data. Ie, by proving to both parties that a property value is xyz based on historical comparisons for examples. Then, you arrive hopefully at a mutual point of agreement. From here, it is about whether the TV is included & so on. Its a tough line, but here in Romania, many agents act for both sides.

    We have many successful transaction where both parties feel well cared for & represented. But I fully accept it is based on integrity & lack of greed at the very heart of the model, which of course is not standard characteristics for some agents.

    Yours
    White Mountain Property
    Bucharest & Brasov based Romanian real estate agency

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