Home Buyer Alert: Learn what you must know about dual agency, why it fails to provide effective real estate representation and the other reasons to avoid it.
The phrase “dual agent” may have you thinking double agent, an operative adept at playing both ends against the middle. And, while the motive of real estate dual agents are rarely sinister, the effect for the home buyer seeking effective representation can be the same.
Making the terrain even more perilous: Most real estate agents are dual agents. Many home buyers are shocked to learn that their trusted real estate broker actually is obligated to look out for the sellers’ interests .
There’s much to risk by settling for this kind of representation. By splitting loyalty between you and the seller, a dual agent:
Is legally obligated to tell the seller things you’d like to keep confidential.
Is legally obligated to help the seller get the highest fair price.
May be biased toward houses listed with his or her agency, whether or not they’re right for you.
May skip homes that are for sale by owner, no matter how perfect they may be.
This page is written especially for those buying a home in Minnesota, but includes buyers advice anyone could use. Keep reading for the following, indispensable information.
¨Know Who the REALTOR® really represents
¨More reasons to beware dual agency
¨How to spot a dual agent
Who Dual Agents Really Represent
Actually, there’s little “dual” about it. When you consider who the REALTOR® really represents, the term’s inaccuracies quickly become clear; a dual agent’s primary fiduciary responsibility is to the seller.
To see how real estate representation really works, take a look at the three types of agencies. (Actually, the Minnesota Association of REALTORS says there are five “options for relationship” between agent and home buyer. That’s according to its rundown of Agency Law Governmental Regulations.) But, from your perspective as a home buyer, it boils down to the following three.
Seller Agency
That’s simple enough. These agents represent sellers, period, and they make no secret of it. It’s hard to imagine home buyers winding up with a seller agent by accident. If you were seeking representation when buying a home and saw “seller agency” on a firm’s door, you’d keep looking.
But it gets trickier, since most real estate agencies fall into the next category.
Dual Agency
If you wanted, you could break this type of real estate representation into three separate subcategories. (That’s what Minnesota Agency Law Governmental Regulations does, remember, to arrive at its five options for relationship.)
There’s plain old dual agency. That’s where either a single agent—or two agents from the same firm—try to represent the interests of both buyer and seller. And “try” is the right word, since even the best-intentioned dual agent would have to violate the law and ethics codes to give you the representation you deserved. (More about this twist in more reasons to beware dual agency, below.)
There’s also something called a “subagent.” These agents will work with buyers while openly representing sellers. The fact that they’re open about it is good; it gives you fair warning to run the other way.
A “facilitator” represents both buyer and seller, but refrains from representing either in a “fiduciary capacity.” This subtype of dual agency may reduce some the risks to the homebuyer, but it also eliminates the benefits of rigorous fiduciary responsibility.
That leaves the next relationship as the only option that makes sense for home buyers.
Buyer Agency
As the Minnesota Agency Law Governmental Regulations succinctly puts it, a buyer’s agent is “acting for the buyer only.” The clarity of that clause tells makes it clear to home buyers that an exclusive buyer agent’s loyalties lie with them. And, it tells you everything you need to know about what kind of representation to seek.
Even if your REALTOR checks off “buyer’s agent” on the form, you can’t be certain he or she is an exclusive buyer agent (EBA). Currently, Minnesota law permits a real estate agent to attempt to offer this type of relationship even if they, or other agents in their firm, list homes. If you reason it out, an agency that works with sellers to list homes can’t really be called “exclusive.” And, not being exclusive agents essentially makes them dual agents.
Yes, home buyers would be well served if Minnesota state law included “Exclusive Buyer’s Agent” as one of the legally defined options for relationships between buyers and agents. Such a category would clear up all ambiguity and make it easy for home buyers to get the benefits of working with an EBA. And, if current trends continue, such a legally defined category one day may be added.
Until then, you can seek out the few real estate agents who do work exclusively with home buyers. Even without a legal requirement, they designate themselves as exclusive buyer agents and avoid any trappings of dual agency. Only with an EBA can home buyers be certain that their agent’s sole fiduciary responsibility is to them.
Most states have a handful of exclusive buyer agencies. (At last count, Minnesota had less than four real estate firms that qualified as exclusive buyer agencies.) Since there are so few, you’ll have to seek out an exclusive buyer agent. And, as you search, knowing how to spot a dual agent will help you avoid working with one.
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More Reasons to Beware Dual Agency
As hinted above, there’s an ironic twist at play. Obeying the law and following the code of ethics actually works to pit dual agents against home buyers. That’s not to say there’s anything wrong-headed with the law, unethical about the code or evil about human nature. The problem is the double-bind that comes from the very idea that an agent can serve the opposite interests of buyer and seller.
How the Law Works Against You
Minnesota real estate license requirements and related regulations set high standards of conduct to make sure the clients of real estate agents get rigorous representation. These standards grow out of t he law of agency, a legal tradition rooted in 500 years of common law.
Most every real estate agent works tirelessly to meet those standards. And, truth be told, there are few agents who need rules to inspire them to look out for the interests of their clients.
There’s sense to this emphasis on advocacy. The modern real estate transaction, after all, can have as many points of possible conflict as as a law suit. That means there’s the same risk of things turning adversarial.
That makes the emphasis on advocacy a good thing, right? You want the law to encourage agents to go to bat for his or her client.
The problem is that—unless a home buyer has a signed contract that says otherwise—you’re not the client. All that rigor and representation is going to the seller.
Let’s say you drive past a charming Victorian home. There’s a for sale sign in front bearing the photo of a smiling woman and a phone number. You call the agent and arrange a showing.
Or maybe you seek representation from the pleasant young man who appears on a bus stop bench. One fine Saturday afternoon he picks you up and takes you to see several houses.
In both cases, the agents are genuinely charming. Both clearly love their jobs and both seem to want you to find the home that will make you happiest. With both agents, you sense a fine character. And, in each case, you’re right.
But they may be keeping secrets.
Maybe the house is criminally over-priced, despite the angent's recommendations to the homeowner. Or maybe it’s been re-listed to camouflage how long its been for sale The agents probably know a few tricks for negotiating price. But, don’t expect them to share any of this. As much as they might want, doing so could put them at odds with the law and ethical commitments.
With that charming Victorian home, it’s pretty clear who is the agent’s client. With her sign in the front yard, there‘s no doubt the REALTOR® put it there on the seller‘s behalf.
It’s a little trickier in the second instance. You called the agent and he set up the showings at your request. You’d think he was working for you—until you scroll up and review what a subagent is.
When Good Ethics
Lead to Bad Conduct
Ethical expectations assume the same fierce loyalty as the law. “It is the Code of Ethics that separates REALTORS® from other licensees,” say the Minnesota Association of REALTORS, “so, we take enforcement of the Code very seriously.”
The problem with dual agents is that ethical expectations, like the law, put them in service to the seller.
Article 1 of the ethics code laid out by the National Association of Realtors—and followed by the Minnesota Association—sets the tone.
“REALTORS® pledge themselves to protect and promote the interests of their client. This obligation of absolute fidelity to the client's interests is primary.”
You may find the strength and directness of these words very comforting, until you remember how the three types of real estate agents work. With most real estate agents, the client is the seller. Unless you’ve signed a contract with an exclusive buyer agent, the client is not you.
Dual Agents Are Human, Too
No one’s saying dual agents are evil or subhuman. The problem is the opposite. Dual agents fall prey to the same temptations any of us would. And all of us, whether we know it, are influenced by self-interest.
Put yourself in a dual agent’s shoes. You’re working with a young couple and you have two homes under serious consideration. By all objective measures—asking price, square footage, neighborhood, vintage, proximity to schools, etc.—the houses are comparable.
Comparable, that is, except for one detail. The first home is listed with your agency and the second is not. If the couple buys the second home, you and the listing agency split the commission, with each typically gettingusually three-and-a-half percent of the purchase price. The first home, however, would net your agency the full seven percent.
Who wouldn’t, subconsciously or otherwise, find a reason to prefer the house that would double his or her income?
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How to Spot a Dual Agent
Even though real estate agents have a legal obligation to disclose which relationship option they're proposing, it's up to you to know for sure: Is the real estate who wants to represent you a dual agent?
There’s one clear way to prevent representation from a dual agent: Assume most real estate agents are.
You can take some comfort that Minnesota and the other states where dual agency is legal do require the real estate agent to make the disclosure. But, as you probably know if you’re buying a home, there’s more than a little wiggle room when defining “appropriate.”
That mean’s you have to ask. In fact, there is more to it than simply asking, “Are you a dual agent?”
The problem is that this question doesn’t get to the heart of the matter, leaving a little too much room for interpretation.
An agent assigned solely to representing that firm’s home buyers could reasonably answer, “Of course not.” Meanwhile, his or her colleagues are at work adding houses for sale on the multiple listing service.
Here’s the question that gets right to it, leaving no wiggle room: “Do you, or anyone in your firm ever list homes for sale?”
Some agencies might reassure saying the two functions are kept completely separate, with different agents representing buyers and sellers. But remember, when a house sells, real estate agencies split a commission of the purchase price. When an agency represents both seller and buyer, it also splits the commission—and then gets to keep both halves!
So ask yourself, how big a firewall would you need to be sure your agent isn’t influenced by bringing thousands more dollars to his or her firm?
If there’s any connection to homes listed for sale, that’s your cue to move on.
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Here’s hoping these cautions alert home buyers to the prevalence of dual agency, warn of the dangers of using a dual agent and help to steer clear of dual agents.
