The relationship between Realtors and their clients is defined by agency. The agency relationship with the client is what defines who is working for who. In my opinion the system is flawed. The Oregon Disclosure Pamphlet states: Oregon law provides for three types of agency relationships between real estate agents and their clients:
Seller’s Agent — Represents the seller only [aka listing agent];
Buyer’s Agent— Represents the buyer only [aka selling agent];
Disclosed Limited Agent — Represents both the buyer and seller, or multiple buyers who want to purchase the same property. This can be done only with the written permission of both clients.
It should be noted that buyers or sellers (FSBOs) can represent themselves. Both are advised to seek legal advice. The issue for me lies with Disclosed Limited Agency. The seller wants to sell for the most money, making the least amount of repairs in the shortest time possible and buyer that wants to pay the least amount possible, have the seller repair everything and have the seller acquiesce to their time frame.
There is a limited amount of resources within the transaction and if one agent has seen both the seller’s and buyer’s proverbial cards, the odds of a win-win situation are greatly diminished. At least one party is likely to withhold information from the Realtor because of the relationship with the other side. We’ve heard numerous times that the majority of legal action proceeding against Realtors is in a transaction where there was a single dual agent in the middle of the transaction.
So why would a Realtor want to be a dual agent? There is an increase income potential in the transaction. A listing in RMLS has a co-op buyer’s agent built into it by contract between the seller and listing agent. That fixed dollar amount or percentage is defined and published. A dual agent has the opportunity to keep that split or reduce the total commission. In numerical terms: if a $100,000 house was listed with 10% commissions and the defined co-op split was 50%-50% each agent would earn $5000 gross when the transaction closes. A dual agent could keep all $10,000 or reduce their commission. In a co-op transaction, each agent gets credit for the sales price in volume and one unit ($100,000 and one unit). The dual agent gets credit for both sides of the transaction ($200,000 and two units). There is built in incentive for an agent to promote dual agency and avoid the co-op Realtor.
Sounds like the pot is calling the kettle black? No. We have completed two dual agency transactions in our career. The first was a short sale in 2005 where we knew both the buyer and seller prior to the transaction and they wanted us as dual agents (the transaction/listing was not our introduction). We would not repeat that transaction today even though it went smoothly and closed. The second was an immediate family member buying from friends who though not blood related are referred to as aunt and uncle. Both transactions were legal but questionable as to whether they should be. We’ve been talking about dual agency and whether real estate is zero sum for years on this blog.
I do think that in the case of new construction an exception should be made. A Realtor representing a subdivision or complex should be able to assist a buyer without a co-op agent. The number of units that qualify for an exemption should be defined- I would use five. Builder paperwork often varies from the standard forms used in Oregon real estate. The buyer is always advised to seek legal advice when “builder paperwork is used” as the paperwork was written by the seller (or attorneys) for the seller.
How can you market my house if you won’t sell it? Of course we’ll do everything in our power to find a buyer for your property. If we get a sign call we’ll show it and do everything we can get to get the offer written but we won’t write it up ourselves. We will either refer it to another agent or in many cases we find the buyer already has a relationship with a Realtor but had not planned on using them in the transaction. A good Realtor should be able to put some if not all or even more money back into their client’s pocket by good negotiation and transaction management. Statistically the transaction is less likely to have issues after closing.
Of course the majority of dual agents are putting the transaction’s interests first but the door is opened a small fraction of overall transactions to taint the overall market. I think the door should be closed. I haven’t been actively involved in our Realtor related associations in the past but I would be open to it.
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