Bait and SwitchDual agency is potentially one of the worst “bait and switches” possible because it involves the “switch” (abandonment) of a trusted advisor and advocate. Even with disclosures, consumers rarely expect the change in relationship that comes with dual agency and they are almost never prepared for the complete abandonment that defines dual agency. And despite the degradation in the level of services in a dual agency situation, the client still pays full commission in a dual agency.
Should Less Service Equate to a Lesser Fee?
The Consumer Federation of America came up with a recommended fee schedule that suggests a sliding downward scale to align the degradation of services that results from dual agency with a lowering of the fee Realtors charge. According to them, less service should translate into a lower fee. The Minnesota Bar Association incorporated this fee structure into their Standard Listing Contract, but since Realtors typically control which listing contract consumers sign, the Bar Association’s Contract is rarely used. (see attachments below). As a result, consumers typically pay the same amount for an agent who offers nearly no service (a dual agent) as they would for an agent who provides full service.
Compare to Attorneys
Attorneys possess incomparably superior education and licensing standards as compared to Realtors. In addition, attorneys are trained in how to manage conflicts of interest. Realtors are not.
Attorneys must have a post graduate doctorate degree and pass a State Bar Exam in order to become licensed. They also have a meaningful Code of Ethics that provides substantial and public penalties for infractions. Even with their tremendous training in agency relationships and conflict management, attorneys avoid dual agency because of the impossible situations it creates.
Licensing requirements for real estate agents are essentially non-existent. The minimum standard to obtain a real estate license doesn’t even require a high school diploma and an individual can often obtain their license after taking only a 30 hour class on how to pass the exam. And their "Code of Ethics" is enforced by peers (competitors) who are members of their trade association and all decisions are kept private. Licensing laws are typically lax as is enforcement of those laws.
There really is no comparison. Realtors do not possess the necessary training or education to engage in such a complex relationship as dual agency.
Despite the complete lack of minimum standards and the incredible complexity and danger of dual agency, it is now legal in most states for Realtors to practice dual agency. It is typically not legal for attorneys.
Attorneys run conflict checks to avoid dual agency and have for the most part bifurcated their profession into plaintiff and defendant firms. Nothing like that system exists for Realtors. We believe that it should. To make matters worse, Realtors don’t understand dual agency, they have little training in conflict management, the and disclosure forms are misleading and inadequate. Consumers don't understand it, are highly vulnerable and typically rely upon their Realtor for skewed and inconsistent “advice” about dual agency. And to totally drive the malfeasance home, Realtors are financially encouraged to practice dual agency and fondly refer to the bagging of dual agency clients as a “hogger.”
The Worst Kind of Swine Flu
Dual agency (aka "Hoggers") exist to enable real estate brokerage firms to double in size and to unfairly collect double commissions. It's greedy, dishonest and anti-competitive. Similar to theft by swindle, dual agency is highly profitable and relies upon the vulnerabilities of its victims to succeed. Oddly enough, dual agency was a response to an innovative entrepreneurial business model of exclusive buyer agency that was quickly gaining market share. Buyer agency offers a legitimate and substantial benefit to consumers in that agents sacrifice the profitability of both buying and selling properties for the exclusive loyalty that comes with only representing buyers.
Dual agency confused and misled the marketplace about buyer agency and all but destroyed the exclusive buyer brokerage innovation. It was a great loss as buyer agency aligned the agent’s financial interests with the interests of the client. It brought a higher level of integrity to the industry. It should be noted that exclusive buyer agency still exists and is promoted by a trade organization called the National Association of Exclusive Buyer Agents (NAEBA).
Omnipotent Lobbying Power
Instead of representing only buyers or only sellers, brokerage firms busted through the constraints of fiduciary case law in order to collect double commissions. Without an all powerful lobbying group behind them (National Association of Realtors “NAR”), it never would have been possible to legalize conduct that is more accurately described as a betrayal. The common law standard to permit dual agency requires a full disclosure of all the material conflicts of interest (an almost impossible standard) and the informed consent of the client (another almost impossible standard). Rather than adhere to these common sense standards, Realtor Associations across the country changed the law so that they could double dip. They amassed a colossal lobbying effort to rewrite state laws to allow for dual agency. In one lobbying effort they defiled two hundred years of common law and eliminated an important and already successful point of redress for consumers who were harmed by dual agency – class action lawsuits.
NAR – Dual Agency is a Totally Inappropriate Agency Relationship
Hypocritically, it should be noted that the National Association of Realtors previously took the position that, “Dual agency is a totally inappropriate agency relationship for real estate brokers to create as a matter of general business practice…The disclosures and consents necessary to make a dual agency lawful are so comprehensive and specific that a typical real estate broker cannot undertake them as a matter of routine.” Taken from “Who Is My Client? *– A Realtors Guide to Compliance with the Law of Agency” 1986 National Association of Realtors. See attachment below. The Executive Vice President of the Association also wrote a letter about the topic.
Dual Agency Should Be Banned
CAARE’s position on dual agency is that it should be banned. It is an insurmountable conflict of interest that results in the abandonment of the client when they need their agent the most – right when they find the property they want. No Dual Agency On Federally Funded Loans At the very least, investors who loan mortgage money should forbid dual agency in their transactions. In addition, HUD should forbid dual agency on all federally funded loans. When mortgage fraud is rampant, consumers need more than ever to be able rely upon their Realtor for exclusive representation and unbiased and untainted advice. We would like to see the elimination of disclosure statements that disclose bad conduct like dual agency and see in its place the elimination of bad conduct like dual agency.
