Dual Agency is the Designated Hitter of Real Estate
November 21, 2006 | 2 Comments
Over at the Bloodhound Blog, a Dual Agency Smackdown has erupted. You can read all of the smackdown articles here. I have been following the debate, and it has been very interesting, with plenty of good arguments both for and against the practice. For my own two cents, I am generally against it. I can, however, understand many of the great counter arguments.
The dual agency debate reminds me of another, perhaps less important, but not less raucous debate– the designated hitter rule. In major-league baseball, half of the league makes the pitcher bat, and the other half allows a “designated hitter” to bat in his place. This is a source of great contention amongst baseball fans and pundits, with passionate arguments both for and against the rule.
How does the designated hitter rule relate to dual-agency? Simple. Neither issue will ever be definitively solved, no matter how strong the arguments, or how passionate the advocates. Much like the designated hitter, dual agency is always going to be practiced by some, unless it is made illegal. Much like dual agency, their are always going to be those who feel that the designated hitter is a scourge that should be eliminated.
Perhaps the most useful aspect of the discussion is the discussion itself. We can all learn a lot by just participating in the dual agency debate, whether for or against. Education is the first step in decision.
If you like fireworks, and you are ever amongst a group of REALTORS and want to have some fun, bring up the subject of dual agency; and if you are ever amongst a group of die-hard baseball fans and want to have some fun, bring up the designated hitter. Both debates have almost endless entertainment value.
[tags] real estate, realtor, charlottesville, virginia, dual agency, designated hitter[/tags]
The Dual Agency Debate
September 22, 2006 | 1 Comment
One thing that I find most enjoyable about the blogoshpere is the good debate that takes place on a regular basis. For the most part, it is all very civil and very interesting. I came across a post from Greg Tracy at the Blueroof.com Blog that offers a view of dual agency that is very different from my own. Greg’s main point is this:
When used properly, it[dual agency] is not only good for both buyers and sellers in a real estate transaction, but can actually be better for
both. Think about it- one of the greatest challenges to a real estate
transaction is communication. Honest and timely communication between
parties. Having one agent representing both sides can eliminate much of
that challenge.
I completely agree with Greg that effective communication can be one of the greatest obstacles to a smooth real estate transaction. On the other hand, dual agency may streamline communication, but it also limits communication. Namely, it limits the amount of communication that an agent can have with his clients. He cannot tell the client everything that he would tell the client, were he not a dual agent. The flow of communication my be streamlined at the expense of the quality of that communication.
I’ve said this before, and I will keep saying it: THE ONLY REASON DUAL AGENCY EXISTS IS SO THAT AGENTS CAN TAKE HOME MORE MONEY.
Don’t get me wrong, I am not against anyone making more money, I just don’t think it should be done at the expense of the client’s representation. In my opinion, any potential benefit of dual agency is far outweighed by the risk assumed by the agent. Sure, the agent may not get sued today, maybe not tomorrow, but I’m not ready to risk my livelyhood so that I can make double the commission. Problems may not arise during the transaction, but there are no guarantees after everything is over. Read this comment left on the blog by Brianne regarding dual agency:
Thanks for bringing this up! When I had my home listed with one
realtor, they actually mentioned briefly that they offered dual agency
but them proceeded to completely skip over what that really meant.
Later we found out and were very upset and disappointed to feel like
our agent was playing both sides of the field. As a seller, how can you
expect to get good service knowing that your agent isn’t really looking
out for your best interests, but their own? I agree - this practice
isn’t on the up-and-up, and more buyers and sellers need to be aware of
it.
You can call it "hand-wringing" if you want, but I think dual agency is evil, and it needs to go.
My hat is off to Greg. His post is the first cogent, reasonable defense of dual agency that I have heard or seen in a long time. I don’t agree with it, but it is definitely beneficial to be able to have the debate.
Reaching Your Hand Into the Hornet’s Nest
September 19, 2006 | Leave a Comment
You know my opinion of dual-agency. I have espoused it more than once.
One time at which agency relationships are of paramount importance is when a customer is interested in new construction. There are numerous new construction developments in our area, and even more builders. Many of these builders encourage the public to visit their model homes or area offices to get more information about the homes. What many customers don’t realize is that the person sitting in that model home or office is working for the builder, ONLY for the builder. While that person most certainly would like you to buy a home from their builder, they have absolutely no obligation to the prospective purchaser aside from fairness and honesty. Let me tell you, there is a lot more to buying a new construction home than "fairness and honesty", not to mention the fact that everyone’s definition of "fairness and honesty" can be different.
Agents and REALTORS know about the agency dilemma that is presented for the customer by new construction representatives. That is why we are trained to ask what the situation is with regard to buyer representation before we start engaging a builder’s representative. As Jim Duncan pointed out, some builder’s version of buyer representation is actually dual representation. This is a situation that you definitely want to avoid.
One of the very first selling clients that I had, unbeknown to me, went to a builder’s model and signed a contract to buy a home with the agent that represented the builder. They had told me that they were renting and not really looking for a home at that time, but that the home was too good for them to pass up. I was glad that they found such a great home, and I asked them if they were using any representation. They didn’t know. I found out that the builder’s agent had written the contract for them, but they were treated as non-clients. This is perfectly legal, and perfectly normal, as well. This meant that they were completely on their own throughout the entire process. Unfortunately for them, they weren’t all that happy about it. I still see them regularly, and they are happy with their new home, but they wish that they had know that they could have had representation through the process.
As a personal rule of thumb, I wouldn’t buy a home from any builder that won’t allow me to have my own representation. As a matter of advice, you probably shouldn’t either. And for those builders who do allow true buyer representation, why not take advantage of it? If a builder allows customers to have their own representation, then the compensation for that agent or REALTOR is included in the price of the home. You, as the buyer, are going to pay for it, so take advantage of it. Not to mention the fact that if you do choose a buyer’s agent, you can have that agent seek out all the information that you want when you are busy doing other things. That way, you can spend your free time making important decisions about the homes and neighborhoods, instead of having to first travel all over the place to compile the information. A good buyer’s agent will be able to procure for you information on all the new construction that may interest you faster and more efficiently than you can do it yourself. I know that we keep information on numerous new construction developments and builders on hand for just that purpose.
Buying new construction is just as daunting a process as buying a resale home, perhaps even more so. Don’t fall into the dual agency trap set by many builders. Make sure you take advantage of the expertise of a buyer’s agent to help you through the process. This is even more important now in the Charlottesville area, as there is a lot more negotiating going on in the purchase of new construction. As little as a year ago, most builders would not negotiate at all when it came to price or terms of a contract, or upgrades. That is not necessarily the case any more. Wouldn’t you rather approach those negotiations with someone who has market knowledge and expertise that you can leverage to your advantage?
New construction can be a hornet’s nest sometimes; but it doesn’t have to be all bad. Using a buyer’s agent to assist you through the process can prevent a lot of stings.
Assumptions About Dual-Agency
September 19, 2006 | Leave a Comment
It was brought to my attention that, in my previous post about dual-agency, I was assuming the agent in question was listing the properties at a 6% commission. We all know what happens when we assume ==> ass / u / me.
Obviously, I don’t know what the listing side commission is for each of the properties advertised. According to the MLS, the buying side commission on the properties is 3%. I am assuming that the listing side is the same only because that is the most common commission rate in our market.
Assumptions aside, the question still remains, how much is inadequate representation worth to you? If you are the seller, is 1% commission acceptable for your agent to essential abandon you and reduce himself or herself to a transaction manager (paper-pusher)? Add to that the potential for conflicts of interest and ethical violations, and now what is it worth?
In all my future discussions about dual-agency, I will be basing my arguments on the typical 6% commission.
It doesn’t really matter, however, since the only price that even comes close to justifying dual-representation is FREE. At least that way, you get what you pay for.
How To Ask For Trouble, and Make Money Doing It
September 17, 2006 | 1 Comment
I came across a very interesting advertisement placed by a local REALTOR in a local publication. I won’t use this REALTOR’s name, but you may have seen the ad. I found it disturbing.
The headline of the ad reads, in big, bold, type, "Why Rent When You Can Own?" Below the headline are all of this REALTOR’s current active listings. There are six residential listings and 2 commercial listings. At first glance, this seems like a pretty typical real estate advertisement. Then, I read the bottom section of the ad. It has a picture of the agent, the agent’s contact information, and the company logo. Above that information, is the following copy, again in big, bold type:
"Receive 1% of Sale Price Back For Closing Cost When You Buy Any of These Properties Through Me!"
I have quoted the copy exactly as it appears in the ad, punctuation, syntax, underlines and all. Why do I find this disturbing? BECAUSE THIS AGENT IS ADVERTISING DUAL-AGENCY AS A BENEFIT TO THE AGENT"S CLIENTS!
This idea is completely absurd to me, and a tremendous disservice to any potential client the agent is seeking. First of all, I am so glad this REALTOR has chosen to be so generous to his buying clients. I would think that the very LEAST an agent can do is give his or her client back 1% of the purchase price when the agent is making 6%, and not fully representing either client. Then there is the issue of the selling client. Hopefully, this client is receiving some sort of financial benefit as well, since he or she isn’t receiving the benefit of full representation either.
The most sinister thing about the advertisement is the fact that it takes advantage of the ignorance of the real estate consumer. Some unwitting potential buyer might see this and think that it is a great deal, not fully realizing what it means not to have full representation; or at least not finding out what it truly means until it is too late. And if there is a potential buyer out there that does understand the implications of dual-agency, one must ask the question, "is 1% of the purchase price a fair price for not having adequate representation?" It isn’t worth it to me; and I venture to guess that if the consumer was better-educated about dual agency, he or she would feel the same way.
If you ask me, this REALTOR is asking for serious trouble. I can’t, for the life of me, figure out why a REALTOR would ever want to promote dual agency. Wait, never mind, yes I can: the REALTOR makes twice as much money. I guess this REALTOR is prepared to ignore the fact that neither one of the clients is going to get adequate representation.
What I am not going to do, is ignore the lack of education out there regarding dual-agency. It is evil, and should be banned. Until that time comes, I guess I will just have to spread the word.
“Million Dollar” Musings
September 6, 2006 | 1 Comment
Watched the latest episode of "Million Dollar Listing" last night. In case you aren’t watching the show, you should be. This episode brought to mind just a few thoughts:
1) The fact that dual agency is legal had to be the direct result of Satan himself lobbying real estate commissions all over the country. The only person that EVER benefits from dual agency is the agent. His wallet gets fatter, and the buyer and seller get less representation. Only Satan would call that fair.
2) People buy and sell for all different types of reasons, and people don’t buy and sell for all different types of reasons, no matter how unreasonable they are.
3) While emotional therapy isn’t specifically listed among the requirements of an agent’s duty, sometimes it sneaks in there.
4) Not every agent is a money-hungry, soulless, SOB– even if they may look that way. . .at least I hope not.
I’m sure I’ll have more such musing for you after the next episode. The show has left me infuriated and entertained many times, so I can’t imagine that things are going to change very much.
-
Connect With Me
Proud Sponsor of RE Barcamp '08
Listen to ZebraTalk
Read the Zebra on AgentGenius
Disclaimer
My name is Daniel Rothamel. I am a licensed real estate agent in the Commonwealth of Virginia and a member of the National Association of REALTORS. As such, I adhere to a strict code of ethics and all laws with regard to equal housing, which is reflected in the content of this blog. My broker is Strong Team REALTORS, 86 Joshua Lane, Palmyra, VA 22963; (434) 589-5800. My VA Real Estate License number is 0225 077325. All of the opinions in this blog are mine, unless otherwise noted.
