KASS: Dual agency in a real estate transaction

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Q:   What do you think about dual agency in real estate? Shari.

A:     Dear Shari, That’s easy to answer. While I know that dual agency is allowed in almost every state in the US, I don’t like it. There is an old adage that “one cannot serve both masters,” but in my opinion, that’s exactly what happens in a dual agency relationship.

I know that many – but not all – professional real estate brokers and agents will be unhappy with my opinion, but let’s face it: Can one agent really represent both the buyer and the seller?

A recent case needs to be carefully analyzed. In Horiike v Coldwell Banker, the California Supreme Court held that if a real estate brokerage company represents both buyer and seller, it owes a fiduciary duty to both sides. The case (which you can search on the internet merely by typing “Horiike”) involved an agent who was hired by the seller but worked for Coldwell Banker that also represented the buyer.

According to the court, “it is undisputed that Coldwell Banker owed such a duty to the buyer. We now conclude that the associate licensee, who functioned on Coldwell Banker’s behalf in the real property transaction, owed to the buyer an ‘equivalent” duty of disclosure.”

The court reminded the real estate industry that dual agency “is a relatively recent development” and that “the statutory law permits dual agency provided that real estate agents both inform their clients of the agency relationships       involved and obtain the clients’ consent.”

In general, wherever dual agency is involved, the laws require that dual agents are not allowed to disclosure to a buyer that the seller is willing to sell at a lower price, without the consent of the seller, or vice versa that the buyer will willing to pay a higher price, without the consent of the buyer.

I am often asked by clients should they sign a dual agency agreement. My standard answer is that I am personally opposed to the concept but it is legal. If the client likes the agent, I then say, “Go ahead and sign the disclosure form but be very careful of what you tell that agent. She also represents the other side.”

And while I am on this topic, let me raise another concern. You are in the process of buying a new house, and have entered into an agreement with a real estate agent. That agent then asks if she can list your house for sale. Sounds like a good deal, but is it? You want to get the best price for your house, and even with the most ethical agent, the temptation is to want to get a quick sale. So I discourage such an arrangement.

And before I get lots of nasty tweets, I believe that most agents are hard working, honest and ethical, and I respect the job they do. Many agents don’t like bringing attorneys into their transaction, and although I disagree, I respect their opinion also.