#4 Dual Agency
If you get a large group of people together and ask them, by
show of hands, which ones think they are better drivers than average, perhaps
80% will raise a hand. However, logically only half are better drivers than
average and yet 80% raised a hand. This is an example of the Dunning-Kruger
Effect or illusory superiority. In other words, “People overestimate their own
abilities.” More on this later.
If you do some reading on dual agency you will learn that there is little disagreement with the statement, “Dual agency is generally bad for the buyer and seller.” However, dual agency is a windfall for brokers.
Dual agency occurs when real estate agents
represent both the buyers and sellers on the same transaction. When that
happens real estate brokers collect a double commission and they are prohibited
from doing anything to the detriment of either party. That means that
they cannot help you negotiate price or terms of your real estate transaction.
It means that they are getting paid twice as much for doing a tenth of
the work.
https://www.caare.org/never-agree-to-dual-agency/
The
main problem with dual agency is that you lose one of the biggest benefits of
working with a real estate agent or real estate broker -- their fiduciary
responsibility to you. A real estate agent is required to act in their client's
best interest at all times during a transaction. For example, when negotiating
the price, asking for concessions, and throughout the escrow period, your real
estate agent is there to get the best deal and terms for you.
Unfortunately,
in a dual agency transaction, that isn't possible. There's no way that an agent
can simultaneously negotiate the best possible deal for the buyer and the
seller. They can't put the interests of one party over the other. Dual agents
are completely neutral parties in a real estate transaction, which can be a
major drawback as opposed to having an agent who is 100% on your side.
Just
to name a few limitations, a dual agent cannot give you their opinion of how
much a property is truly worth, cannot help advise you when it comes to
accepting offers or making counteroffers, and cannot tell you what repairs or
concessions you should ask for from the seller or agree to for a buyer.
In my previous article, I used the following analogy:
The writer compared dual agency to a football game in which instead of each team having a coach, there is only one coach who coaches both teams. On top of this, the coach is betting on the outcome of the game. By calling a particular type of play for the offense and then telling the defense to defend for either that play or something different, the coach can control the game and likely be able to predict the score in order to win his bet. Spectators of the game would be completely unaware of any wrongdoing. Only the teams would suffer,…while the coach got rich. [Me]
The coach was doing the things that coaches do. But what if the coach was a fiduciary? What if the coach in this fictional game was to act as a proper dual agent, that is, to be completely neutral? What would he be allowed to do that would not benefit or harm either team?
1. Verify that each team has eleven players on the field at all times.
2. Explain the rules of football to any player that asks for clarification.
3. Provide water.
4. Pace the sidelines and look concerned while occasionally spitting.
I’m not even sure if some of these actions may be viewed as favoritism. Regardless, the owners of the teams are going to be looking at the service that they are receiving for the salary that they are paying. They will probably fire the coach and replace him with the water boy.
“It’s an ill wind that blows no good.” It’s hard to find anyone to say anything good about dual agency and that person is probably a real estate broker. I found these:
* Can help your home sell quicker since the broker is more motivated.
* You might be able to negotiate a lower commission. Just don’t hold your breath. I added that.
“Dual agency can be most favorable for experienced buyers and sellers, particularly seasoned real estate investors who don't need quite as much guidance as someone who is new to the process or uncomfortable with negotiations.”
This reminded me of the letter that the buyers of my home provided to Chris Hanley at closing that described their displeasure with him. In it they said:
“We feel it is pertinent
to clarify two things before explaining why we too, believe the Farchette &
Hanley team do not deserve the entire 3% buyer’s agent commission.
Based on our list of homes, Farchette and Hanley were the selling agents to more than half of them including our first choice, 71 Concordia. Being far from a novice on the real estate climate and industry, we wanted to go with them because as the listing agent, it would not only reduce the agent to agent correspondence time which would prove invaluable to us, it would also give the agent far more incentive to push my offer through knowing they would be receiving a full 6% commission as opposed to only 3%.”
Personally, I remembered purchasing my new home in Virginia. I had chosen a broker who I planned to work with and had sent him a “Hello” email when I saw a property that I felt I was really going to want to buy. So, I jumped ship and emailed the broker who was listing that property.
Our two reactions smacked of Dunning-Kruger. We all think that we are savvier than we actually are. We think that we are experienced buyers and sellers. And we can handle anything. NOT.
Contrary to our perceived skillset. The majority of us could
use an assist. We need a broker who is on our side. We need the Governor and
Legislature to protect us from ourselves by eliminating dual agency.
Who is fighting to keep dual agency legal?
Dual Agency is Illegal in
EVERY Other Profession
Brokers have successfully lobbied for and
had laws passed that have mostly eliminated their liability for the harm that
dual agency causes to consumers. Consider that dual agency is illegal for all
other professions and that the conflicts of interests are so severe that
common-law often presumes that dual agency involves fraud. Yet the least
educated of all the professions (real estate brokerage) is exempt from
liability for this fraud on the largest and most risky consumer transaction of
a lifetime.
Dual Agency Makes Brokers
Obsolete
In real estate, legalizing dual agency
through Realtor lobbied for licensing laws makes the need for real estate
licensing and brokers obsolete. Real estate brokerage licensing law exists to
protect consumers and maintain a certain level of competency and responsibility
for which consumers should be able to rely. However, removing liability for
dual agency essentially provides brokers with a license and financial incentive
to betray their clients. Since there is little hope that the largest lobby
organization in the U.S., NAR is going to back off dual agency, it is up to
lenders, lawyers, and consumers to take actions to avoid and litigate dual
agency violations.
https://www.caare.org/the-advent-of-dual-agency-is-the-biggest-consumer-scam-in-real-estate/
Would eliminating dual agency be
setting a precedent?
States where dual agency is
currently illegal:
·
Alaska.
·
Colorado.
·
Florida.
·
Kansas.
·
Maryland.
·
Texas.
·
Vermont.
·
Wyoming.
Dual
agency is illegal in every other fiduciary profession except under the most
extreme circumstances. It is routinely practiced in residential real estate
where there is the least amount of training.
Realtors, who typically have no understanding
of the legal ramifications of their own fiduciary relationship with their
clients, often illegally counsel their clients of the so-called “benefits” of
dual agency. We’re here to tell you that there are NO benefits and that you
should NEVER agree to dual agency. Find a small brokerage firm with highly
qualified real estate agents and demand that they not engage in dual agency.
The likelihood of dual agency arising with a smaller firm is far less than with
a large firm.
https://www.caare.org/never-agree-to-dual-agency/
The author is saying that to avoid getting stuck with a dual agent, chose a smaller firm. This can be read another way. If dual agency was eliminated buyers would be pushed in the direction of smaller firms. A broker who is listing lots of houses cannot represent you to buy one of those houses. Speaking of supporting smaller firms - who is in favor of young entrepreneurs and underrepresented Virgin Islanders? Remember the passage in my first article about Senators’ reactions to a nomination for a new Real Estate Commission member.
The only individual rejected by senators Tuesday was Karen Korsgren, who
had been nominated to serve on the V.I. Real Estate Commission. Several senators said they were uncomfortable with
Korsgren after her tepid responses to their questions about a lack of local
Virgin Islanders in the territory’s real estate industry. The people buying and
selling land in the territory are predominantly transplants, and senators said
Korsgren had no thoughts on how to address the underrepresentation of Virgin
Islanders. “Her responses were not satisfactory,” said Sen. Milton Potter. Korsgren
mentioned “something about a beach cleanup as part of the outreach
initiatives,” but offered no meaningful, concrete ideas, Potter said. “I think
there must be a level of sensitivity, commitment, and awareness — particularly
in this industry — when it comes to expanding opportunities for local Virgin
Islanders, and I am uneasy about appointing her to this position, I do not
think she is suitable at this time.” “I wasn’t pleased with the answers,” said
Johnson. “The answers to me, was not supporting young Virgin Islanders and
young entrepreneurs who aren’t being given opportunity in the real estate
area.” Ultimately, 12 senators voted against Korsgren’s nomination, and three
voted in favor. (virginislandsdailynews.com 5/5/21)
I think the Senators’ goals would be better served by eliminating dual agency. Because I was confused when I read this. How is a Real Estate Commission member supposed to fix underrepresentation? The following is from the DLCA website:
https://dlca.vi.gov/boardcertifications/steps/recrequirements/
Purpose of Licensure:
To set standards of qualifications, education, training, and experience for
persons engaged in the Real Estate field. To promote high standards of
professional performance for those persons working in the Real Estate field. To
ensure that everyone engaged in work in the Real Estate field is licensed.
Period of Licensure:
All permanent licenses are issued on an annual basis from January 1 to
December 31 of each calendar year.
Temporary licenses are issued for six (6) months and one
temporary license is issued per calendar year.
Application Process: - Salesman:
Applications must be completed entirely and legible. Initial Application
Requirements:
- Applicant must be a resident of the U.S. Virgin
Islands for at least ninety days (90) immediately prior to submitting
application for examination;
- Letter from licensed broker sponsoring applicant;
- Proof of Residency;
- Passport; or if naturalized please provide
certification and or a permanent resident identification card;
- Payment of Required Fees.
Application Process - Broker:
Applications must be completed entirely and legible. Initial Application
Requirements:
Completed Application;
- Proof that applicant has been a Licensed Real Estate
Salesman in the Virgin Islands for at least two (2) consecutive years or
an attorney licensed and admitted to practice in the U.S. Virgin Islands;
- Certificate of Good Standing from the Territorial or
District Court (Applies to Attorneys only);
- Passport; or if naturalized please provide certification
and or a permanent resident identification card; and,
- Payment of Required Fees
Examination:
All persons interested in being a licensed in any area of the Real Estate
industry are required to sit a national and state examination. The examination
is computer-based offered online, weekly, through PSI Testing Services,
LLC, www.psiexams.com or call (800) 733-9267.
The examination consists of two sections and each
candidate must earn a minimum score of 75% on each portion before the can be
licensed in the US Virgin Islands. The examination fee is Three Hundred Dollars
($300.00) for both parts and Two Hundred Dollars ($200.00) for one part.
Seems pretty simple: live on an island for a few months, provide
some documentation, pass a test, pay your money, and voilà.
So how do you spread around the wealth? You make sure that
one person can’t have it all. This will happen when the Governor and the
Legislature eliminate dual agency.