Over the last few months, concerns have been raised regarding issues which may occur when real estate practitioners work with both the buyer and seller in a transaction. This has come as a result of some media investigations and associated political reaction, as well as opinions of some interested observers.
Although this is an accepted practice in almost all of North America, the issue has drawn the attention of the BC real estate regulator and recommendations are currently being developed for significant changes to how or whether this type of service will be provided in the future.
When a buyer and seller are working with the same licensee it is referred to legally as limited dual agency and the fees earned when dual agency successfully concludes a transaction are generally referred to as a “double ended” transaction.
This situation most often can occur as a result of a buyer inquiry about a property by contacting the seller’s (or listing) agent.
Under sole agency, the broker/licensee must:
- Act in the best interest of the client
- Act in accordance with all lawful instructions of the client
- Act only within the scope of authority granted
- Advise the client to get independent professional advice in matters outside the expertise of licensee
- Maintain the confidentiality of information regarding the client
- Disclose all material information respecting the real estate service, the real estate and the trade that relates to the transaction
- Communicate all offers in a timely objective and unbiased manner
- Use reasonable efforts to discover relevant facts respecting any real estate interest that the seller has
- Take reasonable steps to avoid any conflict of interest, and if a conflict does exist, promptly and fully disclose the conflict to the client
These requirements may be modified by express agreement between the licensee and the client. One of these potential modifications is to allow the licensee to represent a buyer in limited dual agency.
When this happens the licensee’s duties become limited to:
- The licensee must deal with both parties impartially
- The licensee cannot disclose what either party is prepared to buy/sell for or the motivation of either party
- The licensee must not disclose any personal information about the parties unless authorized to do so in writing by the party concerned
Of course the requirement of professional competence, skills and honesty, etc. by the licensee is always consistent.
As you can see, limited dual agency is far less rigorous than regular agency and the licensee takes a role of professional facilitator as compared to the fiduciary/advisory role that exists under sole agency. Because of this reduction of duties, the client must have the difference between the two explained fully and must agree in writing prior to the licensee entering into any negotiation legally representing both parties to the transaction.
What happens if the buyer and seller do not agree?
Should either the buyer or the seller not agree to a limited dual agency situation, the buyer (in most cases) will be dealt with as a customer. This means that they will receive all the information required to make a decision and a licensee will execute any contract that the buyer may wish, subject only to restrictions placed on them by their client (the seller) expressly or as required by their agency. However no evaluative or strategic assistance can be offered. Essentially the buyer is on their own when it comes to any diligence or evaluation of the opportunity. In this situation it may be appropriate for a buyer to retain a third party expert to assist them with the decision and the process (this is particularly true if you are a first time homebuyer or not knowledgeable of the market).
There are some people who feel that the limited dual agency structure does not provide the necessary protections for the public that are embedded in sole agency and that it compromises the public interest. Balanced off of this is the fact that it makes for more efficient negotiation and sale process and respects the long standing relationships as trusted advisors that many realtors often have with their customers as they move through the housing cycle. Many members of the public are comfortable working with the listing agent and feel that it gives them better information and insight, or simply feel that they do not need to bring any further expertise or knowledge to the table for the transaction. Additionally small marketplaces often do not have an easy alternative to using limited dual agency.
Dual agency at work
In normal markets Limited dual agency works well, however, in a hyper active sellers market where multiple buyers (including occasionally a buyer represented by the listing agent) may be wishing to acquire a listed property, or where a buyer’s representative may present an unsolicited offer to a property owner, confusion as to who a fiduciary duty is owed to can occur. In these situations there must be complete and proactive transparency of the agents legally required duties. Without effective communication, misunderstandings, whether real or imagined, will occur.
Double ending is an industry term that describes situations that relate to fees payable on a dual agency transaction. Typically, the licensee agrees to pay a portion of the fee (agreed to by the seller) for agency representation to the licensee who introduced the buyer to the property. Where a limited dual agency relationship is agreed to and occurs the single licensee collects the full agreed upon fee. This is referred to as double ending as the one agent takes both of the “ends” of the deal. Of course they would also double end if the buyer has a customer status and no agreement has been agreed to share the fee with any advisors they may use (sometimes called an exclusive listing). In simple terms, the licensee agrees to share the fee with another licensee who brings a buyer to a successful transaction. Should that not happen, the licensee keeps the whole fee.
Concerns regarding dual agency
The concern raised in some circles is that the financial incentive that double ending presents to the seller’s representative would incentivise a licensee to fail to advise anyone not initially the client of their choice. This could be due to fear of losing out on the double end, or that the opportunity to double end will prejudice the buyer’s legitimate interest in a property should they decide that they do not wish to enter into a relationship with the seller’s representative. Additionally the sellers will not be adequately advised as to how the duties to them have been changed by entering into limited dual agency. In a busy sellers’ market, where buyers’ opportunities are limited and time is of the essence, the perception of a possible abuse of trust by the agent intensifies.
These are valid concerns and you cannot suggest that such things have not occurred from time to time in the industry. However, they are an exception and not the rule. Further the regulator will, and has, disciplined licensees who are found guilty of these practices
Putting theory into practice
There are many positive features of dual agency. Properly handled it can make for a more efficient home buying experience. It is important however, that issues associated with dual agency be explained clearly and proactively so that a member of the public can make an informed decision as to what representation they choose to receive in relation to any property that they might be interested in. As always, full, transparent proactive communication is the key to avoiding misunderstandings.
Double ending of fees is one of a number of possible outcomes that can result from dual agency, it is neither mandatory or unfair, simply a matter of negotiation between the listing licensee and his customer in regards to fees to be earned from the services that are provided.
Like many other situations the theory around the current forms of allowed representation in BC is sound, however communicating clearly the full range of choices available and their implications needs to be insured and practiced. Legislating a required independent representation, or restricting how fees can be earned will only complicate the process and ultimately make it both less efficient and more expensive for both buyers and sellers.