This is the third of a 3 part article on dual agency, a form of real estate agent representation. Dual agency involves “your” agent representing your adversary in a real estate transaction, as well as yourself. I have shown that it is good for the agent, as it results in him or her getting paid double. For you, as the buyer or the seller, it’s not so good.
Real estate agents in Arizona have a “fiduciary duty” to their client. It requires that the agent act with the utmost good faith and absolute loyalty, and must put your interests ahead of all others, including that of the agent.
So fiduciary duty should be the enemy of dual agency – they are mutually exclusive. But not with Arizona Department of Real Estate, which doesn’t consider dual agency a violation of that duty. Nor does it require that an agent explain the disadvantages of dual agency to the client.
But others in government disagree. A Legal Memorandum by the New York State Dept. of State Counsel’s Office entitled “Be Wary of Dual Agency” states:
Significantly, by consenting to dual agency, you are giving up your right to have your agent be loyal to you, since your agent is now also representing your adversary. Once you give up that duty of loyalty, the agent can advance interests adverse to yours. For example, once you agree to dual agency, you may need to be careful about what you say to your agent because, although your agent still cannot breach any confidences, your agent may not use the information you give him or her in a way that advances your interests.
Other states, including Colorado, Florida and Connecticut, have outlawed dual agency. Colorado replaced it with a “designated agency” arrangement, where fiduciary duty extends to one party, with the other one essentially being unrepresented.
However, designated agency has its critics also. One problem is the public doesn’t understand the limited duty status of the agent that doesn’t represent them, and constantly ask for advice – that is, many buyers or sellers really of need full fiduciary representation, and that defeats the purpose of this option.
The other problem is that agents may act no differently under designated agency than they did when practicing dual agency.
Designated agency is “smoke and mirrors,” said Thomas Wemett, past president of the National Association of Exclusive Buyers Agents, stating that real estate companies are just “calling it something else. That something else is designated agency, and designated agency is still dual agency,” he said.
Ralph Nader tried to stop Connecticut from enacting designated agency, arguing that it was “a blatant attempt by the real estate industry to dilute its obligations and loyalty to consumers while still charging the same commissions.” I don’t often agree with Mr. Nader’s opinions, but here I think he’s right.
But designated agency is nothing new. Any agent in Arizona can choose whom they represent as a client (triggering fiduciary duty), and then can treat the other side just as a “customer” to whom no fiduciary duty is owed.
And that should be the way it should be. Dual agency is not in the public’s best interest and an agent should not profit from betraying his or her client. It should be prohibited under Arizona law.
My first training was as a real estate attorney, and attorney ethics rules are much stricter. I learned that an attorney can’t represent both sides to a transaction and induce the clients to waive the obligation of fiduciary duty (as agents can do by getting clients to agree to dual agency). That is why I do not do allow dual agency – it is against everything I was taught about putting the client’s interest first.
Unfortunately, that is a lesson that has yet to be learned by Arizona’ brokerage community. So until dual agency is restricted or outlawed, you as the consumer must protect yourself by demanding exclusive, fiduciary duty from your real estate agent. Next in Part 4: Dual agency is bad for agents too.