In my previous 4 blogs, I have shown that dual agency is bad for you as a consumer of real estate services. Exclusive, single agency is in your best interest as a buyer or seller, as then your real estate agent is in fact “yours,” and his or her loyalty is not divided between you and the party on the other side of the table. In this final article in the series, I will propose a solution to solve the dual agency problem in Arizona.
The decision on what type of agency will apply to the transaction is always yours. You should always choose exclusive representation option (the third choice) in the AAR “Real Estate Agency Disclosure and Election” form. Do not sign the AAR “Consent to Limited Dual Representation” form if given to you. Just because the agent has filled out those forms doesn’t mean you have to sign as they were prepared. Remember that it is your choice, and not the agents, as to the type of the representation.
Unfortunately consumers will continue to permit dual agency out of ignorance and because their agent wants it that way. So something must be done. One option could be to outlaw dual agency and replace it with “designated agency.” But in part 3 of this series I showed that it has been deemed to be “dual agency rebranded” and said to be the equivalent of “legalized fraud.”
Or we could hope it just fades away. Its use is decreasing, as our regional MLS (ARMLS) reports that the proportion of same-office transactions has fallen by nearly 38% in the last decade, dipping from 22.6% in 2001 to 14.1% in 2010. The percentage of same-office transactions handled by ARMLS members actually peaked at the tail end of the boom, hitting 22.9% in 2007.
More importantly, single agent transactions followed a similar pattern. The occasions when one agent represented both buyer and seller peaked at 19.2% of closings by ARMLS members in 2007 before retreating to 9.4% last year.
But when we have another boom, dual agency could reemerge. So I propose that single agent dual agency should be outlawed in Arizona. Specifically, one agent should not be allowed to represent the buyer and the seller.
Second, I think the definition of dual agency should be changed so that two separate agents of the same brokerage, one representing the buyer and the other the seller, should not be considered “dual agency.” However, this would require that rules be created to create a “Chinese Wall” between those two agents.
The term “Chinese Wall” (named after the Great Wall of China) comes from the legal profession. It is the fictional barrier that is created between an attorney with a conflict (e.g., because the attorney represented the client that the firm is suing before he or she joined the firm) from the other lawyers of the firm. Without the wall the firm’s other attorneys would be “conflicted out” and as a result the firm (and its attorneys) would not be allowed to provide representation.
The rules for creating a Chinese Wall are not complicated. Mostly they are designed to prevent communication between allow the old and new attorneys. The same rules could be adapted to real estate brokerages, so two agents of the same brokerage were prohibited from communicating with each other about the transaction.
The designated broker (DB) of the brokerage would also have to be constrained. For example, the DB would not be able to advise either agent about matters that would be advantageous or disadvantageous to one or the other, or be able to resolve disputes that arise between buyer and seller.
Simply banning any form of dual agency may seem be the simplest and best for the consumer, but it would create other problems. It would prevent people from using their chosen agent if that agent worked at the same brokerage as the agent for the other side of the deal. Also, industry opposition to a complete ban of dual agency would likely prevent its enactment.
Finally real estate licensee education must do a better job explaining dual agency and its dangers to licensees. If agents get a better understanding of it, they would understand how it hurts the people that they represent, and why they should avoid it.
Until dual agency is restricted or outlawed, it is up to you to protect yourself by demanding exclusive, fiduciary duty from your real estate agent. And no matter what the law is, you can be confident that I will always put your interests first, as I never act as a dual agent.