British Columbia, Canada’s most western province, has officially put an end to dual agency as of June 15th, 2018.
Is this a positive or a negative move for the market overall? Should this be the new standard in the US as well? Before you make any judgments, we have the positive and negative implications for you to consider. Bring these points back to your team and/or clients to help guide them as their local leader.
First of all, What Is Dual agency?
Just so we are all on the same page; dual agency occurs when a real estate professional represents both the seller and the buyer in the same transaction. Some agents seek out these situations to reap the rewards of a double commission, while other agents shy away from this grey area. Let’s start with the potential upside of a dual agency transaction.
3 Benefits of Dual Agency For Agents
- An obvious benefit to the agent involved in this transaction is receiving two commission cheques instead of one. Now, this may seem like a benefit only to be shared by the realtor but sometimes this ends up benefiting both the buyer and the seller as well. How? There are some agents who are willing to accept a reduced commission fee for all parties involved. With a larger commission to draw from, two reduced fees are still larger than a standard commission they may receive. All three parties benefit. This is not always the case but a possibility to consider.
- Dual agency can simplify and speed up the transaction. When an agent is working with both the buyer and the seller, the process can become much easier. There is no communication between multiple firms. No waiting for a third party to bring separate documents and paperwork. No delays between offers and counteroffers. In most situations, a speedy transaction benefits all involved.
- Aside from faster transactions, dual agency can also result in increased satisfaction. If the agent involved knows exactly what both the buyer and the seller want, offers can be created that make everyone happy. The caveat here is the agent does have to be very careful as to what sensitive information he or she discloses.
Three very compelling situations where dual agency could be a benefit for the agent, the seller, and the buyer. So why would anyone want to eliminate this style of transaction? Let’s examine some of the potential downsides.
3 Dangers of Dual Agency For Agents
- If a buyer decides to be represented by the agent that has already partnered with the seller, they may be at a disadvantage. This happens frequently when curious individuals wander into open houses without their own representation. The agent in the equation will likely be focused on selling this one particular home instead of offering the buyer a selection of homes, some of which may better suit their needs.
- In a similar situation, a seller and an agent may have a previous relationship. If an agent and an individual have completed multiple transactions in the past, will the other party involved be treated fairly? Human nature says the agent will likely favor the person who they have already dealt with, leaving the third member of the transaction at a disadvantage.
- When an agent is potentially receiving two commissions from a single sale they have a greater incentive to find a way to close the deal. This creates potential legal and ethical conflicts. For example, a real estate professional may forget to disclose a piece of information that could ruin the sale…and their shot at a double commission.
Is Dual Agency Ethical?
Dual agency is currently legal in all 50 US states, but that doesn’t mean it’s legit. NAR members are held accountable to a code of ethics, but enforcing that code to ensure compliance among members is a significant challenge.
Every real estate board has its own process for enforcing its policies and regulations. In British Columbia, where an influx of foreign buyers contributed to drastic overvaluation and affordability issues, disciplinary action against agents proved ineffective in curbing dual agency.
In fact, a review of disciplinary actions initiated by the Real Estate Council of BC revealed the lack of serious consequences for agents found guilty of violating board policies:
“…most real estate agents who are found to have acted improperly received only written sanctions or small fines of a few thousand dollars, which are dwarfed by the commissions they stand to receive in a market where the average house fetches well over a million dollars.” (Globe & Mail)
Commercial Real Estate & Dual Agency
Commercial real estate typically involves a smaller pool of buyers and sellers. In these markets, it is not uncommon for an agent to deal with familiar parties on multiple deals. Dual agency laws could severely alter and diminish commercial real estate momentum, hurting the market, the agents, and the economy.
If agents are prohibited from selling properties to potential buyers they have dealt with in the past (such as the case in British Columbia), it could become very difficult for commercial agents to succeed.
Final Thoughts For Local Leaders…
There are clearly both positives and negatives that come along with dual agency representation. Governing bodies suggest that they are looking to minimize or eliminate dual agency for the consumer’s benefit. As a real estate professional, you do benefit from happy consumers in the long run. Earning the confidence and trust of digital home shoppers ultimately means more transactions for everyone!
Leaders in the real estate industry start conversations. They share relevant changes and news with their communities. They add value and lead by example.
So, local leaders, what are your thoughts on dual agency? Would a regulation change in your area hurt or help your business?