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Real Estate: ‘Dual agency’ poses a host of ethical risks

October 13, 2013 Leave a comment

‘Dual agency’ poses a host of ethical risks

Sunday, October 13, 2013    Last updated: Sunday October 13, 2013, 10:17 AM
SPECIAL TO THE RECORD
The Record

When a prospective home buyer asks a real estate agent for help, the agent finds homes that fit the buyer’s preferences, priorities, and price range. If a deal is struck, the seller pays a commission, which is split by the agent working with the buyer and the agent or agency that listed the property.

PETER BONO / SPECIAL TO THE RECORD

Even though the agent is paid by the seller, she works for the buyer, submitting offers, discussing strategy, trying to figure out the right price point.

But what if the buyer’s agent and the listing agent are one and the same — a not uncommon situation. For one thing, of course, the agent gets the entire commission. More problematic is where the agent’s loyalty lies. That’s where it gets sticky.

While some agents say they are able to handle so-called dual agency through careful adherence to the law and ethical rules, others are strongly opposed to it, and some groups dislike the practice.

“It’s a challenge, but it happens on a pretty regular basis,” says Nena Colligan, who works out of Keller-Williams Realty’s Ridgewood office.

She estimates that she once represented both sides in one of every 20 transactions, but the ratio now is closer to one of every 12. The trend is driven in part, some agents say, by more prospective buyers who look for homes online and contact the listing agency directly instead of looking for an agent first.

The problem with dual agency, explains Bob Lindsay of Re/Max Legend in Wayne, is that the agent cannot advise his clients during the negotiating process. By New Jersey law, the buyer, seller and broker involved in a dual transaction must sign a disclosure form stating that the agent will act only as an intermediary to facilitate the transaction rather than as an active negotiator representing either the buyer or seller.

The form warns: “By consenting to this dual agency, buyer is giving up the right to undivided loyalty and will be owed only limited duties of disclosure, obedience and confidentiality [by the agent].”

The agent cannot give either party an advantage by, for instance, reporting the seller’s rock-bottom price to the buyer, or advising the seller that the buyer is desperate to close and will go higher than expected.

An agent who violates this rule can be sued by a buyer or a seller.

“The best advice I would give clients in that situation is that it’s like playing a hand of poker,” Lindsay says. “Do not show your hand, and do not speculate in the presence of the agent.”

“For the most part, people should be wary of it,” says JoAnne Fowler, who sold her home in northern Bergen County in a dual agency situation. She knew and trusted her broker, Phyllis Calianese, also of Keller-Williams.

“Probably 95 percent of Realtors out there would not have been able to do this. If I hadn’t been entirely comfortable with her, I would’ve thought she was trying to get our price down.”

Douglas Miller of Wyckoff, a lawyer and founder of Consumer Advocates in American Real Estate, a non-profit dedicated to “exposing conflicts of interest in residential real estate,” says flatly:

“Dual agency should be illegal. It’s only legal for Realtors because they have such a powerful lobby. It means that the real estate brokerage firm collects a double commission. It also means that the buyer and seller forfeit their right to representation. The firm gets paid double, and the client receives a fraction of the service.”

 

Matching buyer, house

 

Even with disclosure forms, gray areas crop up, he says. “No disclosure form exists that can disclose all the risks involved.”

Another concern is the possibility that a broker will push her own listing on a buyer in order to unload the home and double her commission. Colligan says an ethical agent will never take that approach.

“My fiduciary responsibility, when I have a listing, is to my seller. When I have a buyer who doesn’t fit the listing, I won’t take them to that listing,” Colligan says.

On the other hand, her familiarity with both her listings and her buyer-clients helps her identify homes that are well-suited to specific buyers.

She recalls an instance where a buyer’s reaction to the homes she toured indicated unusual preferences — a small yard that would require minimal maintenance, plus a master suite for herself and small rooms for her two little boys.

“That was hard to find at the price point she was shopping,” says Colligan, who ended up recommending one of her own listings. It proved to be perfect for the client’s needs, she adds.

Daron Lundeen’s home purchase in Montvale was his third real estate transaction, and he felt confident that he didn’t need a buyer’s agent.

He says it was easier to deal with a single broker who could communicate directly with the seller when negotiating details like the closing date or whether the seller would open the swimming pool before the sale. However, he adds, “it could be bad if you don’t have a good broker.”

Cecilia Mihalinec of Coldwell Banker in Ridgewood says the reality is that today’s buyers are impatient.

“Consumers are constantly reaching out to listing agents directly,” she said. They can get answers about the home right off the bat, skipping the step of having to go through another agent.”

Like other agents, she often recruits someone else at her agency, like the manager, to represent the buyer during the negotiation process, so she is able to fully go to bat for her seller.

“That doesn’t solve the problem,” says Pam Bell, co-founder of Buyer’s Advisors, a firm of exclusive buyer’s agents covering eight counties in northern New Jersey, including Bergen and Passaic.

“The broker and all other agents in the office represent the seller. Nowadays, we have even more competitive situations, with multiple offers on desirable properties, and one office can have more than one offer from buyers on the same property.”

Her agency carries no listings, dealing only with buyers, a practice she instituted 15 years ago after working for a large company that put her in the awkward position of dual agency.

“I knew the seller would take less than the buyers were planning to offer, but I couldn’t tell them,” she says.

Bell described a practice that some prospective buyers encounter when they have not signed with a buyer’s agent before walking into an open house. If they decide to make an offer on the home, the listing agent may insist on representing both sides of the transaction. When the buyers say they would prefer to find a separate agent, the listing agent can say they don’t have a choice because they failed to disclose, when they signed in at the open house, that they had a buyer’s agent.

“If the buyers really want the house, they may cave in and agree to dual representation,” said Bell. “Or they may come to us and ask if we could help them with the property. But after it closes, the original agent could take us to arbitration and say they’re entitled to the commission.”

Unless the buyer shows a strong determination to stand by Bell’s agency, she can’t afford to take that risk. “Most buyers will eliminate that property and go see others with us as their buyer’s agent,” she says.

Miller cautions that large agencies are highly motivated to pursue dual transactions.

“Big brokers thrive on the double commission,” Miller says. “They’re addicted, and they’ve influenced laws and the training given to Realtors, who are trained to see dual agency as almost an advantage.”

– See more at: http://www.northjersey.com/realestate/227556741_Dual_representation__buyers_beware.html?page=all#sthash.SWJbVfB1.dpuf

‘Dual agency’ poses a host of ethical risks

Sunday, October 13, 2013    Last updated: Sunday October 13, 2013, 10:17 AM
The Record

When a prospective home buyer asks a real estate agent for help, the agent finds homes that fit the buyer’s preferences, priorities, and price range. If a deal is struck, the seller pays a commission, which is split by the agent working with the buyer and the agent or agency that listed the property.

PETER BONO / SPECIAL TO THE RECORD

Even though the agent is paid by the seller, she works for the buyer, submitting offers, discussing strategy, trying to figure out the right price point.

But what if the buyer’s agent and the listing agent are one and the same — a not uncommon situation. For one thing, of course, the agent gets the entire commission. More problematic is where the agent’s loyalty lies. That’s where it gets sticky.

While some agents say they are able to handle so-called dual agency through careful adherence to the law and ethical rules, others are strongly opposed to it, and some groups dislike the practice.

“It’s a challenge, but it happens on a pretty regular basis,” says Nena Colligan, who works out of Keller-Williams Realty’s Ridgewood office.

She estimates that she once represented both sides in one of every 20 transactions, but the ratio now is closer to one of every 12. The trend is driven in part, some agents say, by more prospective buyers who look for homes online and contact the listing agency directly instead of looking for an agent first.

The problem with dual agency, explains Bob Lindsay of Re/Max Legend in Wayne, is that the agent cannot advise his clients during the negotiating process. By New Jersey law, the buyer, seller and broker involved in a dual transaction must sign a disclosure form stating that the agent will act only as an intermediary to facilitate the transaction rather than as an active negotiator representing either the buyer or seller.

The form warns: “By consenting to this dual agency, buyer is giving up the right to undivided loyalty and will be owed only limited duties of disclosure, obedience and confidentiality [by the agent].”

The agent cannot give either party an advantage by, for instance, reporting the seller’s rock-bottom price to the buyer, or advising the seller that the buyer is desperate to close and will go higher than expected.

An agent who violates this rule can be sued by a buyer or a seller.

“The best advice I would give clients in that situation is that it’s like playing a hand of poker,” Lindsay says. “Do not show your hand, and do not speculate in the presence of the agent.”

“For the most part, people should be wary of it,” says JoAnne Fowler, who sold her home in northern Bergen County in a dual agency situation. She knew and trusted her broker, Phyllis Calianese, also of Keller-Williams.

“Probably 95 percent of Realtors out there would not have been able to do this. If I hadn’t been entirely comfortable with her, I would’ve thought she was trying to get our price down.”

Douglas Miller of Wyckoff, a lawyer and founder of Consumer Advocates in American Real Estate, a non-profit dedicated to “exposing conflicts of interest in residential real estate,” says flatly:

“Dual agency should be illegal. It’s only legal for Realtors because they have such a powerful lobby. It means that the real estate brokerage firm collects a double commission. It also means that the buyer and seller forfeit their right to representation. The firm gets paid double, and the client receives a fraction of the service.”

 

Matching buyer, house

 

Even with disclosure forms, gray areas crop up, he says. “No disclosure form exists that can disclose all the risks involved.”

Another concern is the possibility that a broker will push her own listing on a buyer in order to unload the home and double her commission. Colligan says an ethical agent will never take that approach.

“My fiduciary responsibility, when I have a listing, is to my seller. When I have a buyer who doesn’t fit the listing, I won’t take them to that listing,” Colligan says.

On the other hand, her familiarity with both her listings and her buyer-clients helps her identify homes that are well-suited to specific buyers.

She recalls an instance where a buyer’s reaction to the homes she toured indicated unusual preferences — a small yard that would require minimal maintenance, plus a master suite for herself and small rooms for her two little boys.

“That was hard to find at the price point she was shopping,” says Colligan, who ended up recommending one of her own listings. It proved to be perfect for the client’s needs, she adds.

Daron Lundeen’s home purchase in Montvale was his third real estate transaction, and he felt confident that he didn’t need a buyer’s agent.

He says it was easier to deal with a single broker who could communicate directly with the seller when negotiating details like the closing date or whether the seller would open the swimming pool before the sale. However, he adds, “it could be bad if you don’t have a good broker.”

Cecilia Mihalinec of Coldwell Banker in Ridgewood says the reality is that today’s buyers are impatient.

“Consumers are constantly reaching out to listing agents directly,” she said. They can get answers about the home right off the bat, skipping the step of having to go through another agent.”

Like other agents, she often recruits someone else at her agency, like the manager, to represent the buyer during the negotiation process, so she is able to fully go to bat for her seller.

“That doesn’t solve the problem,” says Pam Bell, co-founder of Buyer’s Advisors, a firm of exclusive buyer’s agents covering eight counties in northern New Jersey, including Bergen and Passaic.

“The broker and all other agents in the office represent the seller. Nowadays, we have even more competitive situations, with multiple offers on desirable properties, and one office can have more than one offer from buyers on the same property.”

Her agency carries no listings, dealing only with buyers, a practice she instituted 15 years ago after working for a large company that put her in the awkward position of dual agency.

“I knew the seller would take less than the buyers were planning to offer, but I couldn’t tell them,” she says.

Bell described a practice that some prospective buyers encounter when they have not signed with a buyer’s agent before walking into an open house. If they decide to make an offer on the home, the listing agent may insist on representing both sides of the transaction. When the buyers say they would prefer to find a separate agent, the listing agent can say they don’t have a choice because they failed to disclose, when they signed in at the open house, that they had a buyer’s agent.

“If the buyers really want the house, they may cave in and agree to dual representation,” said Bell. “Or they may come to us and ask if we could help them with the property. But after it closes, the original agent could take us to arbitration and say they’re entitled to the commission.”

Unless the buyer shows a strong determination to stand by Bell’s agency, she can’t afford to take that risk. “Most buyers will eliminate that property and go see others with us as their buyer’s agent,” she says.

Miller cautions that large agencies are highly motivated to pursue dual transactions.

“Big brokers thrive on the double commission,” Miller says. “They’re addicted, and they’ve influenced laws and the training given to Realtors, who are trained to see dual agency as almost an advantage.”

– See more at: http://www.northjersey.com/realestate/227556741_Dual_representation__buyers_beware.html?page=all#sthash.SWJbVfB1.dpuf

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