Dual agency: The illusion of individual savings & the real cost to society
Thursday, January 21, 2010 at 6:29PM 
BEWARE THE IDES OF MARCH: Boston.com readers: Got Conflict? Click for info:
- Menu of Fees & Rebates (see WSJ article re 100% commission rebate)
- Listing agent report card (rebate up to one third of our referral fee)
Exposing the hypocrisy of dual agency, and it's evil counterfeit buyer agency twin, "designated agency" has been a crusade for real estate consumer advocates, like The Real Estate Cafe, for more than 15 years. For the most part, proponents of buyer agency have stressed the financial benefit to individuals -- something an article today in the leading real estate new service fails to even address. Instead, the article may give the mistaken impression that buyers can maximize their savings by working with a dual agent because of "...a commission reduction to cover repairs or a lower purchase price, if they represent both sides."
Those savings are trivial by comparison to the deep discounts skilled buyer agents can negotiate for their clients. For example, The Real Estate Cafe saved clients over $1 million dollars during one recent year (see map of selected savings, all but one over $100,000).
Still, what's more important from a policy perspective is to switch from debating savings at the micro-level to costs at the macro level, ie. the cost to society. With one in four mortgages underwater, it's essential for legislators and regulators, both a national and state levels, to investigate whether dual agency, and related "blind" bidding wars, helped inflate the housing bubble and to enact reforms to prevent a repeat in the future.
Research findings from one snap shot, a Cornell study on dual agency, suggest dual agency helped create overvalued housing prices, which taxpayers are now being forced to bail out. More specifically, Cornell researchers found that listing agents increased asking prices by 10 percent "when an internal buyer with a high willingness-to-pay is available," and generated sales prices 5 percent higher on transactions involving in-house sales. Ironically, researchers concluded that the net impact on the market was insignificant because "agents cut sale prices to capture both sides of the commission or trade favors with colleagues." That's one of the strongest arguments to outlaw inside trading, and require no conflict of interest agreements from any real estate agents involved in foreclosures. (As CNBC recently reported, short sales are already plagued by fraud and kick backs.)
Even if individual buyers don't understand the financial benefit of using a buyer agent, shouldn't taxpayers have an advocate to prevent buyers from overpaying any time government subsidies are used to purchase or finance a property? Yale Economist Robert Shiller may have had something like that in mind last year when he told ConnectNY that ever family in America should have a personal financial advocate. Fortunately, the cost of paying for that advice is already built into the typical real estate transaction. If you're NOT using a buyer agent, you're giving the listing agent / agency a double pay day whether or not they are acting as disclosed dual agent (something the article above also fails to mention).
Speaking as a real estate consumer advocate, my hope for the new decade is that (1) dual agency laws will be repealed, (2) any company involved in short sales or foreclosure disposition will be required to sign a no conflict of interest policy which includes dual agency, and (3) in the future, "blind" bidding wars replaced by controlled bidding environments, like N-Play, to maximize transparency and minimize deceptive buyer manipulation.
Until then, we invite readers to discuss what regulatory reforms are needed to protect real estate consumers; and if you are buying a home, we would be glad to discuss how The Real Estate Cafe can help you save money. Let us know when that's convenient.
Reader Comments (13)
Excellent article. The cartoon as well as the cartoonist really gets some of the major issues about "Dual Agency" across to the viewer. This is a problem that exists not only in residential real estate but commercial real estate as well.
Does anyone know the cartoonist and whether there are other real estate "issues" that have been developed into cartoons by the same and how can they be purchased or contacted?
Having been victimized in 2005 by a "presumed buyers agent" who switched roles to become a sellers agent without my informed consent, I fully endorse Bill's criticism of this unconscionable and absurd practice of dual agency.
A skilled buyers agent working exclusively in his client's behalf can make a valuable contribution, not only by giving prudent advice on the accurate pricing of homes in a particular housing market, but also by recommending certain environmental inspections that could uncover hidden defects not ordinarily found in the course of a perfunctory home inspection.
Lastly, I would suggest that anyone who is interested in the role played by incompetent or undisclosed dual agency in the overvaluation of properties read about my lawsuit against the Weichert Company of Maryland by going to Google. I am but one of countless unwary consumers who have been shafted by unscrupulous or inept agents, appraisers, mortgage lenders, etc. over the past fifteen years, ever since dual agency and affiliated business arrangements were foisted on an unsuspecting public by the NAR lobby and its minions in state and federal government in the mid-1990s.
Howard,
Thanks for your kinds words. About a decade ago, The Real Estate Cafe hired a local illustrator to draw the cartoon above when real estate consumer advocates defeated the first designated dual agency legislation proposed in MA. Since then, we've allowed other sites to reuse the artwork to battle designated agency legislation in their own states, see example below:
http://realagency.org
This is one of a number of political cartoons we have poking fun at dual agency. Most of the others were created by another artist in New Hampshire and her husband, the founder of the New Hampshire Association of Buyer Agents nearly two decades ago. I would love to work with fellow real estate consumer advocates to reuse them in a public information campaign to expose the hypocrisy of dual agency and the failure of agency disclosure before the Spring housing market begins.
If you and other readers, both real estate professionals or consumers, would like to brainstorm about creating a viral consumer protection campaign, I'd be glad to set up a conference call. (Watch for link on http://Twitter.com/RealEstateCafe )
In the meantime, I invite you and others to comment on the Valentine's Day Cartoon Caption Contest first posted online five years ago!
http://bit.ly/VDayCaption1
Do you think dual agency / designated agency had been banned and "blind" bidding wars regulated, contributed to "irrational exuberance" during the housing bubble?
What are you and others think we can do to protect real estate consumers and raise awareness about agency issues, using social media or anything else?
PS. Feel free to email me at RealEstateCafe [at] gmail [dot] com to correspond about reusing the cartoons.
Interesting that dual agency is now being marketed as a "benefit" to consumers. When dual agency is presented as anything other than an insurmountable conflict of interest, the result is a "negative disclosure" or intentional misrepresentation (that's fraud). If there are brokers out there who take to heart that dual agency may have some marketing mileage, there are also many attorneys who feel such marketing ploys have class action mileage.
Dual agency doesn't save money, it doesn't increase efficiencies, and there are NO benefits to dual agency. Dual agency is a form of disclosed betrayal where the level of service is essentially degraded to an almost non-existent level. In fact, because consumers place so much reliance on the agency level services a Realtor provides, when the Realtor switches to a dual agency situation it is really a "bait and switch" situation. The Realtor abandons their client when they need them most - once they find the house that they want...
Attorneys receive far superior training on conflict management throughout their schooling and careers, then do Realtors yet dual agency is shunned in that profession. Exactly why do we tolerate dual agency from a profession that requires far less entry level standards with (by comparison) almost no training in conflict management?
Doug Miller, Executive Director
Consumer Advocates in American Real Estate
Great article. Dual agency is an incredible conflict of interest, legalized thought it may be by our lobbied politicians. I've written an article that puts the issue in perspective at
<P><A
href="http://www.sequim-real-estate-blog.com/exclusive-buyers-agent/dual-agency-still-a-huge-issue-in-real-estate/">Dual
Agency Super Conflict</A></P>
Excellent post and the cartoon illustrates "Dual Agency" effectively. Keep up the good post.
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