Does Zillow promote dual agency and anti-consumerism? Some say yes, others say no

Sometimes our best friends think they are doing us a favor when they should do their homework first. Case in point, the flap over Morgan Stanley’s recent report to investors on Zillow that implies the search giant has an anti-consumer slant in their advertising platform that is said to promote dual agency.

Before we dig into the study and responses it has drummed up, let’s get up to date on the sticky dual agency issue.

How dual agency works

Every newbie learns in real estate school that dual agency relationships can be toxic because 1) in some states they are outright illegal, and 2) in the remaining states, disclosure rules are complicated and vary significantly. For example, some require written disclosure forms be signed by all parties. Others require disclosure forms be attached to the sales contract. Further, some brokerages have policies on dual agency, others do not.

The lure of bringing home a double-ended commission is very real and there’s no doubt, especially in these times of rampant pocket listings, that some agents and brokers play with fire for the big pay day. The payoff, however, pales quickly when the slightest oversight in carrying out one’s fiduciary duty can lead to failure to disclose one party or the other, the result can be very nasty lawsuit or even loss of license.

Examples of dual agency lawsuits:

For example, two years ago, a top agent at Sotheby’s New York was sued after a seller alleged that he had breached their exclusive sale contract for his Manhattan apartment by clandestinely working with a prospective purchaser, effectively lowering the sale value of the home.

The case led to a New York State investigation last year that implicated the CEO of Sotheby’s.

Or, consider the Ohio agent last year who decided to go dual in violation of her own company’s policy and ended up being personally liable for failing to fully disclose all of a property’s defects to the buyer, even though the seller provided them to her in writing. It cost her $216,337 plus legal fees.

Then, there was there was the Mississippi case where a broker acting as a dual agent failed to tell the buyers that the house had suffered $35,000 worth of termite damage. The case resulted in suits and counter suits and went all the way to the state Court of Appeals, where the broker lost.

Does dual agency hurt home values?

Years ago, NAR estimated that nearly one-quarter of all lawsuits filed where real estate licensees are named as defendants involve “agency” disputes. Clearly, dual agency is as big an issue today as it was decades ago. Moreover, there’s evidence that dual agency is a bad deal for the seller.

A study published two years ago by the Journal for Real Estate Research found that dual-agency sales that occur in the first 30 days of the listing contract sell for roughly an 18% premium because agents may be able to more efficiently match the property with the right buyer if they search within their own network.

But sales during the last 30 days of the listing contract sell for roughly a 6% discount, or $9,300 less.

Overall, a dual-agency representation reduces sale prices by about 1.7%, according to the study.

Now, on to Zillow and dual agency

Enter Morgan Stanley’s research arm, Alphawise, with a September 10 report. “Our Alphawise study suggests that Zillow is enabling agents to increase their number of dual agency transactions… The key implication is that dual agency transactions offer lucrative economics, and by driving an increase in these transactions, Zillow is strongly reinforcing the return on investment (ROI) proposition for agents who successfully advertise with the platform.

“Our Alphawise study finds that for +60% of Zillow premier agents, advertising on Zillow enabled them to increase their number of dual agency transactions and specifically drove a ~30% increase in these transactions.”

Zillow’s advertisements are leading to a 60 percent increase in dual agency deals?

NAEBA implies a lack of loyalty to consumers

The report did not sit well with the National Association of Exclusive Buyer Agents, a sworn enemy of dual agency. “While that may be great news for the agents who get twice the pay for the same transaction, it’s not great news for consumers,” said NAEBA in a statement.

“Real estate buyers deserve to have someone on their side throughout the transaction,” says Chris Whitehead, NAEBA President. “Settling on a Zillow Premier Agent who is unlikely to be loyal only to them is not in the consumer’s best interest.”

Counter: Zillow isn’t forcing this

Countered Trey Garrison on Housing Wire:

“Keeping in mind dual agency isn’t even legal in a lot of markets — and let’s be frank, as long as there has been real estate there has been dual agency, so that’s nothing new — the Zillow approach to consumers is not to force any agent on consumers. So it’s not quite as black and white when the premiere agent, the agent and the buying agent are all three accessible on free listings.”

Garrison adds, “I’m not sticking up for Zillow or the study, but you can check that for yourself. And I’m not saying Morgan Stanley doesn’t have a point in some circumstances, but it’s just not as blanket as NAEBA makes it sound.”

Morgan Stanley pushed the big red button

Even though the Morgan Stanley Institutional Fund Inc. has owned a chunk of Zillow for years, since it just initiated coverage of Zillow on July 14, it’s understandable the folks at Morgan Stanley’s research shop probably didn’t have the faintest idea that they were pushing one of real estate’s hottest hot buttons.

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