Please welcome AG’s newest writer, Patrick Flynn who has been a practicing real estate professional for 13 years and a Designated Broker for going on seven of those years. Patrick is a Certified Real Estate Instructor who has coached many agents in their business and joins us to talk about a variety of real estate topics, starting today with the divisive dual agency debate. Please welcome Patrick in the comments!
As a 13 year veteran of the real estate fray (7 of those as a Designated Broker), I’m always taken when I speak to a group of my peers about this highly charged subject. I can’t imagine there are many in our profession that will champion the questionable ethics of this practice, but the fact is that Dual Agency is still legal in Washington as in other States in the Union. I know this is an age old debate and it has been hashed out online and off, but there still seems to be a great deal of unrest about the issue AND many people new to real estate blogging haven’t fully considered the debate.
Not to put too fine a point on it, but what other commission based business in the world allows a single agent or Broker to represent two separate parties, both emotionally divided with separate agendas and needs? It just doesn’t happen anywhere else…except in real estate!
The two sides of the argument:
Since Dual Agency is legal, there will always be that sect that thinks it’s acceptable. So, I would submit to you, “Change my mind.” Offer me some logical explanation that Dual Agency is a tolerable practice in our industry. And, no I will no accept the answer, “Because we can make more money.” That’s the real problem with Dual Agency to begin with, isn’t it?
Dual Agency is the ultimate no win Scenario. Even if all parties agree in writing (and if you explained the likely pitfalls and risks to both parties…they never would agree) you simply cannot perform your prescribed duties of agency. Whether your state prescribes to a fiduciary or statutory list of responsibilities to a principle, you immediately violate both once you engage in an agency relationship with separate parties. You simply cannot perform… you can’t! And, when you make this arrangement contractual, you double your risk for lawsuits, forfeiture of your license and most certainly a quick exit out the door! Your prescribed duties, among others, are to be loyal to the seller or buyer by taking no action that is adverse or detrimental to the seller’s or buyer’s interest in a transaction; to timely disclose to the seller and buyer any conflicts of interest and (in a fiduciary agreement) put your client’s interests ahead of all others, including your own. How can you possibly do that ‘faithfully’ for two separate parties? Well…I’m listening!
If it’s so bad, why is still around?
MONEY! Plain and simple. In essence, Dual Agency is a hold over from the days before we had agency laws that protected buyers. I view Dual Agency sorta like your appendix, it no longer has any practical use but for whatever reason, we’ve not evolved enough to purge them from our DNA. And, both can kill you when they go bad!
Despite all the potential damage and irreparable harm that can be done to both your clients and you, every once in a great while, a Dual Agency transaction goes off without a hitch and all of the sudden, common sense and integrity are somehow replaced with that little devil on your shoulder that tells you, “Look at all the money you made!”
In my view, the real tragedy in a Dual Agency transaction is the fact that by supposedly offering to be faithful to both parties, you are withholding vital information if it at all conflicts with the others interests. In essence, stealing from them the one thing they need most…your skill, knowledge and most of all, your professional insight to help them make the best decision.
So, what should I do to avoid Dual Agency?
The first question I would ask as a buyer or seller is, “Do you practice dual agency?” As I said, this may be a mute point to many in our Union because their State has wisely outlawed Dual Agency. But, if you are unsure of your States laws, ASK! The ethical agents out there will avoid Dual Agency like the plague. So, common sense would dictate that if you get a sense of apprehension or evasiveness from your agent or they flat tell you they do practice Dual Agency…you may want to look for a new agent.
Dual Agency is a huge liability for many Brokers and fruitful grounds for lawsuits.
So what should you do? Stick to your guns and insist on working with only agents and Brokers who do not practice Dual Agency and will solemnly commit to referring any buyer to a cooperative Broker who wants to buy your listing and the same for any seller that might want to look at an offer from a buyer you already represent.
Hopefully, states will come around and abolish this archaic business practice but until that time, all I ask is that you only work with principled agents and Brokers that have the integrity to forego the lure of a big paycheck for proper practice of putting the client first!
The problem with a self-policing industry: you have to be a narc
Ethics violations in the real estate industry can make or break a Realtor’s career, depending on the severity, so it would stand to reason that all would be mindful of the rules, but there are always individuals in the field that act as if the Code of Ethics is irrelevant.
An animated discussion on ethics training
“Does anyone else find it ironic that NAR – the trade association for Realtors – has to mandate that members take an ethics class every four years?” An agent who attended one of my company’s broker opens yesterday posed that question to the wine and cheese grazing attendees. Of course, that opened up an animated discussion on the value of etchics training and the lack of enforcement when the rules are violated.
One agent volunteered that the guy sitting next to her in her last ethics class played games on his cell phone and then cheated during the test at the end of the class. Seriously, dude? You cannot even pay attention long enough to pass what should be the easiest test you’ll ever have to take in your career? Perhaps he was just seeing how far he could push it by cheating during an ethics test, to see if anyone else around him caught the extreme irony there. None of the other agents around him – including the agent he cheated off – turned him in and the instructor didn’t notice.
This same agent later called one of my sellers and tried to convince him to break a listing contract with me, because he had a “guaranteed buyer” in the wings. The seller was an attorney, and this bozo tried to get me cut out of the deal, offering the seller a reduced fee to dump me. The seller held firm and directed the agent to call me, then the seller called to let me know about the conversation.
“But you know if you file something the other agent will know.”
It gets better. After the deal closed, I requested paperwork from our local Board of Realtors to file an ethics complaint. The person in charge said, “But you know if you file something the other agent will know.” Gee. Really? I asked her to send the paperwork over anyway.
I called the seller/attorney and asked him to repeat the conversation to me, because I was documenting it to file a complaint. He turned wishy washy on me at that point and his story changed from “The other agent tried to get me to dump you as the listing agent to cut you out” to “Well he really only asked a few questions and I told him to call you. He probably didn’t mean any harm by it.” So there goes my star witness, who doesn’t want to rock the boat.
I didn’t file the complaint. I resorted to the “turn the blind eye but never trust the sleazeball again” path. And that is what happens to almost all ethics issues I hear about / see in person.
That’s what happens when you have a self-policing group of “professionals” who would rather not “narc” on a fellow agent. After all you’re probably going to end up on the other side of a deal from this guy some day, right? The guy in my example has sold two of my houses since that run-in. Why tick him off by filing a complaint and going through all that hassle? If he stops bringing buyers to my properties then my sellers ultimately lose, right?
Boiling down the CoE
The NAR Code of Ethics takes up pages and pages of tiny print, and it runs each year in their trade magazine (I think it’s the January issue). Does anybody read that? Probably not many. I’d argue none of us ever should have to read it again. Simply follow this advice instead. The thousands of words in the Code boil down to one thing: Do unto other agents, and consumers, and clients, what you would have them do unto you. It’s the Golden Rule. Simple. Well, obviously not, for many agents and brokers.
The sad part is the agent in my example had no clue how close I was to filing that compaint, and if he did know he’d probably scratch his head and wonder why his actions were “wrong.” Making us take a one-day class every few years won’t “make” the unethical agents suddenly operate ethically. Most of them just don’t get it.
Ethics hearings in private a disservice to consumers?
Fight Club and real estate
For those of you that saw the movie ‘Fight Club’ you’ll remember that Rule #1 is “You do not talk about fight club,” followed closely by Rule #2, “You DO NOT talk about fight club.” Which, believe it or not, brings me to today’s topic: The Real Estate Code of Ethics and Arbitration. Article 17 obligates Realtors to resolve
fights disputes with another Realtor through arbitration (not litigation). Arbitration is conducted at the local board level, and I am not aware of a local board that doesn’t require arbitration to be confidential.
I respect that public internecine warfare amongst Realtors isn’t in the interest of our industry, and doesn’t belong in the public spotlight. I’m not here to advocate the collective airing of our dirty laundry. That said, I wonder if our collective agreement to keep our concerns confidential can inadvertently harm the consumer and ultimately makes all of us look a little shoddier?
To find the first arbitration guidelines created by NAR and distributed as a set of suggested rules for boards to follow, we have to travel all the way back in time to 1929. NAR’s first Code of Ethics & Arbitration Manual wasn’t created until 1973, and it credited a 1965 California Association of Realtors version as its model.
I can think of two instances in the past year where I was so appalled by the conduct of a fellow Realtor that I went to the trouble to inquire about how to lodge a Code of Ethics complaint with my local board. After weighing the time required to make a competent complaint and comparing it with the best case outcome (a closed-to-the-public hearing in which they were found to have violated the code of ethics), I decided not to pursue a complaint in both cases. My association’s bylaws (and probably yours) give it the power to discipline any member based on the results of a Code of Ethics hearing, “provided that the discipline imposed is consistent with the discipline authorized by the Professional Standards Committee of the National Association of REALTORS® as set forth in the Code of Ethics and Arbitration Manual of the National Association.”
“Sanctioning Guidelines” – (Appendix VII of Part 4 of the 2011 manual for the very curious), guides member boards to impose disciplinary consequences that are progressive and fair, taking all considerations into account. Sample first-time disciplinary actions include suggestions of a letter of warning, a fine (amounts range from $200 to $5,000 depending on the severity of the violation), and attendance at relevant education sessions. Not to sound defeatist, but a confidential letter of warning and a fine of around $200 doesn’t seem like an outcome worth investing much of my time in.
Practicing in the internet era
Given that we live and work in the internet era, and review sites like Yelp abound, it seems a bit odd to me that a local board might know of an agent with problem behavior that is documented yet choose to make that information unavailable to consumers. My understanding is that the results of a code of ethics hearing are confidential with disclosure authorized in a few situations, none of which deal with informing the public.
Many of my fellow colleagues feel that the best response to a bad agent is to be patient and give them enough time to work themselves out of business. I can respect and understand their hands-off approach. But what about the damage that individual does to our industry as a whole? While we whisper, warn in confidence and know amongst ourselves how awful they are, the public doesn’t get the benefit of our perspective. Deprived of it, they turn to consumer review sites like Yelp.
How do you think we, as an industry, can help consumers in their quest to find a trustworthy agent?
Realtors, we really need to get over ourselves already
Real estate now vs. 1987
In Real Estate, some things are always changing, like financing, education, laws, rules and technology. The two that will always remain constant, as long as they are within the law, are following our clients’ directions, and working with their best interests in mind. I’m not sure we always follow through with this, though.
Some of us knowingly take over priced listings. Some of us take listings that are out of our area of expertise. Some of us won’t show short sales or REOs. Some of us won’t show homes with low co-op splits. Some of us don’t have Supra/e-Keys, and miss out on those listings entirely.
Putting our interests first
When these things occur we are putting our own interests first, not our clients’. We may think that by having as many listings as possible is a good thing, that’s what we’re taught after all, isn’t it? It may not matter that some are overpriced, eventually, whether one month or four months down the line, the price will be reduced. It’s just a matter of time and money, for our clients, after all. The same can be said when we take listings outside our area of expertise, just to add on to our inventory. If we don’t know what we’re doing, on a short sale listing, for example, it will only cost our clients a lot of time and money. A lot.
By eliminating certain houses our clients see, that may already fit their criteria, we’re taking away their choices. Distressed sales account for close to 40% of the market. This is probably higher in some local markets. There is no legitimate way to ignore roughly 1/3 of the homes being sold. Co-op fees are often a touchy subject, especially when they are, not “enough.” If everyone utilized a Buyer Broker Agreement that stipulated what their fee was, the issue would take care of itself. Not being able to access listings with the use of Supra/e-Keys is a choice. Choosing not purchase one will mean agents will not be able to access Fannie Mae (and eventually, probably additional Gov REO homes) along with the listings that are already using them.
Our priorities versus theirs
We totally need to get over ourselves already. We are not bigger than our clients. Our priorities are not more important than theirs when it comes to the actual listing and selling of homes.
Recently, my awesome parents dug through a few boxes and rounded up one of my first art projects. About 25 years ago I did the poster featured above about my Mom, and her Real Estate career. It was for an Open House (no pun, honest!!!) for the elementary school where I attended first grade. It was just, what she did according to me way back then. Things are way more complicated now, than when I was six. There’s a heck of a lot more paperwork for one. But the same basic principle still applies.
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