Dual agency disclosures fail homebuyers

A look at some of the worst-offending states

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jul. 14, 2011

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A look at some of the worst-offending states

Steve Bergsman
Inman News™

Although some states ban the practice, called dual agency, in which the same real estate broker represents the buyer and seller in a real estate transaction, most states have settled for a kind of disclosure Band-Aid that doesn't work well for consumers.

It's a little like the warnings on cigarette packets about the dangers of tobacco that really don't make much difference to those who really want to smoke.

I'm told that more states used to ban dual agency, but real estate associations lobbied hard for the passage of regulations that permit this "double-ending" as it is also referred to, in some form. So what we have ended up with is a kind of cigarette packet of regulations: "Yes, you can have dual agency (or some variation of it), but here's your warning" -- which is most often ignored.

The way it now works in some states: An agent or broker has to reveal to the homebuyer the possible ways that the buyer will be represented, including dual agency. The buyer signs a disclosure statement and everyone pushes on.

The problem is -- and all real estate agents understand this -- when consumers find a house they want to buy, they become so emotionally involved in the purchase that they barely listen to the legalities because they are focused only on two things: price and purchase.

Besides, they may end up signing many disclosure documents, so no matter what the documents say, it all gets lost in the shuffle of papers.

"A consumer will do much more due diligence and much more research buying a car, which is 1/20 the value and guaranteed to depreciate compared to a property," said Tim Walters, a principal with The Home Buyers in Minneapolis. "They do much more research on car buying than on who will represent them in buying a home and what is the best way to purchase a house."

Secondly, even if a consumer does, perchance, look at the disclosure, the wording is often so obtuse it's really hard to discern the point being made.

Walters sent me the Minnesota disclosure, which begins: "Minnesota law requires that early in any relationship real estate brokers or salespersons discuss with consumers what type of agency representation or relationship they desire." I'm not sure how to interpret the meaning of "early," here, and the wording seems vague.

Walters said that in Minnesota disclosure is to be discussed at initial contact, though in practice that may not be the norm.

"The agency agreement is a legal-sized document of a page and a half and it is really remarkable how it is skimmed over," he said. "You don't go over it in detail, because it even says on the document that this is not a contract, just a disclosure."

In Arizona, N. Mark Kramoltz, an attorney and real estate broker, abhors dual agency, calling it a "fiction" invented by the real estate industry to double-dip, or win commission for both sides of a sale.

"This is the biggest purchase of people's (lives) and they deserve to have the best representation, the utmost loyalty and confidentiality, and dual agency automatically undercuts that," he said.

Kramoltz is not a fan of Arizona's disclosure form, which was created by the state Realtor association. "It says if there is going to be dual agency, then both the buyer and seller have to consent, but it doesn't mean informed consent -- only that they have to sign a document. The form gives weak notice that dual agency is not in the best interest of buyer and seller."

Kramoltz said many agents now represent themselves as buyer's agents, but will also take listings.

New Jersey requires disclosure at first significant contact, said Paul Howard of www.njhomebuyer.com and a member of the National Association of Exclusive Buyer Agents.

The big loophole in New Jersey is that brokers can advertise as being buyer's agents, but they work for large companies that have listings.

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