REAL ESTATE DOLLARS AND SENSE

According to Wikipedia, a fiduciary is “a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons)”. For buyers, a fiduciary relationship is established when an agent and a buyer enter into a Buyer’s Representation Agreement, i.e. the contract used to hire an agent to represent a buyer in their home purchase. Similarly, for sellers, a fiduciary relationship is established when an agent and a seller enter into a Listing Agreement, i.e. the contract used to hire an agent to represent a seller in the sale of their home. In a dual representation situation, an agent has a fiduciary relationship with both the buyer and the seller in the same transaction. While legal in California, dual representation has been deemed illegal in nine other states for the simple reason that it is akin to a lawyer representing both the plaintiff and the defendant in the same case! Because of the fiduciary relationship established with both parties, a dual rep agent cannot legally provide any party in the transaction with any advantage over the other. Rather, agents are relegated to simply passing documents back and forth between the two parties without being able to utilize any of their negotiation skills for the benefit of either party – negotiation skills for which they were presumably hired (at least in part) to begin with!

In a listing agreement, the seller agrees to pay the listing broker (typically, a percentage of the sales price) for the services provided to market, negotiate, and ultimately sell the client’s property. After all parties have fully executed the listing agreement, the listing broker advertises the home in the Multiple Listing Service (MLS) and offers a cooperating broker commission to any broker that brings a ready, willing, and able buyer to successfully close escrow on the purchase of the home. In this way, the MLS is in fact a broker-to-broker contract wherein the listing broker agrees to pay a portion of their commission (paid by the seller) to a buyer’s broker for “bringing the buyer.” The amount offered (also typically a percentage of the sale price) is called the cooperating broker commission. At this point, you may be wondering what does the cooperating broker commission have to do with fiduciary relationships? Or perhaps you’re wondering if I am just delirious with fatigue as I write this issue of Real Estate Dollars and Sense at 1:44am! Possibly…but my fatigue notwithstanding, let me pose the following question – what happens to the cooperating broker commission in the event of a dual representation situation? Yep, you guessed it – since the listing broker is the only broker in the transaction, the listing broker keeps the entire commission and now has a fiduciary obligation to both the buyer and the seller, rendering his/her ability to negotiate on behalf of either party moot!

The thing to keep in mind here is that fiduciary relationships must be disclosed by law to both buyers and sellers in writing and acknowledged by all parties. Furthermore, buyers and sellers may not be coerced into accepting a fiduciary arrangement that they do not believe represents their best interests. The two most common ways for dual representation situations to develop are: (1) a listing agent (representing the seller) is approached by an unrepresented buyer to write up an offer on the listing, and (2) a buyer’s agent shows their client “a new listing they just signed”. It behooves both buyers and sellers to be on the lookout for these extremely common situations and approach them with a cautious eye. Now back to the original question posed at the start of this issue – do I “dual rep”? Absolutely not – earning an increased commission and not being able to utilize my arsenal of tools to fully represent and protect my clients is (in my opinion) the definition of unethical and for that reason, I won’t do it – period. Looking for a real estate professional who puts their money where their mouth is to represent your best interests? Give me a call.