Who Is Your Real Estate Agent Working For – Part II?

In a previous article you found out just how easy it is to compromise your potential bargaining position without even knowing it! The lesson learned there was be careful with the information you volunteer with a real estate agent – until the nature of the relationship between the two of you is nailed down.

Just to refresh your memory, remember – the overriding duty of an ‘agent’ acting for a ‘principal’ is one of undivided loyalty, including the duty of full disclosure of all known facts that may affect or influence the principal’s decision.

Now, think about this:

1. In every arm’s length real estate transaction, the buyer and the seller have opposite and competing interests.

2. The seller’s agent is duty bound to follow the seller’s instructions: that means attempting to obtain the best ‘deal’ for the seller which usually means the highest selling price.

3. The buyer’s agent is duty bound to follow the buyer’s instructions: that means to obtain the best ‘deal’ for the buyer which usually means the lowest purchase price.

OK, by now you may be wondering how on earth one ‘agent’ could possibly act for two principals having competing interests in the outcome of the negotiation!

Limited Dual Agency Agreements

In Victoria and throughout British Columbia, real estate sales representatives routinely enter into ‘Limited Dual Agency Agreements’ with their ‘clients’. The ‘Agreement’ has three parties: the seller, the buyer and the real estate agency. Without the agreement of all three, no Limited Dual Agency can exist.

The object of a Limited Dual Agency Agreement is to permit the buyer and seller to share one real estate agency with respect to the purchase and sale of a particular property.

A standard form of agreement is used. It sets out in clear terms exactly how the agency’s duties are modified, and I won’t go into detail here. It’s sufficient to know that the effect of the Agreement is to significantly dilute the duties owed by the agency to each of the two principals with respect to an identified offer. In other words, it’s serious business, and not just another piece of paper that must be signed.

But when you think about it, you will realize that virtually every personal buying decision is driven by emotion, and buying a home is a prime example. Once you’re emotionally committed to offering to purchase a home, it’s very easy to regard the act of signing a Limited Dual Agency Agreement as simply another ‘formality’, more ‘red tape’.

And of course, once a seller knows an offer will be presented if the seller signs the Limited Dual Agency Agreement, do you think the seller is likely going to say ‘no, sorry’? Not very often! The Agreement will get signed.

All of this puts the onus on the individual real estate representative to ensure each and every principal, whether buyer or seller, is fully informed of the nature of a Limited Dual Agency situation.

How often does Limited Dual Agency arise? Well, it includes the classic ‘double ender’, which is the situation where one real estate representative lists a property and sells it too.

‘Double enders’ aren’t the only circumstance in which they arise. You see, when you sign an agreement to list your property for sale, your contract is with the real estate agency (Century 21, or ReMAX, etc), not with the individual sales representative sitting across from you at your kitchen table when you sign the agreement.

So what? Well, it means that if any real estate representative working for the agency with which you contracted brings you a buyer, you will likely be faced with a Limited Dual Agency situation.

But clearly, the ‘double ender’ is the most problematic of the two situations. Why? Because it goes to the very heart of the Limited Dual Agency Agreement. Under such an agreement, the agency’s duty of undivided loyalty is replaced by a duty to act with impartiality toward both the buyer and the seller. In a ‘double ender’ situation, the agency’s duties are vested in a lone real estate representative.

Can that lone representative act with total impartiality to buyer and seller?

That’s a decision that you, not your real estate representative, should make. Before signing a Limited Dual Agency Agreement in a ‘double ender’ situation, ask your real estate representative questions relating to his or her ability to act with impartiality toward both buyer and seller. Things like: what is the nature of his or her relationship with the other party; and how much business have they done together before?

Then, once you have made your inquiries, you can assess whether the real estate representative can be expected to act with impartiality.

Remember, it’s easier, and likely more cost effective, to resolve this issue before concluding a deal than to try to address it in a court room after the fact.