Could Your Broker Be a Double Agent?

Sitting at her kitchen table mulling two offers for her Dallas home, Joan Preston wanted some advice from her real-estate brokers.

But the brokers were double agents. The team she had hired was representing both her and one of the buyers, meaning they couldn't really advise her either.

"We would have liked to have said to them, 'If we raise then 10, what will happen?'" Ms. Preston said. "We could ask them questions, but they couldn't answer them."

Such an awkward relationship is becoming increasingly common in the home-selling business. As the latest mutation in real-estate representation, several states have legislated ground rules for this so-called dual agency and many of the nation's biggest real-estate firms now regularly practice it.

But consumer advocates say it cheats both buyers and sellers, denying them an agent's allegiance and undivided attention at a time when they're making a major financial decision. "You're either loyal or you're not. It's like being slightly pregnant," says Maureen F. Glasheen, former counsel to the New York secretary of state, who opposes dual agency.

Because clients receive less service when a firm represents both sides, many in the industry believe consumers ultimately will insist on reducing the commissions that real-estate agents are paid in those cases. Ms. Preston, for instance, got her agents to agree to pick up the $1,965 cost of her title insurance policy if their firm handled both sides of her home sale.

Dual agency evolved because of radical changes in home selling in the last decade. Once, all real-estate agents represented the seller -- though buyers often didn't know that tidbit until they were ready to make an offer. To address buyers' needs, a breed of brokers sprang up to represent buyers only.

That put large real-estate agencies in a bind. About a third of the time, agents from the same firm work with both the buyers and sellers of a house. If the big firms continued to pledge allegiance to sellers only, they risked losing the business of customers purchasing homes.

Their compromise: Many big firms say they will represent buyers in their search for a house and sellers in their quest to sell. But if the buyer's agent and the seller's agent come from the same firm, then the agents will act as intermediaries, rather than as advocates, for their clients.

Among other things, dual-agent situations means brokers can't tell clients how to best negotiate or pass on information that may be useful, but is confidential.

"If the seller says to us, 'I'm getting transferred, bring us any offer,' I can't disclose that to a possible buyer without written permission," says Maryann Taormina, a broker-owner of Century 21 Gold Key Realty in Riverdale, N.J.

In contrast, a buyer's broker who knows that the seller is being transferred is obligated to tell the client.

The emergence of dual agency is also changing how brokers talk to each other. At Coldwell Banker Stanmeyer Realtors in Chicago, sales meetings used to include discussion of the "hottest" seller and the "hottest" buyer. Now, says Side G. Woods, the firm's general manager, the agents "talk about the property, not the people."

Though some critics liken it to a law firm representing both the plaintiff and the defendant, dual agency is legal as long as it's disclosed, and most states now require agents to formally disclose early in the process whom they represent. Even so, there are pitfalls.

A group of customers sued Edina Realty Inc., a Minneapolis area firm with about 2,000 sales associates, in 1992, charging that it hadn't adequately disclosed dual-agent relationships. Though the firm denied the charges, it agreed last year to pay more than $14 million to thousands of customers who bought or sold homes when Edina agents represented both sides.

In response, Minnesota lawmakers have bettered defined what real-estate agents must tell customers, and about a dozen other states have passed legislation that makes dual agency easier. An Illinois law, for instance, allows a real-estate firm to designate one agent for the buyer and another for the seller, skirting altogether the fact that they work for the same firm.

Others take the opposite position. The Real Estate Board of New York, Inc., a Manhattan real-estate-industry group, recommends that firms listing a property represent only the seller in that transaction; they can represent buyers on properties listed with other real-estate brokerages.

Brokers on both sides predict more changes ahead. But, it won't be a law that changes the system, says Barry M. Miller, a consultant who was one of the nation's first buyer agents, "it's going to be the marketplace."

Source: The Wall Street Journal, September, 8, 1995, Karen Blumenthal