Why not use the listing agent to make your offer?
I get my most profound insights into human nature from watching America's Funniest Home Videos, and last week's episode showed me that we're more likely to get hurt the more we're trying to be cute. Hey lookit me! precedes many a trip to the emergency room.
I was reminded of this a few days later by Ken Harney's July 9, 2007 article, "NAR 'Legal Scan' Highlights Agency and RESPA Issues". "Legal Scan" is a National Association of Realtors® bi-annual study, not released to the general public, which identifies the top legal challenges facing real estate professionals. According to Harney, "the study involved analysis of 655 court cases, jury verdicts and settlement reports, plus a survey of a sample of active realty agents across the country".
Harney reports that "On dual agency [in which one brokerage and/or agent represents both buyer and seller], there are major problems, according to the participants: Agents do not understand what it means to be a dual agent—they continue to represent one party in the transaction, to the detriment of the other. One participant said 'dual agency, particularly single agent dual agency [in which the same agent as well as the same brokerage represents buyer and seller] remains a bullseye on our backs. It is a built-in lawsuit factor'".
Note the distinction between same-brokerage dual agency, with one brokerage representing both buyer and seller, and same-agent dual agency. Dual agency can be confusing, even to agents, but its potential drawbacks make it well worth understanding.
Same-brokerage dual agency with, say, Coldwell Banker representing both buyer and seller, occurs frequently in this area, especially in cities where one or two large brokerages have most of the agents and do most of the business. It's called dual agency because, according to the law, the "agent" is really the brokerage, in this case Coldwell Banker, and not the person driving the Mercedes who everyone calls the agent; the law calls her the "licensee".
How does same-brokerage dual agency happen in real life? Let's say a Coldwell Banker licensee shows his buyer another Coldwell Banker licensee's listing. This happens every day, of course. If his buyer makes an offer and the seller accepts it, there's dual agency, with Coldwell Banker the dual agent. Whether the Coldwell Banker licensee everyone except the law calls the buyer's agent understands the additional duties he now owes the seller, and whether the Coldwell Banker licensee everyone except the law calls the listing agent understands the additional duties she now owes the buyer, is unclear and even unlikely. One of the many ironies of the real estate industry is that its core concept, agency, especially as it pertains to dual agency, and especially as dual agency pertains to same-brokerage dual agency, is one of the least-explained and least-understood topics in the real estate industry.
Yet same-brokerage dual agency hasn't surfaced as a hot legal issue, at least not since the industry's finest legal minds responded to a lawsuit earlier this decade by crafting yet another disclosure. It's a non-issue, at legal update seminars and around brokerage water coolers, because even if buyer and seller are represented by different licensees from the same brokerage, they're still as well-represented as the competence of the two licensees allows. Why? Because most licensees involved in same-brokerage dual agency don't completely understand, or perhaps even partly understand, that they're involved in dual agency. So as far as they're concerned, nothing has changed. Each licensee slips easily into her customary role as advocate for "her" side, not realizing that her role is now more complicated. Usually this would be a short-cut to legal mayhem, yet the repercussions of same-brokerage dual agency seem minimal, perhaps because buyer and seller are far less likely to wake up one morning, weeks, months or years later, wondering if their agent was really their agent. No one goes to court claiming they were damaged, because same-brokerage dual agency as commonly practiced simply ignores the potentially compromising duties of dual agency.
But when the same licensee—the same person, who everyone except the law calls the listing agent—represents both seller and buyer (the "single agent dual agency" singled out above as "particularly" dangerous) this dramatically increases the likelihood that one or both parties will believe they got inadequate representation.
How does "single agent dual agency" come about? In one of three ways.
Critics of the real estate industry warn you of the agent (and from now on let's call licensees "agents", since everyone except the law does) who shows you only her own listings. Maybe this tactic works in low-cost low-demand markets where an agent needs fifty listings to make a living but, at least in this area, no agent has enough listings to pull this off without making her buyers suspicious, especially now that they have access to Web sites that show all the listings available.
Single agent dual agency also happens when buyers too skeptical of the industry to develop a relationship with an agent, or too unsophisticated to know they should, wander into an open house and fall in love. Listing agent is present and on the premises, looking fit for duty or at least fit enough. It's the convenience consumers want and will pay for, even if they don't know the real price they might end up paying.
Finally, single agent dual agency can happen when a buyer does have a relationship with an agent other than the listing agent but conveniently forgets it. Let's see what happens when Buyer and Listing Agent meet this way, paying particular attention to the tangled web they weave.
When Buyer jumps ship for Listing Agent, it’s that well-known strategy Looking Out For Number One, or “if you can’t beat ‘em, join ‘em”. Usually this strategy looks most compelling in a hotly competitive seller's market. Buyer, tired of losing houses to other buyers, decides that this time he'll stack the deck in his favor.
Hey lookit me!
Buyer surveys the situation and concludes that the best way to get the house of his dreams is to use the agent who "controls the listing", Listing Agent. Buyer figures that Listing Agent, tempted by the prospect of getting not just the listing side of the commission but also the selling side, is venal enough to persuade Seller to accept Buyer’s offer even if it’s not in Seller's best interest. After all, Seller trusts and likes Listing Agent and will do as he suggests.
Or Buyer figures that Listing Agent, after looking at every other buyer’s offer, will sit down with Buyer and write an offer that miraculously blows away the competition.
Or Buyer figures that Listing Agent will sweeten Buyer’s offer by cutting the commission Listing Agent is charging Seller. Seller takes a slightly lower offer but “wins” by paying a little less commission, so he nets the same amount for his house. Listing Agent wins by getting all of the reduced commission instead of half the full commission.
So it’s win-win, right? Maybe it’s even win-win-win-win. Seller sells house. Seller pays less commission. Listing Agent staggers away with bigger commission check. Buyer gets house. Nothing wrong with this scenario, right?
Maybe no, maybe yes. Legal in California and allowed by the Realtor’s Code of Ethics, the real-world ethics of "double-ending" have been, and always will be, questioned. You’ve probably picked up on the fact that double-ending holds the potential for insider maneuvering which can easily cross the line into genuine monkey business. Indeed, this may be Buyer's fondest hope hey lookit me! as long as the monkey business doesn't slop over on his side of the transaction. The appeal of this arrangement to Buyer is the unfair advantage he thinks he gains through Listing Agent’s relationship with Seller, and “unfair” is never a good thing to be seen standing next to when you’re in a transaction that legally requires the highest standard of conduct from an agent. Even double-ending at its most innocent may involve a certain amount of nudge-nudge-wink-wink between Buyer, Seller and Listing Agent, and some people think that any amount of nudge-nudge-wink-wink is unacceptable. And even if there is no monkey business, try telling that to the other agents and buyers who didn’t get the house. This is how bad reps are born.
So double-ending is a delicate maneuver for even the most rigorously ethical of agents. The problem is that Listing Agent may not be the greatest at protecting himself and his clients from legal risk—hey, he’s a salesperson, not necessarily a risk mitigation expert—even when the agency relationship isn't mined with ethical and legal challenges. And now his glasses fog up every time he calculates the commission check he’s getting. Seller, for her part, may not be aware of all the nuances involved in suddenly sharing “her” agent with Buyer. Ditto Buyer.
The underlying and, in my opinion, insurmountable problem with double-ending is that a real estate transaction involves two parties with mutually-conflicting goals. When Buyer uses Seller’s agent it’s a little like a husband agreeing to use his wife’s divorce attorney (which isn't allowed—which might tell you something—but work with me). Sure, maybe that attorney will be fair and unbiased. Maybe. But I’d hate to stake my financial future on it, knowing human nature and how people usually pick their professionals. Buyer or soon-to-be ex-spouse, in either case the advocate you're using has a pre-existing relationship with the other side, and it’s probably a fairly close one. It's unlikely that Seller picked Listing Agent out of the phonebook. Maybe Listing Agent helped Seller buy the house, or helped someone Seller knows buy or sell a house. Or Listing Agent is a friend, or a friend of a friend, or a member of Seller's church, synagogue, mosque, ashram or bowling league. Whatever the relationship, Listing Agent and Seller may well be plugged firmly into the same network, with dire social and financial as well as legal repercussions if Seller decides Listing Agent isn't acting like his best buddy. In this situation Buyer is more likely to find himself odd man out in a pas a deux instead of equal among equals in a ménage a trois.
Then consider that most real estate lawsuits are filed by buyers who think they’ve been damaged, either by the seller and/or by one or both agents. Let’s say Buyer moves in only to discover that the roof leaks like a sieve and apparently has for years. No one told him, or they told him it had been “fixed”. Here’s the kicker: Buyer immediately wonders just whose agent Listing Agent really was. After all, Listing Agent was awfully buddy-buddy with Seller; that was the “advantage” he seemed to offer Buyer. Now Buyer thinks maybe this "advantage" wasn't so much. From here it's not a stretch for Buyer to conclude that he’s the victim of an elaborate and cynical conspiracy involving Listing Agent and Seller. And at least in my state, Buyer isn’t the only one who’ll look at the evidence and decide he got the short end of the stick. Years of court dates and hundreds of thousands if not millions of dollars in legal fees later, Buyer may well "win".
I don’t double-end, partly because I don't see how it can be done, but mostly because I don’t want the odds stacked against me the minute a suit is filed, if it's filed. But almost every time I hold one of my listings open, a buyer will come up to me, eyes silently pleading please be my agent. Invariably this buyer will tell me they have no agent. And when I tell them I don’t double-end, but that I'd be happy to refer them to an excellent agent, invariably this buyer remembers son of a gun! I do have an agent. And invariably this agent is “just a friend” who’s undoubtedly been working with this buyer for months or years and would drive straight into the nearest bridge abutment if he overheard this conversation. Hey, with friends like that, who needs Tony Soprano hiding in the back seat of your car?
So, buyers, resist hey lookit me! And if you can't, then at least check out one of those neat plans that lets you prepay for discounted legal services.