Economist Bill doesn't get it

I’ll provide several examples (real world examples) of ethics among Listing Agents. If Listing Agents are so ethical (you provided the legal links) then why do you write that some sellers are flattered by such agents and accept the inflated price. How is that ethical? Do you expect your friendly Attorney to flatter you to do something so that they can run up a large legal bill by taking a case they know they can’t win or provide a service they can’t possibly provide?

Agents who take over priced listings are weak as salespeople and also devious. Since you seem to be an honest Realtor, you must admit that if you don’t agree with an unrealistic price your seller wants their home listed for, or your competitor gave them an unrealistic price in order to get their listing, if you don’t play that game by going along with that price, you won’t get the listing 95 times out of 100.

Even if an agent knows she is taking an overpriced listing, she might be telling herself that when the home doesn't sell within a few weeks, she can persuade the seller to lower the price and then earn a commission when it sells. So she justifies her actions and accepts the listing. Except that studies show that interest in a home typically wanes after a few weeks, so there are fewer buyers for that home when the price falls. Buyers also think there is something wrong with a home that doesn't sell right away or they worry the seller dropped the price because a major defect was discovered. Price reductions hurt. They hurt the seller, and they often make a buyer wonder how much lower the price could drop. So, a buyer will often offer even less after a price reduction.

It is bad enough that Realtors use listings as a method of personal branding – personal marketing of themselves. Realtors should be advertizing the house and casting the widest possible net, but I mainly see is the Realtor’s name and face on everything relating to the property. From the signs in the yard, to the newspaper ads to the property brochures. Think of it like a giant billboard for the agent. If the home is located on a major thoroughfare, all the better. Probably thousands of drivers pass the sign each day and will see that agent's name. And after the sign post is in the ground, it's not costing that agent one thin dime to leave it there. Open houses are a wonderful method to attract buyers and since the odds are nearly zero that the home will sell to someone attending an open house, it is a great way to meet the public and market yourself.

Many listing brochures have more information about the Listing Agent (I’ve seen full resumes of the Agent attached to the Listing brochure) than about the home. So many pictures about the home on MLS are fuzzy and out of date, such as pictures taken in the Winter and it is now Spring or vice versa. You can bet that the picture of the Listing Agent is clear, unless they are trying to look 20 years younger! I’ve seen that a thousand times.

Seller’s are paying 5 or 6% commission, which often usually means tens or hundreds of thousands of dollars to sell a house, but they (usually unknowingly) are also subsidizing the personal marketing campaign for their Realtor. For that kind of money, how is it that so few homes have video tours, let alone photographs taken by a professional photographer? How about staging? Most people in the business know that a home which is staged will sell for more money and in less time, so how come most homes are not staged? Could it be that the Listing Agent doesn’t want to spend any of their own money, above and beyond the ads for personal branding? Normally it is the sellers who pay for staging, so how strong are the negotiation skills of their agent if they can’t get the seller to make any necessary repairs or pay for staging?

You can argue that the Listing Agent knows everything about the home they are representing and therefore, if a buyer or their agent were to call about the home, the Listing Agent could tell them all they needed to know, but that is not true. Realtors do not check permit records, land records or title records and don’t make any Express Warranties about any information they have or what the seller provides to them. If a buyer or their buyer’s agent asks a question of the property, the Listing Agent tells them to conduct their own due diligence. Most Realtors have been reduced to being more or less a facilitator of information – a go between.

It actually gets worse when a Listing Agent has many properties listed. My wife once asked a Listing Agent a very simple question about the home HVAC. The Agent actually said that she didn’t know, as she had over 20 listings, so it was difficult to keep all that information straight. She had a reputation among her fellow Realtors for taking any listing at any price (usually over priced or homes which didn’t sell by other agents in the past), but in the eyes of the public, all these listings showed activity and relentless personal branding campaigns by her, so she was able to dominate the town she worked in.

Good and timely topic for the Spring season. I would guess that since you are a buyer's agent, it must drive you crazy to see dual agency - the listing agent selling the home to the buyer who does not have his/her own representation or believes they don't need an advocate on their side. It is good that at least there is a form for everyone to sign off on dual agency, but in actual practice, the agent representing both sides of the transaction should worry about a future lawsuit, so it isn't worth it.

Dual agency is the fanciful idea that, at the same time that I am zealously and faithfully representing all of your interests as the seller, I can perform the exact same services for the buyer of your home. In fact, if I am acting as a dual agent - fully disclosed and consented to by both parties - I can’t provide zealous representation to either party. Instead, I become a facilitator and a messenger. I can’t advise one client in a way that would hurt the other. I owe the same, insanely limited duties to both parties.

This applies even if two different agents from the same brokerage are involved. The contracts are with the broker, not the agents. The broker represents both parties. The individual agents should act as facilitators. In reality, each will act as an advocate, actively betraying the interests of the broker’s other client.

So how much will the broker get paid for this farce of his fiduciary duties?

Double.

All of this predates the idea of buyer’s agency altogether. When brokers represented only the seller, the buyer was never represented. If the listing broker could scare up a buyer on his own, he didn’t have to split the sales commission with a cooperating broker.

Double-dipping isn’t very far from double-dealing, and this has always been the Achilles’ heel of the real estate industry. So, even now, when buyers have full representation, brokers are still trying to cling to this antique idea in order to cling to the double commissions. Eventually, dual agency will be outlawed. It’s unethical in principle, impossible in practice. Until then, you should deal only with brokerages with a firm and fast policy against dual agency.

Dear HStrauss,
You are still confusing ethics and law. The law is clear that undisclosed dual agency is illegal. Disclosed dual agency is allowed, with written consent. The manager in a designated agency firm (that’s a firm where the designated buyer’s agent works and the designated seller’s agent works, too) is a dual agent.
Ethics involve whether the agent is doing a good job, given the position that the agent is in. Are they behaving fairly and neutrally as a disclosed dual agent or favoring one side? Are they maintaining confidentiality as a designated buyer’s agent when their “partner” in the firm is representing the seller of the same house?
There are a small number of firms that refuse to practice dual or designated agency. Consumers need to know who they are doing business with by seeing the disclosure I wrote about. As Sam wrote last week, most consumers do not interview their agents or ask for references.
To answer Economist Bill,
You get it about what bad listing agents do. They over-price to get a listing. This is over-promising and under delivering; it’s common in many businesses. Illegal, maybe. Unethical, probably. Provable? No. They also use the home as a personal marketing tool. Once they get a reputation for being the “go-to” agent in town, they do a shoddy job of knowing the properties. Yep. There are agents who do all those things. If consumers really interviewed their agents and checked references, they could save themselves from many of these licensees.
To support the listing broker, I will disagree that all over-pricing is wrong. Pricing is subjective. I also hear consumers complain a blue streak about the agents who under-price a home. Consumers think that the agent is selling them short to make the sale go quickly and easily. Some honest agents just can’t win.

Are we talking about professional ethics, which are spelled out in a written document approved by the members of a professional association? Or are we talking about ethics as beliefs about right and wrong behavior shared broadly in a community?

Rona. I never said that undisclosed dual agency is legal and my position is that it is unethical for the reasons I mentioned. In a perfect world, if a buyer wants to buy a home from the listing agent, that agent should refer them out to a buyer’s agent, someone like yourself – and preferably an agent who works at another real estate firm. The listing agent should provide the names of at least 3 other buyer’s agents so that they can pick and choose the one they feel most comfortable with. The listing agent would receive a referral fee of at least 25 to 30% from the buyer’s agent, so she would still make more than their regular commission of 2.5 to 3%. She just wouldn’t receive the entire 5 or 6% commission.

I would guess that most listing agents wouldn’t want to give up the control of the sale to another agent, take a chance that this new buyer’s agent could have their own hidden agenda, in addition to losing out on receiving both ends of the total commission. Maybe you can provide examples where a listing agent referred a buyer to you, as he/she didn’t want to be put in the middle.

I agree that ethics are involved whenever an agent – or any other salesperson selling anything - is doing their job. However, agents should never put themselves in the position of acting as a King Solomon. I’ve been told that when the new concept of buyer’s agency was first proposed during the 1990’s, there was a lot of push back from real estate companies, as they didn’t want to see it practiced. They eventually relented, but they drew the line at dual agency, so their firm could still maximize their revenue to receive double the commission, even though they know it is unethical in principal and nearly impossible in practice. Money talks!

These broker/owners were used to the old way of having the listing agent and the buyer’s agent represent the seller, as the seller paid the commission – or so they said. I’m glad to see buyer’s agents, for in the not-so-long-ago days, if a buyer told his agent any personal information, such as their financial position or negotiating strategy, that information was passed along to the seller, placing the buyer at a clear disadvantage. That was clearly unethical and it was common practice for many years, as it is my position that it is the buyer who brings their money to make the sale go through and the seller marks up the price of the home to cover the total commission.

From what you wrote: Are they maintaining confidentiality as a designated buyer’s agent when their partner in the firm is representing the seller of the same house? My answer to this is that neither the seller nor the buyer would know for certain, 100%. A real estate broker/manager told me that in 2006, about 97% of all residential lawsuits in the U.S. revolve around 2 main issues – seller’s failure to properly disclose any and all defects about the home and the other is a listing agent representing both the seller and the buyer – dual agency.

He said these were NAR statistics that he pulled for a presentation he was giving for first time home buyers. If the NAR statistics he used aren’t correct, please let us know what the percentages are. Clearly, regardless of disclosure documents and buyers and sellers signing off on one agent representing both parties, this is a big issue for the real estate industry.

I am not going to speak for NAR, ever. I don't know what draws lawsuits, nationally. My understanding is that in Massachusetts whenever there has been testing on the relationship/agency disclosure, my peers have been found lacking. So, it wouldn’t surprise me if complaints about agency are up.
I was a buyer agent early in the development of buyer agency. There was push-back. Consumer preference prevailed. Thus, we have almost universal buyer agency now. However, most of it is in designated agency firms. Organizations like Massachusetts Association of Buyer’s Agents still oppose designated agency.

Economist Bill isn't the only one who doesn't get it. Many buyers, sellers, agents and brokers don't get it either because agency and ethics are confusing and since there have been changes over the years, there is still some "old thinking" on the subject on the part of consumers and agents A little history might help:
On July 1, 2005 buyer agency became almost universal in this state after a small number of brokers practiced it for years and made a large impact on consumer awareness and the agency's business. Overnight, listing agents could not get paid by bringing a buyer because "sub-agency" compensation disappeared between agencies due to the possibility of lawsuits over sub-agency, despite the fact that there was not one such suit on record in all of the years that sub-agency was practiced in this state. Many listing agents became buyer's agents at the stroke of midnight. On the same stroke, sellers that thought that all agents in their agency worked for them, should have realized that now only one agent worked for them while all other agents in the agency became buyers agents or dual agents, if the seller's consented to dual agency. IMO, agents became more significant to the process that agencies when that occured, particularly listing agents. Few sellers understand this today and most buyers don't take the time to learn.

There are those think that all real estate agents are "Realtors". WRONG!
"Realtors" are members of the NAR (National Association of Realtors). All agents at firms where the pricipal broker is a Realtor (virtually all franchises) must also join NAR and become Realtors, even if newly licensed. Not every broker or agent is an NAR member. The NAR is a trade association devoted to promoting their business and protecting their membership.

NAR has historically stood up for the rights of homeowners when it is also in NAR's best interest. Other times, NAR has promoted legislation that may have been more favorable to NAR than the consumer. Some feel that the dual agency legislation is a good example of that. (By the way, that legislation was never voted on by the legislators. As I recall, it was attached to a buget bill in the middle of the night. In a prior year, a similar legislation was voted down by legislators.) Always remember that NAR is the largest and most powerful trade association in the US. They are not a public service organization. Realtors, agents and agencies are not public servants even if you do get tons of free listings and info from them or don't have to pay if you don't complete a transaction.

It is clear from this blog and readers comments elsewhere that many consumers do not always understand what they want, need or are getting in a real estate transaction. Many agents are taught agency the way their firm practices it and do not really understand the nuances of dual, designated agency or other options. While the majority of agencies practice dual and designated agency, there are a handful that do not. They tend to be smaller boutique agencies, but then some smaller agencies also practice dual or designated agency. Are you totally confused now? The changes were made in 2005 to "simplify agency"!
Those changes were supposed to make consumers aware of the choices available in the agency relationships that they could have with their agents and their real estate agency AND to give the agents and agencies more options in dealing with clients and customers. Ultimately, agencies have their policies and consumers have their preferences. Buyers and sellers need to be clear on both so that they can match the two with good results.
Be aware that some agencies have modified the "agency disclosure form" that the state originally provided. FYI, the form that Rona links to is the one that was originally provided by the state.

A form of dual agency which has not been specifically addressed in the disclosure statutes is a broker’s presentation of offers on behalf of two different buyers. This can easily happen when a broker is showing the same property to two prospective buyers and both buyers want the broker to write an offer on the property.
The situation becomes even more complex if buyer A is in contract and buyer B makes a back-up offer. Buyer A’s position is almost certainly weakened and buyer A would have reason to claim that the real estate broker breached fiduciary duties and obligations by participating in the offer with Buyer B.
I’ve seen this above example happen several times, so when all is said and done, buyers should not have the listing agent represent them. However, there are many people who are new or relatively new to the United States and in their culture, it is standard practice when they are out to buy a home to only deal with the listing agent. They feel that the listing agent; who stands to make both sides of the commission; will cut their commission to get the buyers a better deal on the home.
As an American, I’ve purchased homes in both Asian and European countries when I had a corporate relocation and the method and norms of buying or selling a home is totally different than it is over here.

When one agent presents an offer that is in competition with another of their own client's offer,that is dual agency. That dual agency must be disclosed in writing. That could happen with two buyers making offers on the same house at the same time.
The listing agent of the house never represents the buyer. The seller is represented and the buyer is a customer, with no rights to advice. If the listing firm practices designated agency, then another agent in the office can be designated to represent the buyer.
Yes, this is confusing. That is why I advocate that every consumer choose their agent, check agent references, and make sure they are really represented before getting into a purchase or a sale. It is also why I practice real estate the way I do (No designated agency. No dual agency.)
This is not legal advice, this is my understanding of the agency law I am required to practice. You can ask a lawyer what they think of designated and dual agency.
.

Nothing wrong with dual agency as long as all parties are consenting. I bought a property that my agent was the listing agent for. I knew what the score was. He cut his commission in half to facilitate the deal which was very generous. I would have been happy with a slightly smaller reduction, but he felt it was the only ethical way for him to resolve the situation. Some agents are good. Their the one's you want.

As a real estate agent who has handled both sides of several transactions, I can tell you I work very hard to not compromise either the law or ethics. As a matter of fact, once such transaction involved a listing where my customer, the seller, was a judge. At the closing of the transaction, he stated to everyone in the room that he was extremely impressed at my handling of the sale and that I had earned every penny of the commission. Which on the sale of a 5 bedroom 5.5 bath home was not insubstantial. Both buyer and seller refer business to me and everyone is still happy with the transaction (4 years hence).