Real Estate

Will dual agency become common after the NAR settlement?

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Two decades ago when Teresa Boardman was just starting out in real estate, a young man walked into an open house she was holding. The man liked the property, but didn’t have an agent of his own, so Boardman stepped in and became a dual agent for the transaction. It was the kind of situation that the agents in his office celebrated.

But things did not go well.

Teresa Boardman

“Ten days after closing, they tried to return the house,” Boardman recalled recently. “The buyer’s mother called and said I pressured her into buying it.”

Boardman — today a broker-owner of an organic real estate company in Minnesota — made a few other similar transactions over the decades that followed. But overall, this early experience captures why she’s not a fan of what’s called dual agency, a situation in which one real estate professional represents both sides of a transaction.

“I pretty much avoid dual agency,” she told Inman. “The agents who work for me do, too. It just doesn’t look good.”

Boardman’s sentiments about dual agency are not unusual. At real estate events, in news article comments sections and on agent forums, industry members often voice concerns about the practice, colloquially known as “double ending.” During his call with Inman, Boardman summed up a broad sentiment: “There’s just too much responsibility.”

However, dual agency is also receiving more attention recently thanks to the settlement of the National Association of Realtors’ historic commission lawsuit. The settlement has sparked widespread speculation that the real estate industry is on the brink of significant change, and some believe the change could involve dual agency.

In response, Inman reached out to industry leaders and experts across the U.S. to find out what might be next for dual agency. It is worth noting that one takeaway from these discussions is that there is little consensus on the impact of the Commission’s settlement.

However, many industry members indicated that situations creating dual agency may become more common in the future. And if that future unfolds, agents may have to develop a way of working in response.

Dual agency may be more common.

So why are people talking about dual agency now?

The answer has to do with the principles NAR developed for the new settlement regarding the commission. Among other things, the organization determined that sellers’ agents will no longer be allowed to offer compensation to buyers’ agents within their realtor-affiliated multiple listing service. Sellers’ agents can still pay buyers’ agents, but unlike today, this compensation offer cannot be entered into the MLS.

Additionally, NAR mandates that buyers will be required to sign contracts with their agents before visiting homes.

The rules — which are set to go into effect in August — have led some to speculate that sellers and their agents may stop offering compensation as part of the deal, with buyers paying out-of-pocket instead of agents. Forced to give up.

In other words, the theory is that more underrepresented buyers can come to the table. And, to take this thought experiment a step further, if buyers start coming in without agents, seller’s brokers may find themselves in exactly the same situation that Boardman described above: their own. Want to close a deal for the client, and therefore accept both. Sides of the transaction

There are a lot of ifs involved in this scenario, and the new NAR rules don’t require it to become a reality. This is just one possible configuration. But many people who spoke to Inman for this story think there will be more unrepresented buyers in a post-settlement world.

Laurie Weston Davis

“I think there will be a lot of buyers who show up without a buyer’s agent,” said Laurie Weston-Davis, North Carolina-based broker-owner of BHGRE Lifestyle Property Partners.

“Absolutely,” Boardman replied when asked if there would be more unrepresented buyers after the NAR settlement.

“Do we think more buyers will go it alone? The answer is probably yes,” Teresa Kinney, CEO of the Miami Association of Realtors, told Inman.

The data shows that such behavior can be widespread. Citing data from a Redfin survey, a recent report from financial firm Keefe, Bruyette & Woods noted that 71 percent of agents believe fewer homebuyers would hire a broker if they had to pay that broker out of pocket. Need to pay. Only 14 percent thought buyers would hire brokers at the same rate they do today if the burden of paying for representation shifted to buyers.

Adding further pressure to the situation is the US Department of Justice, which has signaled that it wants commissions to be “double-bundled” — that is, it doesn’t want sellers and their agents to pay commissions to the buyer’s broker. It remains to be seen how proactive the DOJ can be, but if the agency gets its wish, it could provide more incentive for future homebuyers to avoid agents.

Either way, one potential settlement-motivated change from today’s status quo is that there would be more unrepresented buyers, which could result in more dual agency.

Challenges of double elimination

Not everyone Inman spoke with for this story thought the dual agency would explode in the near future. But almost everyone agreed that, whatever the case, the concept is fraught with challenges.

Kendall Bonner

Kendall Bonner—an attorney, team leader and newly appointed vice president of industry relations at eXp Realty—points out that many sellers choose their agents from their friends. Those relationships can run deep and span years or decades, which is great for sellers. But what happens, Bonner wondered, when a buyer asks that agent to represent both sides of the deal?

“Do you feel comfortable giving the same level of obedience and privacy and loyalty to a friend on the one hand and a stranger on the other?” He expressed surprise that agents cite fictitious duties for their clients in their home state of Florida. “Breach of those fiduciary duties can have significant consequences. It can lead to litigation. It can lead to bad faith.”

Several other people Inman spoke to also indicated that legal problems could arise in dual agency cases. As many industry members put it in conversations with Inman, the problem is that sellers want top dollar but buyers want a bargain — creating an inherent conflict of interest.

Scott Breidenbach

“I think basically one disadvantage, is it opens the door to possibly trying to do something that maybe we shouldn’t be doing,” said Scott Breidenbach, co-owner of North Dakota-based Beyond Realty and president of the association. Real Estate License Law Officials (ARELLO) told Inman. “So, there could be some unethical behavior because there’s money at stake. I’m not saying it happens, but the potential is there.

For his part, Breidenbach doesn’t think dual agency will become more common in the future.

Summer Goralik, a real estate compliance consultant and former California Department of Real Estate investigator, also stressed that these concerns are not idle. While working for the state, he repeatedly saw agents get into trouble through dual agency situations. He has also spoken to lawyers where “half the cases on their desks involve breach of fiduciary duty because it has to do with dual agency.”

Summer Gorlik

“For those brokers in California, those brokers who engage in dual agency and allow their agents to engage in dual agency, you’ve maximized the risk,” he added.

The challenges can be even more exotic. For example, imagine a dual agent facing a bidding war. What if that agent is representing a seller who wants the best price, and also a buyer who doesn’t have the most competitive offer? The challenges, and trials, just get bigger and bigger.

Where dual agency is legal.

The United States follows different rules when it comes to dual agency. According to ARELLO, most states allow dual agency, although it requires the parties involved to sign a written agreement. A handful of states allow dual agency without a contract.

A total of nine states prohibit dual agency. The first to do so was Texas, in 1993, and the most recent was Maryland, in 2016, according to ARELLO.

Credit: ARELLO

However, the legal landscape is complex. Both Bonner and Miami Association of Realtors chief legal counsel Evan Wyatt de Leon pointed out that Florida, for example, has a modified version of the concept that allows agents to handle both sides of the transaction while they They impose restrictions on what they can do.

Between the minefield of liability and the complexity of the laws, there’s a lot involved. But the point is relatively straightforward: dual agency remains a niche practice for a reason. It’s fraught with challenges, and not always legal, which means some evolution may be in order.

How can dual agency develop?

The answer to how to deal with unrepresented buyers was shared by industry members who spoke with Inman. But Weston-Davis speculates that listing agents can usually include concept approval in their contracts. For example, he said, in the post-settlement world, an agreement might set one level of compensation for the listing agent if the buyer has a broker, another if the buyer is unrepresented, and another. Yet if the listing agent terminates the dual contract. .

There’s no reason why such an agreement shouldn’t exist today, but in a world where the vast majority of buyers have agents, and where sellers typically offer commissions to buyers’ brokers, it’s unlikely. Any need.

Another possibility that Boardman discussed is listing brokers who end up as unofficial double agents.

“I really think we’re going to see it,” he added.

Several industry members emphasized that in such a scenario, listing agents would only represent the interests of their sellers, and would have no obligation to connect buyers with inspectors. But it’s also possible that, given the likelihood of an agreement being reached or not, they may have no choice but to maintain the flow of documents in a way that would not be necessary on a more traditional agreement.

Future deals may be more work or more profitable for listing agents.

It’s also possible that listing agents can make more money. Sean Frank, founder and CEO of Florida’s Mainframe Real Estate, summed up a broad sentiment among those who spoke for the piece: “I don’t think you’ll find a listing agent that does it for free. It works both ways.”

“The seller will probably pay more on both sides,” Frank added.

The future is unwritten.

Almost everyone Inman spoke with had a different vision of what the future would look like. For example, Frank said he doesn’t think “change is going to happen as much as people think change is going to happen.” And he noted that, at least so far, he “hasn’t seen a listing agreement that isn’t compensating the buyer’s agent.”

Weston Davis, on the other hand, said the commission’s lawsuits “are going to be a bigger change than a lot of people think.”

Other members of the industry fell somewhere between these two views, and the opinions are important because they highlight just how uncharted these waters are. But a recurring theme in discussions of this story was that agents must at least prepare for a new world.

“I think the danger,” Gorlik, the investigator-turned-consultant, said, “is that nothing is going to change the mindset.”

Email Jim Dalrymple II.

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