Question: My Princeton college roommate is an attorney with an international law firm and came into town last week to look at $3 million to $4 million homes in Paradise Valley. I showed him my three listings within his price range, none of which he liked. I then showed him five listings of my deskmate in our office. My former roommate wanted to make an offer on one of those homes. He was concerned, however, that he hadn’t seen any other Paradise Valley homes listed by other brokerage firms. He jokingly said that his international law firm would never be able to represent both the buyer and the seller of the World Trade Center. He also said that he trusted me to represent him properly, but he didn’t know my deskmate, so he didn’t want to make an offer on that home. He said that he will be back in two weeks to look at Paradise Valley homes listed by other brokerage firms. Did I do anything wrong by showing him only the eight homes listed by our brokerage firm?
Answer: Only you know the answer to that question! From the moment your college roommate told you what type of home he wanted, you owed him a fiduciary obligation to show the best homes available, regardless of whether you or your deskmate had a listing on that home. In general, although most states allow dual agency by realtors, the law of dual agency will evolve because of the inherent conflict in dual agency — the seller wants the most money for the home, and the buyer wants to pay the least money for the home. Similar to the inherent conflict of a prosecutor wanting to put a person in jail, and the defense attorney wanting to keep the person out of jail. One person can’t do both! In other words, as one state Supreme Court stated, “Dual agency is a euphemism for conflict of interest!”
Why is there dual agency? As Cyndi Lauper sang years ago — "Money Changes Everything!" Recently, one Phoenix real estate brokerage firm had $20 million in annual commission earnings. Of that $20 million, there were $8 million, or 40%, “in-house” sales, i.e., commission earnings from representation of both the buyer and the seller. If dual agency was banned, most of that $8 million in commission earnings would disappear. In addition, any individual seller or buyer who believes a dual agent did not properly represent them likely can’t afford litigation for breach of fiduciary by the dual agent. Not only are legal costs expensive, but the insurance defense law firms representing the brokerage firm are instructed to delay. Eventually, however, they will ultimately settle to avoid published state Supreme Court decisions disapproving of dual agency.
This article originally appeared on Arizona Republic: Why real estate firms are allowed to represent buyers and sellers
