Dual Agency: Buyer Beware?

Q. After reading last week's column, "Open House Etiquette," I'd like to know more about what you think of the idea of dual agency, which you mention is illegal in some states. I'm old enough to remember the time when buyer's agents were rare, and real-estate deals still got done. What's changed?

--New York

A. Three decades ago, listing agents represented sellers and owed their loyalty to them. Any agent who brought a buyer to the deal became a subagent of the seller, who paid the commission. Buyers had no representation.

Several court cases in the 1980s began to unstack the deck against buyers by finding that agents created agency relationships with buyers by advising them and leading them to believe they represented them. The practice of subagency withered away, and disclosure rules were put into place.

At this point, agency began to become more complicated. Depending on what state laws allow, in any deal, an agent may now act as a single agent for either the buyer or seller; a transaction agent who simply facilitates the deal and owes neither loyalty nor fiduciary duty to either party; a designated agent, representing either the buyer or seller, but working in the same brokerage as the opposing party; or a dual agent, representing both buyer and seller equally without sharing confidential information, advising or negotiating for either. Some states also allow seller's agents to provide limited services, such as showing a house, to unrepresented buyers, without creating an agency relationship.

Of course, in most cases, it is better to have someone looking out for just your own interests than to pay someone simply to shepherd the deal through closing. And in general, I'd say that the current, somewhat confusing system is preferable to the older practice of subagency, because it allows for more flexibility. While dual agency can create conflicts of interest, it isn't a given; it can work out if the agent is scrupulously ethical and both sellers and buyers understand that the agent doesn't represent either party exclusively. Nor does every buyer want nor need representation. In fact, agents often agree to cut their commissions in dual-agency or unrepresented buyer situations because they don't have to split their commissions.

Some buyers who have a great deal of experience buying real estate prefer not to have representation because this gives them wiggle room in negotiating price. For instance, in response to last week's column, a Cincinnati lawyer emailed me that he had paid $510,000 for a four-bedroom house that had had an asking price of $549,000. He represented himself, and inserted a clause in the purchase agreement that the commission would not exceed 4%. By accepting this deal, the listing agent received more than he would have in a typical transaction, where a 6% commission is split evenly between the representatives of the buyer and seller. Meanwhile the seller, who paid the total commission, was able to lower the price of the home without netting any less. Since the seller told him he would not have accepted less than $520,000 without the lowered commission, the lawyer figured he had saved $10,000 in the transaction—and reported that everything went smoothly during escrow. "In the end, all of us were happy," he wrote.

Write to June Fletcher at fletcher.june@gmail.com.