One of the fundamental legal concepts in real estate relationships is the concept of “Agency”. In Sonoma County licensed real estate agents are governed by the California laws of agency which require that an agent has a fiduciary responsibility to their client. A fiduciary responsibility is far-above the normal ethical requirement that the agent must act “honestly and fairly”. A fiduciary responsibility requires that every action the agent performs must be in the best interest of their client. It goes so far as to require that even if a particular course of action is NOT advantageous for the agent, but IS in the best interests of their client, the agent must act for the benefit of the client. With all parties other than the client, the agent is only required to act honestly and fairly, but NOT NECESSAIRLY in that person's best interest. There are basically three types of agency relationships that occur while selling a home in Santa Rosa and the surrounding area.
Let’s assume that you hire a real estate listing agent to sell your property in Santa Rosa or Windsor. During one of the open houses, a buyer decides to make an offer and the buyer is NOT represented by another agent. At this point there are three possible ways your listing agent can work with that buyer;
I will start by talking about Dual Agency and then cover the remaining two types later.
Let’s start with the real Devil; Dual-Agency. Dual agency in real estate is when the real estate agent represents both the seller and buyer of a given property. With this agency the real estate agent is required by law to act in the best interests of the client. The problem with dual agency, of course, is that the “client” is both the seller and the buyer, each of whom often have very different “best interests” regarding the property. For example, the seller wants the highest sales price, the buyer wants the lowest. The buyer may not want the seller to know details of their financing arrangements, while the seller certainly wants this information to judge the buyer’s ability. The seller would prefer that "minor issues" about the property do not become a problem; the buyer is very picky and wants to know absolutely every detail about the property before buying. The list goes on and on and in each of these scenarios, the real estate agent is required to act in the best interests of BOTH seller and Buyer. The agent is forbidden BY LAW to favor one client over the other.
One of the biggest misconceptions about Dual Agency is when this “fiduciary relationship” is created. For example; suppose your listing agent works for a large real estate brokerage and another agent within that same brokerage brings a buyer client to you, that is Dual Agency. It does not matter that YOUR agent and the Buyer have never met, and maybe never even talk to each other, your agent is still required to provide a fiduciary responsibility to the buyer. The instant that the Dual Agency relationship is created, your agent is immediately limited in what they can do for you, or tell you as a result of their fiduciary responsibility to the buyer. Yes, that is right…to the BUYER. Many licensed agents I have spoken to don’t quite understand this and as a result Dual Agency is an easy way for a disgruntled client to open a law suit. It is really a big mess.
The question in dual agency, is not whether it is "possible" for an agent to be fair in acting for both parties best interest, because in some situations this is certainly possible. The real question is whether dual-agency serves the best interests of both buyer and seller better than if each client had their OWN real estate agent (separate agency). I have not read or heard a convincing argument that leads me to believe that this is true. Some agents in Sonoma County prefer dual agency in part because it means they make more money. However, considering that some percentage of real estate agents are ignorant, untrained, or just plain unethical, in my opinion dual-agency is a ripe opportunity for these individuals to prosper at the expense of the Buyer, Seller or both in a Dual Agency relationship. Not only does the client suffer, but so does the real estate profession.
Dual agency is such a bad idea that it has been outlawed in other states; yet it is still legal in California. However, while it is still legal, even the California Department of Real Estate has stated that “…dual agency arrangements present an increased risk of liability and/or discipline to the licensee” (“The Perils of Dual Agency”; CA Department of Real Estate Bulletin, Fall 2007). Dual agency is a dinosaur that should be dead, but is still lurking in the bushes and if you are not careful, it can dramatically impact the sale of your house.
You don’t want an agent that finds a “happy middle ground” for both buyer and seller; you want an agent that gets the best deal for YOU. You want to come out ahead. What you REALLY want your agent to do is work hard to ethically and legally find out as much information about the Buyer’s side of the transaction as possible, and share this information with you. Some of the Buyer’s information you want to know would be illegal or unethical for a dual agent to disclose, yet would be the DUTY of your own agent to inform you. In my opinion, at different points in a dual agency transaction both sides get ripped-off. Dual Agency is just as crazy as having the same lawyer represent both the defendant and the plaintiff in the same lawsuit. You'll never see that on “Law and Order”!!!
Some real estate listing agents love dual agency because this means they get paid more. Some agents (myself included) will not enter into a dual agency relationship if at all possible. When I am the listing agent I will suggest that the unrepresented buyer get an agent to help them through the deal even though this means I am giving-up part of the commission. My personal reason for this is because I feel that dual agency prohibits my ability to aggressively represent my client. I want my client to call me the next time they need an agent and the better job I do for them today, the better chance they will call.
Single agency for the buyer is a bad thing, but for the seller of real estate, in my opinion, single agency is better than dual agency. This is because in single agency, if there is a conflict between the best interests of the buyer and the seller the listing agent is required by law to act in the best interests of the seller. This of course assumes that you and your agent have a clear understanding of your “best interests”.
What I don’t like about single agency (from the sellers perspective) is that it is sort of a law-suit magnet. California courts always seem to be looking out for the “little guy” and in this case, the person without the benefit of professional guidance is the little guy. In my opinion, it is far better to tell the little guy (the Buyer) to go get his own agent (one who carries E&O insurance) and then let him sue his own agent if he isn’t happy with the transaction later. The comfort from having another insurance policy standing between you and the buyer is worth quite a lot in our law-suit-happy society.
Another problem when selling to a Buyer without an agent is that in most cases the Buyer is not an expert in real estate transactions and they tend to create far more problems for you, the seller, than buyers with a real estate agent do. The only good thing about single agency is that at least you are not "sharing" your agent with the other person, and thereby handicapping your agent’s performance.
Separate Agency is where the concept of a buyers-agent comes into play. In my opinion, this is the best scenario for both the seller and the buyer. Both sides of the transaction get their own agent and get fair representation to boot. The buyer benefits primarily because they now have a professional looking out for their best interests and helping guide them through the real estate transaction. The seller benefits not only for the reasons stated above in “single agency”, but also because if the buyer's agent is doing their job, they are constantly educating their client about every detail in the real estate transaction.
For the Seller, this means that if you accept an offer from a buyer with their own agent, there is much less chance that the buyer will freak-out over a misunderstanding or from lack of experience and dump the escrow, or make unreasonable demands simply because they don't know any better. The buyer's agent will also be constantly monitoring the paper flow and deadlines required for the transaction and helping their client to stay in conformance with the agreement. This results in a lower cost to sell and a faster and more hassle-free escrow process. For information on how to select a great real estate agent in the Santa Rosa or Windsor area, read the article “How to select a listing agent”.
The point to this article is NOT that you "have to have an agent", but rather how imperative it is that you understand the loyalties and legal requirements of agency, and whose interests are truly represented.