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A
Single vs. Dual Agency Representation
An Insider's View
of a Real EstateTransaction
retirement-aged couple
came to my of...
----
has no other representation, and
it does not guarantee better terms
for either party.
The negative financial impact
t...
better control over the transaction
parties, less politics, and it is
more expedient.
INDUSTRY VIEWS
Unfortunately,the tra...
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An Insider's View of a Real Estate Transaction- Single vs Dual Agency Representation

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Thrilled and humbled to have been asked to share my views on Single Agency Representation for real estate clients for the San Luis Obispo County Bar Bulletin! Davies Company Real Estate has been committed to this client advocacy for over 40 years, and will happily never change.

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An Insider's View of a Real Estate Transaction- Single vs Dual Agency Representation

  1. 1. A Single vs. Dual Agency Representation An Insider's View of a Real EstateTransaction retirement-aged couple came to my office for a first meeting, a recent referral from a repeat client. I asked: "What is most important to you about this real estatetransaction?" They responded: "Wewant an experienced and educated advocate." In my experience, this is what every client truly wants. Akin to those in the practice of law, I am often in the position of meeting a prospective client at a critical decision-making point in life. Real estate transactions nearly always involve changes: changes in finances, family size, marriages, employment, location, tax needs, and even court-mandated matters. All clients need loyal advocacy. SINGLE AND DUALAGENCY There are two main types of agency representation in real estate transactions: single agency and dual agency. In single agency, the buyer and seller each have their own separate real estate licensee from separately owned brokerages representing their interests. Dual agency occurs when the same brokerage represents both the buyer and seller. This can be with either one agent or two different agents within the same company. (Although real estate professionals are referred toas brokers,REALTORS®, licensees, andagents,for purposes of thisarticleIwilluse'agent.') For consumers and agents, selecting single agency has positive legal, financial, and emotional impacts. My position is that only single agency is consis­ tent with an agent's fiduciary duty and avoids conflicts of interest. In contrast, dual agency may not be beneficial to buyers or sellers and is in conflict with fiduciary responsibility. WHAT ARE THE IMPACTS OF SINGLEAND DUALAGENCY? In practice, there is no effective way an agent can represent both a buyer and asellerinthesametransaction. Itcompares to oneattorney representing both a plaintiff and a defendant in the same trial. In client representation, agents have a fiduciary duty in each transaction. Per the California Association of REALTORS® required purchase contract form on agency (CAR Form AD), buyers and sellers are advised that each party is owed a "fiduciary duty of utmost care, integrity, honesty, and loyalty...." The form also includes Civil Code Sections 2079.13-2079.24, referencing agency. A confident and well-repre­ sented single-agency client is less likely to engage in legal action by Dawna Davies PhotocourtesyofClaraVanherweg against their real estate agent or other transaction parties. The CAR Form AD states, "When you enter into a discussion with a real estate agent regarding a real estate transaction, you should from the outset understand what type of agency relationship or representation you wish to have with the agent in the transaction." Unfortunately,inpractice, consumers usually find them­ selves in dual agency transactions. They do not have an opportunity to opt out of the agency arrange­ ment or enough information to understand the difference. FINANCIAL IMPLICATIONS Financial implications of dual agency are significant, and often only benefit the real estate agent. A common mistake that buyers and sellers make is that they assume that if they represent themselves or have a dual agent, they will get a 'better deal.' In dual agency,the real estate agent makes twice as much when the buyer continued onpage 24 SLO County Bar Bulletin www.slobar.org January-February 2016 23
  2. 2. ---- has no other representation, and it does not guarantee better terms for either party. The negative financial impact to sellers has been researched and documented. In a Wall S treet Journal report from 2014 and in an article from Redfin from 2012, sellers who engage in dual agency net 1.6-1.7percent less than their list price at the closed sale. Some buyers think they can save money by working with an agent who represents both sides. They may not be aware that in traditional real estate transactions, the commission is usually paid by the seller to their agent, who splits their commission with the buyer 's agent, through the Multiple Listing Service membership agreement with co-brokers. Therefore, no matter who repre- sents them, usually the buyer does not pay a commission. EMOTIONAL IMPLICATIONS There is emotional impact with single agency and dual agency. Single agency, from the outset of a client relationship, preserves the confidence of a client. After explanation, every prospective buyer or seller I have explained this to understands that dual agency is a conflict of interest. Many are surprised that this kind of representation is allowed. Clients have come to me after having experienced serious frustration with representation in past dual-agency transactions with other agents. With few exceptions, they felt abandoned by their agent and ultimately had to advocate for themselves. This has led to broken trust and confidence. Real estate agents often avoid the discussion of agency and, instead, influence clients to choose them as an agent or to accept their client's offer due to filial or friendship loyalty, agent's personal financial need for a paycheck, or other emotional reasons. Consumers are not usually informed that when parties have signed a real estate contract for purchase, even before it is accepted, the agency relationships are confirmed and cannot be changed. Self-advocacy is exhausting when one is not experienced with real estate. Consumers cannot personally keep up with the industry changes, unless they buy or sell about every two years. At my count, there are 180 different agreements in a typical real estate purchase contract, with more than 30 pages of fine print. SINGLE AGENCY BACKGROUND The term "single agency" was advanced and taught in classes by William Broadbent in the 1970s. Mr. Broadbent was a local San Luis Obispo broker and national real estate instructor who understood the need to advocate loyally for clients. He championed single agency nationally until his death in 2015. In his words, "The answer to client representation is not Seller Only brokerage firms or Buyer Only brokerage firms, but Single Agency real estate practice." Thankfully, my father Bill Davies was a former student of Broadbent and others who championed this way of representing clients. My father practiced single agency, and I follow in his footsteps. DUAL AGENCY BACKGROUND On the other hand, many agents are motivated to engage in dual agency. Dual agency has been practiced since the beginnings of real estate brokerage. It is actively practiced today. Single agency is practiced by some agents, yet those who consistently refuse to engage in dual agency are rare. Locally, in 2015 in the City of San Luis Obispo, 23 percent of all property sales were dual-agency transactions. Nationally, about 32 percent of transactions are dual-agency. As mentioned, dual agency is a financial windfall for agents because they usually make a much larger commission, often twice as much because they have no need to split the compensation with a buyer 's agent. Some dual agency agents say they have 24 January-February 2016 www.slobar.org SLOCountyBarBulletin
  3. 3. better control over the transaction parties, less politics, and it is more expedient. INDUSTRY VIEWS Unfortunately,the traditional real estate industry establishment does not acknowledge this as a conflict of interest. Thegeneral measure for success in the indus- try is how many "transaction sides" you engage in, indicating that the more dual agency you engage in, the more successful you are. The California Association of REALTORS® (CAR) spentnearly $1.5million in2015preserving the right for agents to practice dual agency (source: www.car. org/governmentaffairs). Further, there is a required form (Form PRBS) intheCAR standard forms for residential transactions, with a section where the parties automatically consent to dual agency,requiring active editing if a broker wishes to omit. CLIENT ADVOCACY Ipractice exclusive single agency real estate, representing only one side in each transaction. I never represent both a seller and a buyer at the same time for the same property. My choice to practice this way is because I believe in advocacy for clients- fiercely loyal, passionate advocacy. This has never created a lost sale or missed buyer in 40 years of business. If a buyer comes to me and wants to purchase a property that I have listed, I refer them to another agent. If a seller comes to me with a property to sell that meets the needs of my buyer, I refer them to another agent or encourage them to sell the property by representing themselves. Other agents understand that I do not "steal" clients. This results in moreprofessional transactions with other agents. Another reason Ipractice single agency is that I have benefitted personally as a buyer and as a seller from this type of representation. My investment in real estate started at a young age. My specific goals of funding my own education and future financial security were pursued and accomplished because I had a single-agency advocate during my early investing process. Initially this was my father, but as I continued investing as an adult in other areas of the United States, I sought out brokers who would represent me as single- agency practitioners. As my portfolio increased, the need for strategy and advocacy increased as well. In my assessment, in order to protect consumers, change is needed in the practice of conventional real estate represen- tation. We are overdue for a conversion toexclusive single- agency representation. My hope is that real estate agents would practice like attorneys, without a conflict of interest. Consumers deserve loyal representation without conflicts of interest. Before they start looking at property or considering listing their home, knowledgeable buyers and sellers should only commit to work with brokers who will practice exclusive single agency. Bypracticing singleagency in real estate every day,I am passionatelyproudofthework I do for my clients. • Dawna Davies is the Broker/Owner ofDaviesCompanyRealEstatein SanLuis Obispo, and isathird- generationbroker.Thecompany, founded nearly 50years ago,has practiced exclusivesingleagencyfor more than 40 years. Dawna has been aco-instructorfor California Bureau ofRealEstateaccredited classes,held multiple leadership positions in the San Luis Obispo Association of REALTORS® and holds various professional designations.Findmore information at www.DaviesCo.com. SLO County Bar Bulletin www.slobar.org January-February 2016 25 THE OTHER BAR Freeconfidential assistance to lawyers,judges, paralegals and law students withsubstance abuseproblems. Weekly Other Bar 12-Step Meetings are heldin many areas, and others are being established. For times and locations, or to start a meeting in your area, contact the number or website below. Provider of Certified MCLE Instructors Confidential Hotline 24 Hours a Day: (800) 222-0767 www.otherbar.org

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