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Legal IssuesDual agency or designated agency?
This article questions the practice of excluding designated agency from those agency relationships offered by a broker. Designated agency may be employed in the in-house transaction where both buyer and seller have engaged licensees from the same office. Designated agency allows the separate licensees to act as single agents for their respective clients. In offices where designated agency is not permitted, the two licensees are dual agents. That is, the licensees should be acting as dual agents. All too often, the licensees act as undisclosed designated agents, acting on behalf of their respective clients rather than as the dual agents they are. 
A licensee is a dual agent in a transaction where the seller’s agent and the buyer’s agent are one and the same. Simple. Slightly more complex is the dual-agency relationship that is created when the seller’s agent and the buyer’s agent are separate licensees but both affiliated with the same broker. These licensees are dual agents when they have not been designated to act as agents for their respective clients to the exclusion of other licensees. Regardless, in both of the situations described, the broker is a dual agent.
While dual agency presents inherent conflicts, potential difficulties and the occasional ethical dilemma, it is not a particularly difficult role for the broker. Remember, in the two scenarios presented, the broker is one step removed from the clients who are working with either a single licensee or two licensees within the company. Because the broker’s role is supervisory, he is somewhat detached and has the ability to analyze the issues, free from the subjective tugs that cause licensees to be partial to one side or the other.
For the sole — or the two — licensees acting as dual agents and working directly with clients, the pressures and difficulties attendant to dual agency are much more direct. The conflicts and difficulties are surprisingly difficult when there are separate licensees acting as dual agents in a single transaction. These licensees were chosen respectively by a buyer and seller and despite the rapport each has with her client, they must now accept the inherent conflicts, potential difficulties and occasional ethical dilemma and act as dual agents.
Summarizing: 1) broker acting as dual agent presents inherent difficulties but is relatively able to traverse an acceptable path and 2) separate licensees in the same office acting as dual agents in a transaction is a much more difficult course to navigate.
The answer? Designated agency. True, designated agency will not help the single licensee who is both a seller’s and buyer’s agent in a single transaction. But an office that practices designated agency can eliminate one level of dual agency when separate buyer’s and seller’s agents from the same office are involved in the same transaction. While the two licensees retain their distinct agency relationships to the respective clients, the broker is a dual agent.
Remember: Dual agency for the broker, not so tough. Dual agency for the two licensees? Pretty tough.
Designated agency is a preferred practice not only because it eases the conflict that dual agency imposes on the two agents in the same transaction. Consider why the buyer and why the seller selected their agents. Whether the agents were chosen because of prior relationships or selected merely on the basis of referrals, the consumers made their choices with the expectation that the selected agents would go to bat for them. Neither the buyer nor seller anticipated that their respective agents, even in the in-house transaction, would back off to the more neutral role imposed by dual agency. That is what happens when an office does not practice designated agency.
For the office that does not practice designated agency, the in-house transaction involving a separate buyer’s and seller’s agent imposes two levels of dual agency: the broker is a dual agent (not so hard); the listing and selling agents are dual agents (much harder). When you consider that the clients are not getting the advocates they sought, well, need we say more?
When designated agency was introduced to the legislature as we lobbied for passage of Act 112 in 1998, members of the association argued that conflicts of interest in real estate are uniquely inherent: a buyer engages her agent not knowing that she will buy a home from a seller who is also represented by the same brokerage. Why should the buyer’s agent only advocate strenuously on her behalf when the seller is represented by an agent from another brokerage and not also the in-house transaction where the seller is represented by a wholly different salesperson?
Real estate is unique in that licensees seated beside each other in the office also compete against each other. It is not difficult to impose rules that preclude salespersons from reading the confidential faxes or files of their colleagues. Salespersons who start out as a buyer’s agent ought to retain that advocate’s role when the seller is represented by a wholly separate seller’s agent in the same office.
If your office permits dual agency, why aren’t you also embracing designated agency? Many offices with such policies practice “undisclosed designated agency.” If two licensees call themselves dual agents but the seller’s agent advocates for the seller, even on issues of pricing, and the buyer’s agent does the same, isn’t that designated agency? While designated agency may not work in a two- or three-person office (in a dual-agency relationship the broker can never be designated as an agent for one side only but is always a dual agent), there are few if any reasons not to endorse it heartily. If you do not practice designated agency but you have difficulty articulating why, give it another look.
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Jim Goldsmith, Esq. is an attorney with Caldwell & Kearns and serves as general counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels employers on employee relations issues as one of the voices of the PAR Legal Hotline. |
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Have a question
When practicing single agency; an agent representing a buyer, signs a business relationship contract, after looking at homes listed by another agency, the buyer decides he wants to look at one of your listings. The agent uses the change to Buyer Agency Contract to end the existing business relationship. I understand that the agent becomes a dual agent under these circumstances. Can we practice designated agency if we are doing business as single agency or seller agency?
My extensive experience with Designated Agency is that most confidential information is not kept in paper files or faxes. Rather,it is safely kept in the private communications, such as emails and conversations, between the client and the designated agent.
Designated Agency is what I call the “natural condition” that most licensees and consumers gravitate to.
Jim, thank you for such a fine, thoughtful and timely article.
Thanks Jim.
Dan,
A broker has to take reasonable measures to assure that agents are not given access, or have access, to others files. Lock an key may not be necessary. But you may want to have faxes come to a special location where a secretary can deliver them, rather than having the fax at a location where agents will see the content of faxes directed to others. Certainly there should be a policy that agents will not look at other agent files just as they wouldn’t break into a competitors office to examine their files! Etc.
Jim, In an office that practices Designated Agency, do the files for active listings and pended deals need to be kept in a secure area so all of the agents in that office are unable to freely look at them?
Thank you for the clarification. It really has cleared this problem up.
Excellent explanation and examples – a true teaching moment!
Well stated! Thank you.
Great article, Jim!