First-time buyer – My agent
showed me a house that I like and for which he is the listing agent. I
heard him use the term double-dipping. I know you’re not supposed to do that
with chips and dips, but what is that all about in real estate?
Answer - Double dipping
at the chips and dip station is a nasty party etiquette faux pas and it
can be a nasty real estate practice too, involving not so much etiquette as
ethics. Some states have enacted real estate laws and practices to limit the
practice or at least to bring full transparency to it. Michigan is what is
called a Designated Agency state. That means that we have laws that define the
agency role and responsibilities when a Realtor signs a client up to be their
listing agent or their buyer agent and it requires a clear definition and
agreement with the client about what role the agent is playing. The
cornerstone of the concept of agency is the agent’s fiduciary responsibility to
the client.
Curt Vonnegut used to
do a commercial for TIAA-CREF, the retirement programs people, in which he had
fun with the word fiduciary. It does sound funny.
From Wikipedia comes
this definition of a fiduciary –
A fiduciary is a legal
or ethical relationship of trust between two or more parties. Typically, a
fiduciary prudently takes care of money for another person. In a
fiduciary relationship, one person, in a position of vulnerability, justifiably
vests confidence, good faith, reliance, and trust in another whose aid, advice
or protection is sought in some matter. In such a relation good conscience
requires the fiduciary to act at all times for the sole benefit and interest of
the one who trusts. A fiduciary duty is the highest standard of care at either
equity or law. A fiduciary (abbreviation fid) is expected to be extremely loyal
to the person to whom he owes the duty (the "principal"): such that
there must be no conflict of duty between fiduciary and principal, and the
fiduciary must not profit from his position as a fiduciary (unless the
principal consents). This also goes for Realtor working directly with a local
builder. This is also called double dipping and when that Realtor/broker is
part owner of new homes being built and sold by the same agent, that's illegal.
So, when
a client signs up with a real estate agent to list his house, the agent takes
on a fiduciary role with that client. That means that the agent may learn
things from the client that the client does not want to others to know, such
and how much he’d really sell the place for. The agent is bound by his fiduciary
relationship not to disclose that to a buyer. The agent owes his loyalty to the
seller.
So what happens when
that same agent signs up a buyer couple and starts looking for houses for them.
He owes fiduciary loyalty to the buyers and shouldn’t disclose things like how
much the buyer is willing to pay to any sellers. So far, so good.
Now, suppose that the
agent is sending the buyers listings and they happen to see one of his listings
and want to see it. Even worse, they love it and want to put in a bid on it.
Where do the agents loyalties lay now? Can that agent serve two masters? Some
states allow that to happen and some put some pretty good restrictions on what
the agent can do and what level of transparency has to be maintained for both
parties to the deal.
Michigan requires that
the agent get the written permission of both parties before he should even show
the house to the buyers. That written permission should state clearly the
compromise that the agent will have to make if placed in this position. The
things that need to be dealt with in that document include what the agent can
and cannot disclose to either side and includes a strict prohibition against
sharing any secrets or confidences that either party has already shared with
the agent. Potentially a bigger issue is the fact that the dual agent can no
longer negotiate for either side. If having the agent there to handle the
negotiations was important to either side, that is gone if the agent is allowed
to become a dual agent. Some states, like California, that don’t have
designated agency laws in effect, are currently dealing with dual agency cases
in their court systems that could have major impact across the country.
So, what’s the double dip
thing? That means that the agent is going to receive both sides of the
commission – double what he/she would normally make – thus a double dip into
the commission pot. That’s not an illegal things or necessarily a bad thing,
but is does provide the motivation to perhaps not render as much fiduciary
responsibility as is still possible. The agent may become more motivated by the
opportunity to double dip that to protect the interests of both parties. Money
tends to corrupt like that.
How can you protect
yourself against the potential problems that could be caused by dual agency?
The simple answer is not to allow it. Since the agent needs to have your
permission in most states to act in a dual agent role, just tell them that
you’d prefer not to do business that way. Ask them to have a different agent
represent the buyer or you, so that each of you has an agent who can give you
the full fiduciary attention and responsibility that you should have. In states
that don’t have Designated Agency laws that may mean finding an agent in a
different company.
Your agent may refer
you to another agent and it is perfectly legal for him/her to get a referral
fee for doing that. That way you are still rewarding the agent who worked for
you and found you the house that you want, even if he/she can’t be there with
you through the sale. If your agent refuses to do something about the
dual-agency issue, then fire that agent and find another agent. He/she was more
interested in double dipping that in making sure your interests were properly
served.
The agent might take
the position that he can represent only the seller but can still do the
paperwork and put the deal together. Listing agents who meet unrepresented
buyers at open houses in their own listings often take that approach. You’ll
need to decide whether you feel comfortable with that and whether you are
concerned that the agent may already know enough about your and your
wherewithal to put you at a disadvantage in the negotiations – people do tend
to talk at open houses, especially to the friendly, nice man that showed them through.
You can see how hard this can be to keep straight. Double dipping has been a
fairly common practice in many places and is a favorite with many agents for
obvious reasons; but, the bottom line is that it’s up to you and you need to
feel completely comfortable with the representation that you will be getting in
the deal. If you are not, remember the advice that you used to hear about drugs
or teenage sex, just say no.
http://normwerner.realtytimes.com/advicefromagents1/item/28614-my-agent-says-he-will-be-double-dipping-that-sounds-gross