the Warburg guy wants to take the Dual out of Agency in Manhattan residential real estate

I applaud Fred (if I may be so familiar)
Long-time Manhattan Loft Guy readers know that the subject of New York State agency law and required disclosures is near and dear to my heart (links below). Not many agents share that passion, but @MalcolmBlogger is one. He launched into my corner of the twitterverse a link to the blog of the head of Warburg Realty, who also seems unusually interested in discussing agency. More interesting still, in his May 14, What We Talk About When We Talk About Disclosure, Frederick Peters seems very interested in having his agents not use a form of agency “permitted” under New York State law that some of his agents may think helps put money in their pockets.

Read the post for the details of Fred’s admitted evolution, but here is the (ahem) money quote:

straight dual agency, while a convenient idea in theory, is laden with possible conflict in practice. So I make the same recommendation to consumers and agents alike: don’t do it!

(The “straight” dual agency that he does not like is clearly one agent “representing” both seller and buyer in a transaction, rather than the Dual Agency With Designated Sales Agents situation, in which buyer and seller are represented by different agents from the same brokerage firm.)

Smart guy, obviously been around the Manhattan residential real estate block more than a few times, who admits to having doubts about mandatory agency forms when they were first required in Manhattan. I have seen his blog before (mostly, when linked to by someone in my corner of the blogosphere) and admit to liking it. Either he is a good writer who writes (and thinks) in His Own Voice, or he hires a good writer to translate his thoughts into a voice that is both informal enough to be appealing and credible enough to be from the head of a Manhattan residential real estate brokerage. As anyone who has slogged through most CEO-level “personal” blogs can attest, that is not an easy needle to thread.

As I said up top, I love that Fred has evolved in this way, and now recommends to agents and consumers that no one use that form of “straight” dual agency. But I wish he had filled out some of his analysis, starting with the wonderful example he uses for the dangers of straight dual agency. It is his blog, of course, and his voice. Not everyone is as linear (“anal“ comes to mind) as Manhattan Loft Guy, but I want to focus on a (missing) step in his analysis.

an unintended pitfall
Most analysis of straight dual agency that I have seen in the REBNY world has to do with a single agent representing buyer and seller in the same deal and the deal is consummated. Not to minimize those possible problems for all 3 parts of that threesome, but Fred’s example highlights a different one, a difficulty I had not previously considered. What happens after a seller rejects the buyer, with both having been represetned by the same agent?

I am going to add some [numbers] to Fred’s example to make it easier to break apart in a minute:

[1] a buyer came to her directly with interest in one of her exclusives. [2] Both the buyer and the seller signed the Disclosure Form acknowledging her as a dual agent. They made a deal. The next day, [3] an agent from another firm brought my agent a higher offer, which the seller chose to accept. So how could my agent be fair to both sides? Representing the buyer, [4] she should have thrown all her weight into persuading the seller to stick with the offer he had. But representing the seller, [5] she had to acknowledge that he was getting considerably more money and might be swayed by that. In the end, [6] the seller took the additional money from the new buyer and [7] the original buyer was angry at my agent, claiming that she had not really represented him. And the buyer was right! She simply could not be an advocate for both sides.

Fred may have chosen to include the sequence he did (and not my preferred sequence) because that is all he needed to make his point. (He may understand the value of brevity better than I do 😉 He points out a problem that probably comes up a lot, but I don’t think his explanation is detailed enough.

If I were the head of a firm I would be sure to point out that my agent followed the law by inserting [1.5] before [2]:

[1.5] My agent explained carefully to both the buyer and seller that the agent is acting for the other party as well, including that the buyer and seller are giving up their right to undivided loyalty.

That is, nearly verbatim, what the NYS Agency Disclosure Form published by the Secretary of State says about Dual Agency. Sadly, Fred’s story implies that this careful explanation never occurred, because if it had the buyer at point [4] would never have expected the agent to persuade the seller to accept her bid, only to present it.  And the buyer at point [7] would have been disappointed rather than angry.

I am sure Fred understands agency law in this context better than I do, but his language in the concluding sentence above might confuse some consumers. He is right that his agent “simply could not be an advocate for both sides”, but the unstated reason is that the buyer was angry is that the buyer did not understand that the agent could not advocate at all as dual agent. (Possibly, because this was not carefully [enough] explained to the buyer up front.)

Fred does not get into the details of what this means, including that the agent is just a messenger between “her” buyer and “her” seller, relaying numbers back and forth. Without violating a duty to one, she cannot serve the other by answering a question such as “do you think there is more room in the last bid?”, or “why doesn’t the buyer/seller understand that the comps say …?”, or “my final number is $xxx, how do we manage the process to get there?”. The agent can’t advocate, and can’t advise, and can’t interpret.

If the angry buyer understood all that up front, she would not have been angry with the agent; she would have been angry with herself.

“So how could my agent be fair to both sides?”
The answer to this question in the middle of Fred’s fact scenario is actually pretty simple: treat both sides honestly (do not say anything other than the truth) without revealing facts unknown to one side that the other side prefers be kept secret. Don’t lead one party to think that you are going to advocate for them. At all. (Of course, if that surprises anyone at the end of the day, the right conversations did not happen at the beginning of the day.)

Of course Fred is right that this may be legal but ill-advised. Especially for a seller, who is the one giving up important rights to representation. (At the point at which the proposal is made that the same agent represent both, the buyer is unrepresented.)

You have to go back to point [2] for the agent to have the ability to be fair to both sides. Instead of asking for a Dual Agency acknowledgement, the agent could have presented the buyer with a form identifying her as agent for the seller (only). The agent can then be “fair” to the buyer by not telling the buyer anything that is not true. The buyer would know not to ask for advice, or (if asked) the agent would say simply “I work for the seller; I do not represent you”.

There is some money at risk here for the agent, of course. If the buyer decides that a buyer agent would even up the negotiations, under REBNY rules the buyer could bring in that agent to make the bid and the sales fee would be split. I can’t think of any other reason (without getting into ridiculous hypotheticals) why an agent would want to try to persuade the seller whom they already represent to give up some of that representation, other than that the agent will not have to split the fee.

greatest hits
Previous Manhattan Loft Guy posts on agency disclosures (caution: these babies are long; I will think of Fred as I try to be more brief in the future [promises, promises!]):

September 1, 2010, new real estate agency law disclosures coming to Manhattan in 2011, about the to-be-effective-January-1 changes requiring written disclosures, not just verbal disclosures, with links to the forms, the statute, and REBNY’s rather curious spin on the changes

September 1, 2009, (bad) quote of the day / lawyer stumbles in NYT real estate Q&A, with an extended analysis of why a lawyer quoted in the Old Grey Lady sounded (for lack of a better term) like an idiot; again with actual disclosure form language and extended (very extended) commentary about how it "worked" in Manhattan and elsewhere before January 1, 2011

For some reason I did not write about agency on September 1, 2011, perhaps because I thought I had left that horse on the side of the road.

© Sandy Mattingly 2012

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