Dual Agency

The ultimate guide to dual agency in Minnesota.

What is a Fiduciary?

A fiduciary is someone who pledges to you their undivided loyalty and who places your interests above all others, especially their own. Fiduciaries are supposed to avoid conflicts of interests and even the appearance of impropriety. Fiduciaries are held to the highest standard under the law. Justifiably, the old adages, “You can’t serve two masters,” and, “the law abhors a dual agent” applies to all fiduciaries…except real estate brokers. Realtors are trained to violate their fiduciary duties. Their “representation” can best be described as exploitation of fiduciary duties. When a Realtor steers you to their over-priced title company or tells you that it won’t cost you anything to work with them, they are preying upon you. They are not representing you.

Note: A fiduciary is also known as an “agent.” Realtors are also called “agents.” Minnesota licensing law identifies these agents as “salespeople.”

Rule: The salesperson represents whomever the broker represents.

Before you can understand agency in real estate, you must first understand the difference between a broker and a salesperson (aka “agent”). The broker is the real estate firm or responsible licensee at the firm who is responsible for all the actions of the salespeople licensed under the broker. Most consumers believe that when they select a real estate agent, that they are hiring that salesperson to work for them. The opposite is true. You are ONLY hiring the brokerage firm. All contracts with clients must be ONLY with the broker and NEVER the agent. The broker handles all contracts, money, and is responsible to the consumer. Brokers are required to supervise all salespeople and they are responsible for their salespeople’s conduct. They are also privy to all of your confidential negotiating information.

ALL the agents at the firm represent whomever the broker represents.

What is dual agency?

Dual agency occurs when one brokerage firm represents a buyer and seller, or two buyers in the same transaction. It is an insurmountable conflict of interest.

In real estate, a dual agency occurs when one brokerage firm represents a buyer and seller in the same transaction (or two buyers bidding on the same property). It doesn’t matter if there are two salespeople or just one. When dual agency occurs it is one of the worst betrayals possible under the law. The broker owes the buyer and seller the same impossible conflicting duties of purchasing and selling the same property at the best price and terms. Dual agency occurs at the brokerage level and then flows to all the salespeople. If the broker is a dual agent, then all the agents are dual agents. The myth that there are multiple forms and levels of dual agency is just not true. The dual agency almost always results in fraud and because of the nature of the relationship, clients will almost never understand how they were defrauded. According to Minnesota law (largely written by Realtors); When dual agency occurs, the salesperson (or salespersons) and the brokerage firm are legally prohibited from, “advocating for one party to the detriment of the other.” MINN. STAT. 82.67. However, what really happens almost certainly benefits one party (and the broker) to the detriment of the other.

You (don’t) get what you pay for.

Dual agency is illegal in every fiduciary profession (legal, medical, accounting, etc…), except real estate. It used to be illegal for Realtors until they used their massive lobbying power to rewrite the law of dual agency just for them.

In Minnesota, consumers pay outrageous amounts of money for brokers to help them buy and sell homes. Consumers need expert advice and service when buying and selling homes. While the low entry standards to the real estate profession are a huge impediment to Realtors providing expert advice, dual agency completely eliminates the possibility that consumers will receive any meaningful advice. And if a dual agent does provide advice to one client, that agent and broker are committing fraud against the other client. Dual agency results in the complete abandonment of the client at a time when the consumer needs their agent the most. Despite that monumental degradation in the level of service being delivered to the clients, there is no commensurate reduction in their fee. Large firms that practice dual agency should be avoided at all costs.

Dual agency is a”bait and switch” of the worst kind.

Dual agency is bad because it springs a catastrophic degradation in the level of services on consumers when they are least prepared for it. It is bad when that happens in a typical consumer setting. It is an abomination when it happens in a fiduciary setting. In real estate, that catastrophe occurs after the broker has already pledged their undivided loyalty (through misleading “representation” agreements) and gotten their client to divulge all kinds of important negotiating information. To make matters even worse, brokers get a double fee if they are successful in creating a dual agency and manipulate things behind the scenes. Because there are no paper trails, few consumers will ever understand how their dual agency transaction was manipulated.

Agents and brokers routinely advertise and market that their value proposition is that they provide superior and expert advice and counsel to their clients. Some agents at large firms even go as far as to claim that they are fabulous negotiators when they are prohibited from negotiating on many of the properties they show their clients. At a minimum that is misleading. More likely it is a fraudulent representation. Typically you get little legal value from your dual agent salesperson other than they are pledged to treat you “fairly.”

Example: You are a buyer and select a salesperson from a mega-brokerage firm who claims to be a great negotiator (the “bait”). He gets you to sign an agency disclosure form and has you agree to dual agency in his broker’s Buyer Representation Contract. The contract states that the broker is your buyer representative. However, that form also contains a completely inadequate disclosure about dual agency and how it might arise. The contract also fails to warn you that dual agents can’t negotiate on your behalf and that the broker gets a double fee if you end up buying one of the houses listed by the brokerage firm. To make matters worse, the “disclosure” form uses scare tactics to trick you into agreeing to dual agency. It provides a fake warning that they won’t be able to show you as many homes unless you agree to dual agency. You rightfully believe that the salesperson and the broker represent you. But they don’t. The salesperson manipulates you into writing an offer on a house listed by his brokerage firm. At that moment, the listing broker, your salesperson, and the listing salesperson become dual agents. The listing broker will get a double fee if you buy this house. The listing broker is also privy to all your private negotiating information and is responsible for “supervising” your salesperson and the listing salesperson. You have no way of knowing if the broker is using your confidential negotiating information to manipulate your transaction. Your salesperson is now legally prohibited from advising you how to negotiate. Your salesperson should tell you that it would be against the law to advise you in any way. You have been abandoned right when you need his services the most. You are on your own to determine the best price and terms and negotiate the rest of the transaction after the purchase agreement is signed. Meanwhile, you have no way of knowing if the other salesperson is secretly advising her clients…

Dual agency occurs the most and is worst at mid-size and large brokerage firms.

Dual agency routinely occurs in mid-size and large brokerage firms and rarely occurs in small firms.

The statutory disclosures and consent forms are a fraud.

Minnesota real estate licensing law is the result of Realtor lobbying dollars and protects licensees from consumers instead of the other way around. The Minnesota licensing statute provides dual agency “disclosures” that once given to the consumer, completely strips the consumer of their rights and empowers brokers to unfairly exploit them in ways that are unheard of in any other profession. Consumers would be far better off if there were NO licensing laws.

The so-called “disclosure” forms do not come close to warning consumers about the most serious dangers of dual agency. The common law of agency makes the disclosure requirements so ominous that few professionals or clients would ever entertain such a relationship.

If Properly disclosed, no one would ever agree to dual agency.

If properly disclosed, few consumers would ever agree to dual agency. However, after losing a massive class-action lawsuit in the 90’s, the Realtors rewrote Minnesota licensing law in such a way that it protects Realtors from their own clients. In 1994 the Realtors replaced the striked out text (below) in the statute with text that exonerates Realtors from liability if they provide consumers with a completely inadequate disclosure form. The old language they replaced (see striked out text) held brokers to be liable for common law agency violations just like other professions. Italics is the new language.

Subd. 3. [SCOPE AND EFFECT.] The requirements for disclosure of agency relationships set forth in this chapter are intended only to establish a minimum standard for regulatory purposes, and are not intended to abrogate common law. Disclosures made in accordance with the requirements for disclosure of agency relationships set forth in this chapter are sufficient to satisfy common law disclosure requirements.

The Regulators are Regulated by the Regulated

The Minnesota Department of Commerce is considered to be a joke among real estate attorneys. While they are perfectly willing to enforce laws against other industries, the real estate division performs like an arm of the Realtor Association when it comes to enforcement of real estate licensing laws. Search their enforcement actions against real estate firms and you will find nothing against any of the large brokerage firms. Yet nearly all of the malfeasance that has come my way over the years seems to involve those big companies. I’ve seen them look the other way if fraudulent conduct involves their favorite big firms. At the same time, I’ve filed complaints with their insurance division and was actually told not to tip off the real estate division because they would shut down their investigation (some real estate firms were involved).

Caveat Emptor – buyers and sellers beware

Dual agency should be avoided at all costs. That means you need to avoid mid-size and large brokerage firms. If you get defrauded, your remedies are likely to be severely limited by their self-serving licensing laws.

Real estate brokers and their salespeople are the least qualified fiduciaries who should be entrusted with the enormous conflicts of interest that come with dual agency. Attorneys are trained in managing conflicts of interest and it is illegal for them to represent a buyer and seller in the exact same scenario that brokers do it.