'Double agent?' A rift over how real estate is bought and sold reaches the California Supreme Court

Here in the Silicon Valley I can't count the number of times where I came across another agent's listing that ended up "double ending." Double ending a real estate deal is when an agent represents both the buyer and seller in a real estate transaction. I can think of a number of agents, whose name will remain nameless, who use this as their primary business model. I prefer to stay away from double ending my real estate deals because their is too much potential for conflict of interest and what-not.



When Martin Welc asks his real estate classes at Saddleback College if one agent should represent both the buyer and the seller in a negotiation over a house, the students widely disagree.

"We ask them: 'Dual agent or double agent?'" said Welc, co-chairman of the college's real estate program, in encouraging the students to play devil's advocate. "We look at all of the pros and cons. We say, 'Can this be done?'"

It is done, but the controversy over its fairness to buyers and sellers goes beyond a homework assignment. Real estate agents, lawyers and consumer advocates all have opinions about it. Now a rift involving what's known as "dual agency" has reached the California Supreme Court.

Those on both sides of the argument know the high court's decision in the case — pitting a Malibu homebuyer against brokerage Coldwell Banker — could shake up the industry.

"There is a great deal of concern about this ruling in the California real estate community," said Bob Hunt, a San Clemente agent and a director of the California Association of Realtors, of the appellate court's conclusion. "It runs counter to the way — rightly or wrongly — that agents and brokers have thought things were."

A FINE LINE

A dual agent must walk a fine line, careful not to favor the buyer or seller. There are details that cannot be shared — for example, the agent can't tell the buyer the seller is frantic to unload the house because of a divorce or job change. Nor can the agent share with the seller how much the buyer privately said she's willing to pay.

Lee Stimmel, a San Francisco attorney who opposes double-ending deals, said the rules create a conflict of interest for the lone agent, who must serve two masters as a "superhuman."

But as Hunt and many other agents see it, a dual agent, privy to what's motivating each side, is in a position to more swiftly and efficiently get a deal done.

"Hiring a real estate salesperson is not the same as buying a burger," the association says in court papers. "It is all about the relationship ... The real estate salesperson is the equivalent of a therapist, a bartender, a friend."

In California and many other states, the law mandates that a broker must have a fiduciary responsibility to clients. But laws in about two dozen states have allowed agents to act as "facilitators" or "transaction brokers" without fiduciary loyalties, according to a report on Inman, a real estate industry site, titled "Buyer and Seller Beware: Your agent may not represent your best interests."

THE CASE

At the core of the case before the state Supreme Court is a discrepancy about the size of a Malibu manse.

Hong Kong multimillionaire Hiroshi Horiike bought the Tuscan-style home overlooking the Pacific Ocean for $12.25 million in cash in 2007. A high-profile listing agent provided him with a brochure stating the house had 15,000 square feet of living space, but county records said the residence actually was under 9,500 square feet.

The difference in square footage was complicated by Malibu using a different metric than elsewhere, extending the measurements to garages and other spaces beyond the primary residence.

Both Horiike's agent and the listing agent worked for Coldwell Banker, so the brokerage was the dual agent of the buyer and seller, as confirmed in the disclosure forms Horiike signed.

A couple of years later, when seeking a permit to remodel a room, Horiike discovered the house wasn't as large as he thought. In 2010, he sued the listing agent, Chris Cortazzo, and Coldwell Banker, stating they violated their fiduciary duty to him. (He did not sue his own Coldwell Banker agent, however.)

The jury disagreed that the listing agent had a fiduciary duty to the buyer or that the broker was liable for a breach of fiduciary duty based on the agent's acts.

Horiike prevailed on appeal. The justices found that Cortazzo "did not add a handwritten note of advice to hire a qualified specialist to verify the square footage of the home" to a visual inspection disclosure, as he had done with a previous prospective buyer.

"A trier of fact could conclude that although Cortazzo did not intentionally conceal the information, Cortazzo breached his fiduciary duty by failing to communicate all of the material information he knew about the square footage," the justices wrote in their decision.

They also stated, "When a broker is the dual agent of both the buyer and the seller ... the salespersons acting under the broker have the same fiduciary duty to the buyer and the seller as the broker."

And they cited a finding in another case about confusion in the industry:

"Salespersons commonly believe that there is no dual representation if one salesperson 'represents' one party to the transaction and another salesperson employed by the same broker 'represents' another party to the transaction. The real estate industry has sought to establish salepersons as 'independent contractors' for tax purposes and this concept has enhanced the misunderstanding of salespersons."

FRIENDS OF THE COURT

Some compare a dual agent to an attorney representing opposing sides in a legal claim, which is not allowed.

"Use common sense ... you have fiduciary duty to both. How do you do that? Could you be a lawyer for both?" said Stimmel, the San Francisco lawyer.

Besides, he said, it gives the real estate industry a bad reputation: "Most real estate agents are honest, and I don't think they understand how much their integrity is undermined by dual agency."

Hunt maintains that a real estate deal isn't necessarily adversarial; instead of winding up with a winner and a loser, as in a court proceeding, the goal is to satisfy both sides.

Other agents add that often the seller can benefit because a dual agent will reduce the commission; the standard 6 percent doesn't have to be split with a buyer's agent.

The National Association of Exclusive Buyer Agents, which opposes double-ending deals, has filed an amicus — or friend of the court — brief before the state Supreme Court. The California Association of Realtors has filed its own brief, asking the court to reject the appellate ruling and uphold the jury's verdict.

As both sides watch closely, "It is certainly possible that dual agency, as it is now commonly practiced in California, will become untenable," Hunt wrote in an article for RealtyTimes, a trade site.

The high court could add further rules or disclosure requirements. But, noting that the state generally has been strict about matters involving fiduciary duty, Stimmel hopes the argument over double ending doesn't end there.

"If any state is going to stop it," he said, "it's going to be California."

Source: San Jose Mercury News, Marilyn Kalfus
http://www.mercurynews.com/business/ci_29839736/double-agent-rift-over-how-real-estate-is

9 Common Real Estate Myths That Plague Buyers and Sellers

Great article from US News & World Report. The second one, "You can get a better deal as a buyer if you don't use a real estate agent," is the one that slays me. I can say I've seen many buyers that are under this false belief that they'll get a better deal if they go directly to the listing agent and I try to warn them that they often don't save any money, it is a HUGE conflict of interest and listing agent simple will tell that buyer whatever they want to hear so they can get two commissions. I can think of a number of agents whose whole business model is to find these gullible buyers so they "double end" the deal. For any agents reading this, sorry if this offends you, but you know who you are.


9 Common Real Estate Myths That Plague Buyers and Sellers

Even though most people are rarely part of a real estate transaction, everyone believes they are an expert.



Buying or selling a house is not something most of us do every day. You may do it once a decade, or even once in a lifetime. Despite the fact that most of us enter the world of real estate only rarely, we all think we know how it works, based on the experiences of friends and family members, stories we have heard and things we have read.

But for everything we believe we know about the industry, there are a number of myths that circulate about how real estate actually works. Buying into those can hurt your chances of buying or selling the right home at the right price.

In recent years, technology has radically changed the way homes are bought and sold, and yet some aspects of real estate are the same as they were when your parents bought their last home. If a long time has passed since your last transaction, you may be surprised at how much has changed.

The Internet has made much more information available to consumers, but not all the information is equal, or even accurate.

"A lot of people, for some reason, they believe what they read on the Internet," says Gea Elika, principal broker of Elika Real Estate in New York and a regional director of the National Association of Exclusive Buyer Agents. "Read everything you see on the Internet with a grain of salt."

The danger with believing everything you hear or read is real estate myths can cost you money when it's time to buy or sell a home. Here are nine of the most common ones that can trip up buyers and sellers:

Set your home price higher than what you expect to get. Listing your home at too high a price may actually net you a lower price. That's because shoppers and their real estate agents often don't even look at homes that are priced above market value. It's true you can always lower the price if the house doesn't garner any offers in the first few weeks. But that comes with its own set of problems. "Buyers are highly suspicious of houses that have sat on the market for more than three weeks," says Nela Richardson, chief economist for the brokerage Redfin. In areas such as San Francisco where multiple offers are common, sellers will actually price their homes for less than they expect to get, in the hopes of getting multiple offers above asking price. However, if you do this in a declining market, the danger is that all the offers will come in at the asking price or lower.

You can get a better deal as a buyer if you don't use a real estate agent. "That's a completely false premise," Elika says. If the house is listed with a real estate agent, the total sales commission is built into the price. If the buyers don't have an agent, the seller's agent will receive the entire commission.

You can save money selling your home yourself. Some people do successfully sell homes on their own, but they need the skills to get the home listed online, market the home to prospective buyers, negotiate the contract and then deal with any issues that arise during the inspection or loan application phases. It's not impossible to sell a home on your own, but you'll find that buyers expect a substantial discount when you do, so what you save on a real estate commission may end up meaning a lower price. It's not impossible to sell your home on your own for the same price you'd get with an agent, but it's not easy.

The market will only go up. In recent years, homebuyers and sellers have experienced a time of increasing home values, then a sharp decline during the economic downturn and now another period of increasing values. "They think that the market only goes up," Elika says. "They don't think about when a correction will come." The recent recession should have reminded everyone that real estate prices can indeed fall, and fall a lot. Economist Robert Shiller created an inflation-adjusted index for home prices dating to 1890 and found that home prices have fallen a number of times over the years, including in the early 1990s, the early 1980s and the mid-1970s.

You should renovate your kitchen and bathroom before you sell. If your kitchen and baths work, a major remodel could backfire. Prospective buyers may not share your taste, but they don't want to redo something that has just been renovated. "You're better off adjusting your price accordingly," says Kevin Brown Jr., president of Praedium Real Estate Services in Pittsburgh and a regional director of the NAEBA. "Most buyers want to put their own spin on things."

You'll earn back what you spend on renovations. If you fix the heating and air conditioning system or roof, you will sell your house more quickly, but you probably won't recoup what you spent. According to Remodeling magazine's 2015 Cost vs. Value Report, the only renovation that is likely to net you as much as you spent is a new front door. You're likely to recoup only 67.8 percent of what you spent on a major kitchen remodel and 70 percent of what you spent on a bathroom remodel on a mid-range home. "Very few things will bring you great returns," says Sabrina Booth, an agent with Redfin in Seattle. "If you're going to do these projects, it's better to do them for your own enjoyment."

All the properties listed in the multiple listing service show up online. Your agent must choose to let the listings show up online. Most do, but it never hurts to verify that yours will.

Open houses sell properties. Homes rarely sell to buyers who visited them during an open house. Agents like open houses because it enables them to find additional customers who are looking to buy or sell homes. If you or your agent choose not to have an open house, it probably doesn't hurt your sale chances – although holding a broker's open house for other agents may be worthwhile.

The agent who shows you homes or lists your home represents your interests. Maybe and maybe not. In about half the states in the U.S., agents may be "transaction brokers" who don't have a fiduciary duty to either the buyer or seller. In many states, a customer has the option of signing an agreement for the agent to represent him as a listing agent or as a buyer's agent. Before you start working with the agent, ask about your options and do some of your own research. Most brokerages require buyers and sellers to sign a form indicating that they understand whom the agent represents.

Source: U.S. News and World report, Teresa Mears
http://money.usnews.com/money/personal-finance/articles/2015/08/04/9-common-real-estate-myths-that-plague-buyers-and-sellers

Why having a dual agent to represent you is not a good idea

Hello to everyone reading my blog. I hope you all are having a great day.

Below is a conversation I wrote down shortly after it took place (as best as I can remember it) because it is a good example of how working with an agent who is representing both you as the home buyer and also the seller (called dual agent/agency) is usually not a good idea. Here in the Silicon Valley I've seen many transactions go down this way, many of those with some, so called reputable, top producer real estate agents.

Below is my take on the situation. You're not gonna hear anyone else in the industry explain it to you as honestly and simply like me.

So why is dual agency not a good idea you ask? Because think about it; if you're selling your home, your agent has an obligation to you to sell your home for the most money possible, BUT if that same agent is represent both you and buyer there is a conflict of interest. The conflict comes from the fact that an agent representing the buyer also has an obligation to the buyer to sell the home for as little money as possible! 

So what's an agent to do? Well, you got to remember that real estate agents get paid on commission which is a percentage of the sales price. So the more money the home sells for, the more money we make.

As the home buyers, how can you get hurt? Well, because the agents gets paid on commission and that means that a higher sales price means more money for her/him. That agent who you think is looking out for your best interest may not be telling you the whole story. He might tell you to make a counter offer for more money because there are supposedly competing offers when there are not, and he's not gonna tell you the seller is OK with taking a lessor price. Remember, a higher sales price means more money - your bargain on the property be dammed.

As a seller, how can you get burned? As you will see from my conversation below with my client, one way a home seller can get burned from having their agent represent them and the buyer is when you have multiple offers an all of those buyers have their own agent excepts for one buyer who is willing to work with your agent directly to buy your property. These other offers might be a little higher, or those buyers might be willing to counter offer for more money, but your agent is only going to care about having you accept the offer from the buyer who she represents - because she will make TWO COMMISSIONS! Think about it. . . 

Anyhow, below is my conversation take took place with my client (whose name was changed to protect her identity) and you can read for yourself how she got burned by her agent who was only looking out for wallet first and not client.

My client, Sandy, found me from the flier that I gave her husband at my open house on the weekend of May 22 &23.

Mimi: Are you working with any agents right now?  If you are, I cannot help you.

Sandy: I am, but I don’t want him to help us to buy the house.

Mimi: Why?

Sandy: He is our listing agent for my condo right now. We will close the transaction soon. I don’t like him.  He told me when we met that my condo looks better than the other condo that he sold for $425K, and I can get more money.  My husband and I trusted him and listed the property with him.  After the open house, he said we only got two offers.  One of the offers is one in which he represents the buyer and the other is from another agent for little lower.  He wanted us to sign the offer. I asked him why he didn’t ask for more money. He said his buyer offer is higher than other offer, and we should take it.  I said to him that you told me my condo is better than other and that we should get more money.  He said $425K is good offer. I don’t trust him because he is representing us as the sellers and the buyer. He should work his best for me to get more money, but he didn’t. 

Mimi: Did you tell him?

Sandy: I did, but he said it is the best offer and wanted us to sign. I am not happy, but we signed.

Mimi: Oh! Why you didn’t use him to help you to purchase the house on 805 N. Main Street?

Sandy: We asked him to show us the property. My husband went to your open house, but we wanted to view one more time.  He said he wanted to schedule with other property (younger street) so we can view two together. It was on Monday and Tuesday. He didn’t help. I asked my husband to call you, but he is kind of reluctance and didn’t want to, so I called you.

Mimi: Did you sign any buyer agreement or any documents?  If you did, I would get in trouble.

Sandy: NO. I didn’t sign any documents and don’t want him to represent us anymore. All he thinks of is his commission check and how to make more money for himself, regardless if it doesn’t help us.

Mimi: I can only help you and your husband if you want to work with me and didn’t sign any agreement with your agent.

Sandy: NO. We didn’t sign any papers. We don’t want to use him. He only thought about what  benefits him in order to make more money from my condo even though it was not in our best interest.  If he had done the counter offer like we asked, we would have got $5 or $10 thousands more.  I am not happy with his service. I really don’t trust him with helping us.

Mimi: OK. I closed one transaction with him 5 years ago. I know him.  Well, I will try my best to help you. This property already went in contract on Thursday morning.  We can only submit a purchase offer as a backup offer.

Sandy: OK, we’ll go to meet my husband to sign the offer.

Mimi: Thank you so much.

Related:

DUAL AGENCY IS A DISASTER FOR BOTH BUYERS & SELLERS