BRAVO!!! When money can buy political influence and the Colbert Report commands more respect than Congress, how refreshing to read that one government agency is chastising another for patronizing business practices based on a conflict of interest.
And no, it’s not a parody headline from The Onion; it’s the way our government was designed.
Checks and balances are built into our system to protect against abuses; and our legal code is built on the common law of agency, a Biblical truth not to mention common sense:
You can’t serve two masters.
That’s why the Consumer Advocates in American Real Estate (CAARE.org) says that “dual agency is a form of representation that is illegal in every other profession and it is extremely harmful to consumers.” Harmful to practitioners, too. In fact, as shown in the cartoon above, there was a time when the National Association of Realtors’ leadership taught the disclosed dual agency is “the professional equivalent of Russian Roulette” (William North, Ex. Vice-President National Association of Realtors, 1986.)
So while some try to paper over the conflict of interest inherent in dual agency, others argue that it’s evil twin — Designated Dual Agency – is a fraud:
Agents from the same brokerage firm cannot negotiate on behalf of buyers and sellers in the same transaction. Despite heavily lobbied for laws that have “legalized” this impossible relationship, designated agency is a legal fiction that harms consumers. Just because it is legal, does not mean that it is good or appropriate for consumers. Designated agency serves only the interests of the real estate brokerage firm that desires to collect a double commission at the expense of appropriate client representation. If you agree to designated agency, you will be giving up the right to honest representation and you will be putting the brokerage firm in a position to manipulate your transaction in order to collect a double fee.
Against that backdrop, it’s reassuring to see government agencies modeling moral leadership and insisting on best practices in real estate. The Office of Inspector General’s criticism of the US Postal Service echoes the Mortgage Letter issued by HUD on September 23, 2013 prohibiting dual agency on pre-foreclosure sales (short sales). Until it was overturned by pressure from the National Association of Realtors, the HUD policy read:
“No party that is a signatory on the sales contract, including addenda, can serve in more than one capacity. To meet the PFS Addendum requirements, brokers and their agents may only represent the buyer or the seller, but not both parties;”
After bailing out the last real estate boom / bust cycle, tax payers now guarantee nine out of ten residential mortgages, up from three in ten in 2006. Shouldn’t we insist on arms’s length transactions, too? Want to ask Senator Elizabeth Warren what she thinks?