Dual-Agent Roles Cloud Some Home Sales

Question: If a selling agent neglects to inform a homeowner that a higher bid has been made and chooses instead to sell the house to a person he's also representing as a buyer's agent, what rights do the seller -- and the higher bidder -- have?

Can this agent be reported to anyone for unethical practices?

-- Natasha, Yorba Linda, Calif.

Natasha: It sounds like your agent is double-dealing. But your rights -- and your ability to collect damages -- could depend on which state you live in.

Generally speaking, real-estate experts caution buyers and sellers against using the same real-estate agent because of the conflicts it can create. Negotiating a final sales contract involves lots of give and take on both sides, and if your agent is also representing the other party in the transaction, that immediately puts you at a disadvantage. How will you know if the agent is doing more to serve your interests -- or the interests of the other party?

Despite the potential for trouble, it's still common for agents to represent both the buyer and the seller, especially since doing so greatly increases the agent's commission. In most states, such arrangements are legal, according to the National Association of Realtors, though these so-called "dual agents" have to get the consent of the buyers and sellers first.

The law gets trickier when two agents within the same real-estate company represent both sides of a transaction. In theory, that situation can lead to big conflicts if the two agents, who probably work in close proximity to one another, share information. But in some places, such arrangements are allowed without consent of the buyers and sellers, though local laws might still prohibit the agents from sharing information.

If you think you've been wronged, first contact your local realtors' association or your state real estate commission to find out what applicable laws exist in your state, and to report the possible abuse. If your agent didn't get consent for a dual-agent arrangement as required, for example, or broke some other law, you could immediately have grounds for a claim. In many cases, mediation can lead to a workable settlement; for example, you might be able to collect the difference between the sales price and the other, higher bid that you were not informed about. In other cases, mediation won't do the trick, and you'll have to sue.

If your agent did follow local laws, you could still have some recourse, but it will be harder to make your case. Although real-estate agents have a fiduciary duty to their clients to give them the best possible service, if they're acting within a sanctioned dual-agency arrangement, the agent could argue he or she was fulfilling obligations to the other party-an outcome you essentially agreed to in advance.

Obviously, it's often wise to avoid a dual-agency relationship from the get-go. No matter how you handle your sale, be sure to keep all the correspondence between you and your agent, and don't be afraid to snoop around to learn more about other possible bids -- and more about your agent's reputation. In many cases, sellers don't even know they've been taken advantage of, so it pays to know a lot about your local market, including the recent sales prices of nearby homes, before you get far along in the home-sale process. Doing some research on your agent and on recent nearby transactions can make you a more informed seller -- and keep the agent honest.

-- Mr. Barta is a staff reporter for The Wall Street Journal. His "House Talk" column appears every Friday exclusively on RealEstateJournal.com. Click here to e-mail him your questions about the residential real-estate market. Please include your first name and city and state. If your question is answered and posted, we will show your first name and city.

Originally published at Wall Street Journal.

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