Posted about 3 years ago

Pros and Cons of Dual Agency in Hawaii

What Is a Dual Agent?
Legally speaking, a dual agent is a real estate broker, or agents working for the same broker, who act on behalf of both the seller and the buyer in a transaction. A broker is permitted to act as a dual agent in Hawaii only if the buyer and seller are both aware of and consent to the dual agency.

See: http://files.hawaii.gov/dcca/reb/real_ed/re_other/...

You decide that you’d like to buy a new home in Hawaii, so you contact a local real agent, you explain what you’re looking for in a home, and the agent spends a day with you viewing properties, some of which are listed for sale with other brokerage offices, and some listed for sale by your agent’s office. If you decide to buy a home that was listed with your agent, it’s possible that your agent – or at least the broker’s company — will end up acting as a “dual agent,” representing both you and the seller in the transaction.

Hawaii’s real estate agency rules are covered under:
Hawaii Administrative rules §16-99-3.1 Disclosure of Agency.


What the Brokerage Firm and its agents CAN do for Sellers and Buyers

- Treat the Seller and Buyer honestly

- Provide information to Buyer about the property and community

- Respond to questions from Buyer about the property

- Disclose to Buyer, pursuant to Hawaii law, all material facts about the property known to Brokerage Firm

- Disclose to Seller the financial qualifications which have been provided with the permission of Buyer

- Explain real estate forms, terms and procedures

- Listing Agent at Seller’s direction may continue to market the property and solicit additional offers

- Buyer’s Agent at Buyer’s direction may continue to search for and prepare offers on other properties

- Assist in arranging property inspections

- Explain closing costs and procedures

- Assist Buyer in comparing financial alternatives

- Provide information about comparable properties so that Buyer and Seller can make an educated decision as to what price to offer or accept

- Prepare the Purchase Contract that will include the standard provisions and disclosures for Buyer and Seller

- Work diligently to facilitate the sale and advise Seller and Buyer when experts (legal, survey, accounting, architectural, engineering, etc.) should be retained.


What the Brokerage Firm and its agents CANNOT do for Sellers and Buyers:

- Cannot disclose confidential information that Brokerage Firm or its agents may know about Seller and/or Buyer
(e.g., motivation to sell/buy, price/terms, negotiating strategy, etc.), without express written permission of Seller and/or Buyer

- Cannot disclose the price Seller will accept, other than the listing price, without express written permission of Seller

- Cannot disclose the price Buyer is willing to pay without express written permission of Buyer

- Cannot recommend or suggest a price Buyer should offer or pay for the property

- Cannot recommend or suggest a price Seller should accept or counter for the property.

Another common way that dual agency can arise is if you visit an open house before you’ve signed up an agent to represent you as a buyer, then you express interest in the house, and are told by the agent for the seller that writing up an offer for you will be no problem – and might even save you money!

Before entering into any of these types of dual agency agreements, however, you want to understand the legal implications, pros and cons.

Generally, a seller’s goal is to get the highest possible price for a property, whereas a buyer’s goal is to pay the lowest possible price. How, then, can a dual agent properly represent the competing interests of both a buyer and a seller? In some situations, it may make sense to use a dual agent; in others, you may want your own agent on your side.


Hawaii Agents Must Disclose and Obtain Consent for Dual Agency Relationships

In Hawaii, when you work with a real estate broker, your relationship with the broker must be confirmed in writing. Most brokers will, at some point before you make an offer on a house, present you with a form titled, “Understanding Agency Disclosure”

This disclosure form identifies the broker and agents involved in the transaction. It also describes the duties of the seller’s agent, the buyer’s agent, and an agent representing both the seller and the buyer, the dual agent.

As explained on the disclosure form, all real estate agents (buyer’s agents, seller’s agents, and dual agents) owe each client a special fiduciary duty to act in that person’s best interest. This includes a duty to exercise reasonable care and skill in working for the client, a duty to be honest and deal fairly and in good faith, and a duty to disclose all facts within the agent’s knowledge that materially affects the value or desirability of the property and of which the client is not aware, or that the client would not become aware of through diligent attention or observation.

As discussed below, a dual agent, attempting to act on behalf of both parties to a sale, risks violating the fiduciary duty to act only in the best interest of one client, because the agent may have to balance the interests of both clients.


Pros of Using A Dual Agent

Here are some of the positive aspects of sharing a real estate broker with the seller:

Using a dual agent can streamline the transaction.
Many agents feel that when a buyer and seller are both working with the same agent, forms and documents can be prepared and signed more quickly, and offers and counteroffers can be communicated more quickly. In Hawaii, what ordinarily happens in a home sale transaction is that a buyer will prepare an offer, with the help of the buyer’s agent. The buyer’s agent will then send this document to the seller’s agent, who will then share it with the seller. When you take out one of the middlemen, communication is faster and more efficient.

A dual agent will usually have more information about the property than an agent acting solely for the buyer would.
The dual agent, when working with the seller, acquires information about the property, which the agent can share with the buyer. In many instances, this will alleviate the need for the buyer’s agent to continually contact the seller’s agent to obtain responses to questions about the property’s condition, again expediting the transaction.

Dual Agency Clients may have more negotiating power when using a dual agent.
That’s because the dual agent can help craft an offer that will be attractive to the both parties. This is particularly advantageous when multiple buyers place multiple offers on a property.

Dual agency within one brokerage office can ease communications.
In a situation where both the seller’s agent and the buyer’s agent work for the same real estate brokerage firm but the buyer and the seller work with different agents, the two agents can efficiently negotiate, communicate, and leverage their preexisting relationship while separately advancing the interests of their separate clients. At our brokerages all Dual Agency one of the clients is represented by our Principal Broker to ensure legal compliance and that Buyer and Seller are both fully represented in the best possible manner.


Cons of Using A Dual Agent

Before you’re persuaded by all the positive aspects of using a dual agent, take note of the negative or risky ones:

You will not receive special, confidential information from the other side just because you share an agent.
Dual agents do not (or should not) share the other party’s confidential information. You might think that it’s a great idea to work with a dual agent because you may find out things like how low a seller is willing to sell for, or what would motivate the seller to accept a lower price. However, under Hawaii law, a dual agent may not disclose to the buyer that the seller will accept an offer for less than the listing price, unless the seller specifically agrees to this disclosure. (Fortunately for you, the dual agent may also not disclose to the seller that you are willing to pay more than you have offered for the property unless you consent to this disclosure.)

In some cases a dual agent who is receiving both the buyer’s and seller’s agency commission may be over-incentivized to close the deal no matter what it takes.
This could create ethical (and legal) issues where an agent may be tempted to not disclose a relevant fact for fear of ruining the deal, and losing out on a large, double commission. That’s why our Principal Broker represents one side, no individual sale is worth jeopardizing the Brokerage office.

Each agent owes a duty of loyalty to the client, requiring that the agent advance the client’s interests.
An agent for the seller is supposed to obtain the highest and best price for the seller. An agent for the buyer is supposed to obtain the lowest and most competitive price for the buyer. When an agent owes a duty of loyalty to two parties who have opposite, competing interests, the agent may have difficulty advancing the interests of either party, or worse, end up choosing the interests of one party over another.

A buyer’s agent can be expected to advise you whether the listing price is reasonable, whereas the dual agent, who originally worked with the seller to establish the listing price, will be more likely the defend the listing price.When we represent both parties we do NOT suggest the price, we ask what the buyer desires to offer and present that offer to the Seller.

A seller’s agent approached by a buyer at an open house has a goal of selling the property for the seller, not finding the property that is the best fit for the buyer. If you choose to use the agent as a dual agent, with some agents you could be losing out on the opportunity to have a dedicated agent search for properties and represent you in the home-buying process. At our brokerage, we are not as financially motivated, as evidenced by our reduced fees.

Dual agency can reduce your legal options if a problem arises.
If you need to file a lawsuit, and you used a dual agent, you have only one broker’s office to sue, and thus only one broker’s insurance company that will step in and assist in paying any damages.

Although you may feel like you have to make the decision whether to accept a dual agent on short notice, don’t let this sway your decision, and we will fully discuss all options.

Your decision should also be based in part on the facts of your particular transaction.

For example, in a hot market, where it happens that your broker’s office represents the Seller (but with a different agent directly representing the seller), where you’re concerned about beating out a number of other competitors, and where you’ve done enough research to have a good sense of how much the home is worth, accepting dual agency might make sense. But if you’ve just started your home search, don’t really know the market, and meet an over-eager agent at an open house who urges you to sit down and draw up an offer, think twice.


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