Who does the designation in designated agency?

Answer: “Designated Agent” or “Designated Representative” means a licensee who has been assigned by a principal or supervising broker to represent a client while a different client in the same transaction is represented by another “licensee” affiliated with the same principal or supervising broker in a transaction. (The designated broker remains the “dual agent” in the transaction.) A designated agent provides full representation to his or her client.

To keep clients happy, agents should explain the type of working relationship they'll have. There are two main options: traditional and designated agency. Here’s what you need to know about each one.

Traditional Agency

In a traditional agency arrangement, the client works with a broker to complete a real estate transaction. This could be either to buy or to sell a home. This managing broker works directly with the client and maintains confidentiality throughout negotiations. The agent works only for the client and has no affiliation with the other parties in the transaction.

For example, if the agent is working with a buyer, that agent would have limited contact with a home seller’s agent. While the two agents would negotiate through the contract, they wouldn't discuss the deal informally. They also wouldn't reveal anything about their clients that could give the other an advantage. This avoids any conflict of interest. It also protects clients from collusion or other shady dealings so they know they’re getting the best deal possible.

In a traditional arrangement, all brokers in the agency work in the best interests of their colleagues’ clients. That's true even if they never work with that client directly. They also may not have relationships with the other parties in the transaction.

The Bottom Line: In a traditional agency arrangement, the entire brokerage can only represent either a seller or a buyer, not both.

Designated Agency 

Sometimes a brokerage wants or needs to work with clients on both sides of a real estate transaction. To do this effectively, they designate one agent to work with the buyer and a different agent to work with the seller. These affiliated brokers work for the same office, but they do not share information. This arrangement is known as designated agency. It erects a figurative wall between buyers and sellers working with the same brokerage firm.

For example, a buyer may hire an agent to represent them, only to discover later that their dream home is being sold by an agent in the same brokerage. In this case, designated agency can allow individual agents at the same brokerage to negotiate in their respective clients' best interests. Designated agency can be an important tool in rural areas with few real estate brokerage options. 

The Bottom Line: Designated agency allows brokers in the same firm to work for both buyers and sellers. They just have to maintain clear boundaries and disclose the relationship to all parties.

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Editor's Note: This post was originally published on April 26, 2017. Housecall continues to share this piece due to ongoing requests and reader interest.

In an ideal world, you would be able to do a quick search for a REALTOR® and pick the first one you find to get knowledgeable, effective representation in your real estate transaction. Unfortunately, there are certain business relationships between real estate agents and clients that can present problems for the client–in many cases without the client ever being aware of it.

As a potential client, it can be helpful to understand the types of relationships REALTORS® can have with their clients, and how to tell the difference between an arrangement that serves your interests and one that doesn’t. One such arrangement that does not benefit the general public is referred to as dual agency.

Dual Agency – Not in Your Best Interest

So what is dual agency? In most states, dual agency refers to a situation where the same REALTOR® represents both the buyer and the seller in a real estate transaction. The term, however, can have different meanings in different states. For example, in California what they refer to as dual agency is called designated agency in many other places. The two terms can have vastly different meanings. For our purposes we will use dual agency to describe using the same agent for both the buyer and the seller.

There are very few people knowledgeable in the real estate business that will claim dual agency is good for clients. In fact, many professionals question why dual agency is even legal in some states. The reality of dual agency is that the agent is put in an impossible situation–one where he or she cannot meet the requirements of a REALTOR® serving a client.

One of the fundamentals of acting as an agent for a buyer or seller is that you seek the best interests of your client. A single agent cannot seek the best interests of both a buyer and seller negotiating over the same property.

A Conflict of Interest

As a buyer’s agent, the REALTOR® is attempting to purchase the home for the lowest price possible for their client. As a seller’s agent, the REALTOR® is attempting to sell the home for the highest price possible. It is easy to see how dual agency could create conflicts. Does the agent focus on buying for the lowest price or selling for the highest. You can’t do both.

To further complicate matters, in many states REALTORS® working as dual agents are prohibited by law from negotiating on behalf of either client. It is not clear what else the agent has left to do in such a situation. Without negotiation skills, there really is not much point to having an agent.

The dual agent cannot counsel the client on price, negotiate inspection issues or do pretty much anything else that would justify the commission the client pays. Even more outlandish, the dual agent is more than happy to collect a full commission from both buyer and seller. He or she gets paid double for doing virtually none of the things they would do if they were an exclusive buyer's or seller's agent.

Not Telling Clients about Dual Agency

Perhaps the most disturbing thing about dual agency is that many times, the clients will not be aware that their agent is working for both the buyer and the seller. Maybe the REALTOR® does not realize the conflict of interest. Maybe he or she is just doing a lousy job explaining agency. They sugar coat what is really happening for the chance to get both sides of the transaction. Whatever the reason, it is quite possible to wind up with a dual agent without even being aware of it.

When choosing a real estate agent to represent you in your purchase or sale, it is important to make it known that you are not interested in employing a dual agent under any circumstances. If the agent attempts to negotiate on the matter, go somewhere else. Real estate agents who are less concerned about their wallet do not work as dual agents. Instead, when this situation arises they refer clients to someone else who can represent their best interests.

Judging by some of the arguments you see in online forums about dual agency, there are some real estate agents who clearly put money before what is best for consumers. Over at ActiveRain, you can see some varied opinions from real estate agents on dual agency. Take a look at the transparency of this subject in many of the comments from agents. If you are thinking of buying or selling, you may enjoy the banter.

What you can take away from some of the comments:

• Many real estate agents don't know what they are able to do and not do in a dual agency relationship.
• There are a number of agents in the business who don't want to see dual agency go away.
• A good percentage see dual agency from rose colored glasses and not the consumers’ perspective.

Designated Agency – A Workable Arrangement

Designated agency refers to a situation where the buyer and the seller each have their own agent, but both of those agents work for the same real estate company. Some argue that designated agency is just as bad as dual agency, because the focus of the agents is on what is best for the real estate firm and collecting the commission from both clients. However, designated agency does not have to be a negative arrangement for the clients if the real estate company is reputable. As long as the company allows agents to work freely for the best interests of their clients, there is no reason why the agents would do otherwise. The big difference with designated agency is both clients have someone fighting hard for them. It is often claimed that designated agency is bad for clients. But if someone is in your corner working on your best behalf, who cares if another agent in the firm is working for the opposite side?

When you are buying or selling, you want the best real estate agent you can find. Sometimes designated agency is the only way to get the kind of top-performing agent you need to accomplish your real estate goals. Just be sure when buying or selling a home you are completely aware of how agency law works in your state. It is a requirement that agents explain agency in depth so you understand it. It makes sense to work with an agent who has your best interests at heart! Disclosure is always paramount, especially with a topic as important as agency.

For more information about how dual agency works, click here. 

Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell Metrowest Mass real estate for the past 30-plus years. In 2016 he was the #3 ranked RE/MAX real estate agent in New England. Connect with him on Google+.

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