Bulletin 1997 V28-2ead>
On July 1, the Commission's new "designated agency" rules went into effect. The rules permit real estate firms to practice a form of dual agency, but avoid some of dual agency's more undesirable aspects.
"Designated agency" involves appointing or "designating" one or more individual agents in a firm to represent only the interests of the seller and one or more different individual agents in the firm to represent only the interests of the buyer when a firm has an "in-house" dual agency situation. In the typical situation, the agent working with a firm's buyer-client will be named as the buyer's designated agent and the listing agent will be named as the seller's designated agent.
In the past few years, a substantial majority of real estate firms have elected to represent both sellers and buyers in real estate transactions, and to practice disclosed dual agency whenever a buyer-client of the firm becomes interested in a property owned by a seller-client of the firm (and the parties consent in writing to the arrangement). A significant problem with "standard" dual agency, however, is that dual agents must temper their actions so as to avoid favoring either party. This has the effect of making the dual agent unable to act as an "advocate" for either party. This loss of agent advocacy for both clients frequently leaves the clients and the dual agent dissatisfied.
The major advantage of designated agency is that it restores "advocacy" to the services provided by the respective designated agents and allows them to more fully represent their respective clients. Designated agency provides a way to practice dual agency in a manner that should be more compatible with the practical needs and desires of most real estate consumers and agents.
Dual Agency Is Not Eliminated. Designated agency is a method of practicing dual agency that is available when a firm represents both the seller and the buyer in the same sales transaction. The firm and all its agents continue to be dual agents under designated agency. However, the Commission's designated agency rule allows the firm to accomplish its duty to both its buyer and seller clients by dividing up the tasks among agents designated to work for only one client or the other on what might be described as a "division of labor" theory.
Consent of Parties Required. The seller and buyer clients must consent in writing before a firm can practice designated agency (or, for that matter, dual agency) with regard to those particular clients.
Who Can Designate Agents? The rules say that the "firm" may appoint the agents who will serve as designated agents in a particular transaction. Firm policy must specify who is authorized to make these designations. (Usually, it will be the broker-in-charge. )
The "Confidential Information" Restriction on Agent Eligibility. The rules prohibit an individual agent from acting as a designated agent for a party if the agent has received "confidential information" concerning the other party in connection with the transaction.
For example, suppose a firm has an in-house dual agency situation. The broker-in-charge proposes to appoint the listing agent as the seller's designated agent and the agent working with the buyer as the buyer's designated agent. However, the agent working with the buyer is already aware that the seller would be willing to accept $10,000 less than the listing price because the listing agent had previously mentioned this to the agent working with the buyer. In this case, the agent working with the buyer may NOT be appointed as the buyer's designated agent because he/she would then have to disclose the seller's bottom line to the buyer. This would obviously be harmful to the interests of the firm's other client - the seller - and so the rules will not permit this. One option in this situation is for a different agent to be appointed as the buyer's designated agent, but this may not be feasible. More likely, in this situation, the firm would choose to continue to work with both parties in accordance with standard dual agency practice.
Control of Confidential Information Is Essential. Internal control of confidential information about a firm's clients is absolutely essential if a firm elects to practice designated agency. The firm must adopt and enforce strict policies prohibiting the sharing of confidential information about clients with other agents without the client's informed consent. Restrictions on confidential information retained in files accessible to agents and/or restricted access to files for transactions in progress will likely be necessary. Individual agents must also take all necessary steps to safeguard confidential information about any of the firm's clients that the agents are assisting. Moreover, a designated agent must not attempt to help his/her client in a particular transaction by circumventing office controls designed to protect confidential information about the firm's clients. For example, a designated buyer's agent should not review the listing file of the designated seller's agent in an effort to gather information to help the buyer.
Special Broker-In-Charge Restriction. The rules prohibit a broker-in-charge from acting as a designated agent for a party when a salesman under the broker's supervision is acting as a designated agent for another party with a competing interest. On the other hand, a broker-in-charge and a broker in the same office may represent opposing interests as designated agents.
No Special Form Required. It is NOT required that a designated agent be appointed in writing or using any particular form. As a practical matter, however, some record of appointments should be maintained.
Restrictions on the Disclosure of Information. The rules provide specifically that a designated agent shall not disclose certain information of a personal nature about his/her client to the opposing party without the client's permission. The protected information is:.
The rules also provide that when an individual agent acts as a dual agent in a transaction pursuant to an appropriate written agreement, the agreement may contain a provision restricting the agent's disclosure of the same information described above about one party to the other party unless permission is granted by the party who might be adversely affected by the disclosure.
When Can Designated Agency Commence? The point in time that designated agency should be commenced (if the firm elects to practice designated agency) depends on the circumstances of the particular transaction. The most logical point in time would be after showing a property listed by the firm to a buyer-client when the buyer expresses a serious interest in the property. In any event, there must first exist an in-house dual agency situation, and designated agency (if practiced) must be commenced not later than presentation of the first offer to buy or sell.
Disclosure of the Names of Designated Agents. As soon as possible after designated agents have been appointed in a transaction, the designated agents should disclose to their clients the names of all agents designated to represent each party. This disclosure must be made no later than presentation of the first offer to buy or sell.
Practical Restrictions. Small firms with only a few agents may not find it feasible to implement designated agency. Also, an agent selling his/her own listing obviously cannot practice designated agency and must act as a dual agent (if authorized in writing by the parties).