Kenneth Harney

When you’re involved in a real-estate transaction, do you assume that the real estate agents are required to represent the best interests of the homebuyer or seller with whom they are working?  

The Consumer Federation of America recently posed that question to a national survey sample of adults, and 50 percent answered yes. Another 16 percent said “yes, almost always.” However, a new report from the Consumer Federation – an umbrella group representing nearly 300 local and state consumer organizations – suggests that it’s not necessarily so. The reality, according to the study, is that “real estate agents often are not required by law to represent the interests of buyers or sellers.” As a result, sometimes things can go seriously awry.  

The study cites ongoing litigation in New York, where clients of a major realty brokerage firm have filed suit alleging that the company “has stripped thousands” of buyers and sellers of the right to employ an agent who is “loyal to them and only them” through its alleged misuse of “dual agency.” In a dual-agency situation, agents of a single brokerage purport to represent both sides of a transaction, the seller and the buyer. The broker and agents in these cases pocket the entire real-estate commission rather than having to split it with a competing firm’s agent.  

Who Does What? 

Among the common forms of representation examined in a recent Consumer Federation study:
Single agent: In this case, the agent works solely for the client and has a fiduciary responsibility to the client.
Subagent: This is where the agent works with the buyer but has a fiduciary duty to the seller. 
Transactional agent: In this case, the agent works with both the buyer and seller to facilitate a sale but has no fiduciary responsibility to either party.
Dual agency: The study describes this as an arrangement whereby “the agent somehow is expected to represent the interest of both the seller and the buyer in a home purchase.”

The plaintiffs in the New York case claim that they were pushed into either paying tens of thousands of dollars more for a house or selling a house for much less than it was worth because the agents were working for the same broker – an inherent conflict of interest designed to keep the full commission “in house.” They also allege that the realty company made it a practice to do large numbers of 100 percent in-house-commission transactions to maximize its revenues, despite the potential harm to its clients. Among other things, the company allegedly paid its agents bonuses when they brought in both sides of the commission. The brokerage has denied the allegations. 

Dual agency is legal in 46 states including Massachusetts, according to Finley Maxson, senior counsel for the National Association of Realtors. Typically, the brokers or agents involved are required by state law to disclose the arrangement to clients, but the CFA says that rule is not always followed, or disclosures are presented in a paperwork blitz and clients fail to focus on them. 

Stephen Brobeck, author of the new report and immediate past executive director of CFA, many consumers don’t understand the varying types of representation by realty agents. The key question they need to ask before agreeing to work with any agent, he says, is: “Will you be representing us exclusively throughout the transaction and have a fiduciary duty to us?” A fiduciary duty means that the agent is legally obligated to “procure the greatest advantage” for the client. 

“The Holy Grail is to capture the entire commission,” Brobeck told me. “The listing agent might say to the seller, we’ve got a hot buyer for your house,” who happens to be a colleague. 

In the New York case, one plaintiff alleges that she sought to buy a four-bedroom house for its list price of $599,900 but was pressured to pay $635,000 by her agent. She subsequently received a disclosure form with a pre-checked box indicating that she was giving “informed consent” to dual agency – which was not provided to her in advance and thus violated state law. Another plaintiff says he was pressured to pay $125,000 more than he should have because of a dual-agency arrangement between agents.  

The takeaway: If agents’ disclosures aren’t clear to you, probe further. You need to know who – if anyone – has your best interests paramount. 

Kenneth Harney’s email address is 

Is Your Real Estate Agent Looking Out for You, Or Someone Else?

by Kenneth R. Harney time to read: 3 min