Should a real estate company be allowed to represent both buyer and seller in a single transaction?
It appears to be a conflict-of-interest: a broker giving his allegiance to both parties in a home sale. Some opponents of the practice liken it to a law firm representing both sides in a trial.
But such arrangements -- known as "dual agency" -- exist, and the attorney general says they're OK. A bill before the General Assembly would explicitly permit companies to act as "dual agents" under certain conditions.
Larger brokerages, lawmakers and realty groups say that, unlike defendants and plaintiffs, buyers and sellers are less adversaries than partners in a business deal. Real estate agents are less advocates than mediators or "facilitators" in that deal, they say.
The bill before the Senate -- No. 404 -- allows dual agency and sets guidelines for brokers who engage in it. Proponents say the bill would help to teach buyers and sellers their rights, promote the use of buyers' brokers and ensure that dual agents act properly.
"It's a tremendous step in the right direction," says Arthur Davis III, president of the Maryland Association of Realtors. The bill is the group's top legislative priority this year.
Though the MAR and some large firms say the bill will benefit consumers, they admit that it also will help them. Big realty firms, with lots of listings, don't want to be precluded from selling these listings to people who work with buyers' agents within their own companies, Mr. Davis said.
A quick primer on the real estate business:
Every real estate company is run by a broker, who hires agents to work with buyers and sellers. Agents have two main jobs -- to find sellers who will list their properties with the company, and find buyers for the company's listings or for other companies' listings.
Under the traditional system in Maryland, agents who find buyers and work closely with them are, nonetheless, legally bound to serve the interests of the seller. If they learn, for 'N example, that buyers are willing to pay more for a house, the agents must reveal this to the sellers.
Many buyers were unaware of this, so the state in 1989 started to require agents who work with buyers to disclose in writing that their loyalty is with the seller.
With the advent of buyers' brokers -- who contract with buyers and give their loyalty to them -- conflicts started to arise, especially as large companies like Long & Foster Inc. and O'Conor, Piper & Flynn got into the buyers' brokerage business. Brokers were giving their loyalty to the buyer, through their buyer's agent, and to the seller, through the listing agent -- in the same transaction.
Last August, the Maryland attorney general issued an opinion, saying it is "permissible" for realty firms to engage in dual agency, as long as both the buyer and seller agree.
In an attempt to clarify the issue further, the legislature is debating a bill that would:
* Allow dual agency, but require the consent of both the buyer and the seller.
* Require the broker to assign different agents to the buyer and seller.
* Require the broker to keep confidential any information provided by the buyer or seller, except in certain cases. (For example, if the seller revealed a major defect in the property and wanted to conceal it, the broker and his agent would be obligated to reveal it.)
* Forbid the broker from disclosing to the seller that the buyer is willing to pay more, or disclosing to the buyer that the seller is willing to take less.
* Require agents to disclose to buyers and sellers their rights about dual agency -- including the right not to accept the arrangement.
The bill would take effect Jan. 1, 1995.
Proponents say the bill mainly lets everyone know what's going on.
"It's really consumer protection. It gives the buyers and sellers of real estate the information they need to be involved in the process," said Sen. Arthur Dorman, D-Prince George's, who chaired the summer study committee that drafted the bill.
In addition, the bill would encourage the use of buyers' agents in Maryland, real estate executives say.
"People are going to know more about what their options are when the law passes. And they're going to be more interested in taking the buyer's agent option," said Joanne Darling, the broker-owner of Darling Realty, an independent real estate firm based in Greenbelt.
Buyers' agents are now involved in only 5 percent to 10 percent of home sale transactions in Maryland, said Mr. Davis, of the MAR. But he thinks they will be part of 25 percent of such deals within five years.
While more consumer disclosure is favored by most in the real estate industry, critics of the bill question whether the state should allow dual agency. Even the bill admits to a conflict of interest:
"As a dual agent the real estate broker represents both the seller and the buyer and there may be a conflict of interest because the interests of the seller and the buyer may be different or adverse," it reads.
Dual agency may lead an agent to steer a buyer to a property listed by another agent with the same firm, since the broker will favor the sale of the company's own listings, said Peter G. Miller, a real estate author based in Silver Spring.
"Large brokerage companies have the greatest possible potential for dual agency conflicts because they can control 10, 20 or 30 percent of local listings. And they must find buyers for the homes they have listed," he said.
John Long, an exclusive buyers' agent who owns Creative Real Estate Consultants in Columbia, says: "It's a terrible law -- an abomination," Mr. Long said. Use of dual agency compromises the representation of both buyer and seller, since both agents work for the same broker, he said.
"Dual agency is like saying that two different lawyers in the same law firm can represent both the plaintiff and defendant. That's just wrong," he said.
Joe Bondar, president and broker of Bondar Realty, an independent in Pikesville with eight agents, has a problem with dual agency because, he said, it's often difficult to keep secrets within a single firm. Information is passed verbally within a company and also through paper files, he said.
Critics worry that brokers and agents will either act unethically or, to avoid the inherent conflict of interest, do little for their clients.
As now drafted, "the law sounds like we're all sort of standing in the middle and no one is taking care of the client," said Mary Sheridan, an exclusive buyers' agent who works through RE/MAX 100 in Silver Spring and testified against the proposed legislation last month.
Another opponent, Helen Hillstrom, who heads Hillstrom Real Estate in Montgomery County, finds the law "intellectually offensive" and worries it will dilute service provided to both buyer and seller.
The Senate's Economic and Environmental Affairs Committee has approved the bill and passed it to the full Senate. Neither the Senate nor a House committee had acted on the bill by press time.