What Happens in Vegas Probably Shouldn't

Is it finally time to rethink dual agency in this post-shift real estate world?

With Las Vegas leading the country in foreclosures, the real estate landscape here doesn’t resemble anything any of us have ever seen. The real estate rules, customs and strategies of REOs & short sales change, reverse course and evolve weekly. It’s like an old west town where The Law was kind of made up on the spot. Think Deadwood with BlackBerrys and Lexuses.

It’s actually an exciting, invigorating time to be in business. It keeps you on your toes, and keeps you up at night scheming. In my nine years in the business I’ve never felt so vital and alive.

It’s fun. But it can also be exasperating as hell.

See if this doesn’t sound familiar. You’re working with a buyer. You make an offer on a bank-owned home. It’s a good offer. Your buyer came strong. You did the research, advised your client (who, refreshingly, heeded your words) and presented a great offer.

You didn’t get it. Well, them’s the breaks. You can’t win ’em all. On a whim, you look to see who the selling agent is and discover… “Well I’ll be darned, the listing agent’s buyer got the house.”

No big deal, it happens all the time. Dual agency isn’t anything new.* Nor is the debate on whether it should be allowed or not.
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*Flashback [cue the harp music and the wavy video]

Back on December 23rd, 2001, a Sunday night, I finished preparing an offer for a buyer on a house we’d been to no less than 4 times. The seller was waiting for the house to go into escrow until she joined her husband in Hawaii. The list price was $285,000. We offered $279,000. We felt good. It had been on the market for 75 days. Our offer was good.

I called the listing agent after leaving my client. It was Christmas Eve Eve (or whatever that day is called) and a Sunday night. It was dark. Probably 6:30. I wanted to go home to my new bride, but I had a job to do. Could the offer wait until the next morning? Christmas Eve morning? I called the listing agent.

“James, I have an offer on Quiet Harbor. Do you want me to get it to you right now, or can it wait until tomorrow morning?”

“How much is it for”

[proudly] “$279,000”

[pause] “Wait until tomorrow morning.”

“You got it, have a good night.”

The next morning, I wandered into my office and prepared to fax the offer. The fax machine wouldn’t receive. So I called the guy again.

“James, your fax machine doesn’t seem to be taking the fax. Could you check to see if it’s on?”

“Try it again in 30 minutes.”

At this point, a more experience agent might have suspected something. Or at the very least an equally experienced, but less trusting agent might have suspected something. Not me. I tried faxing again 30 minutes later. Same result.

“James, I tried it again and your fax machine isn’t picking up. Is it on.”
“Hey, I’m driving to Utah right now. Send it after Christmas.”

Really.

A day or so later, I looked up the property in the MLS and discovered that there was an accepted offer. You already know the end of this story without having been told. The buyer’s agent was the listing agent. The punch line? I had to wait until the sale closed for that. It sold for $267,500. $11,500 less than we offered. No wonder James turned off his fax machine. If I couldn’t prove I made the offer (and when) he was in the clear. And by this time, the Seller was in Hawaii, out of reach.

I tell this story at every single listing I take when I explain dual agency. It can help the process along, but it can also be abused greatly. I let them decide.
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Maybe it’s time to take another look at the legitimacy of it as it relates to bank-owned homes.

One of the reasons that dual agency works well when it does, is that the agent can chip a little bit off of the commission to help the sides come together when the seller wants more than the buyer is willing to give. But with the process of REOs, that is not likely to happen. We’re talking about data-inputting fiscal information into portals, not sitting down at the kitchen table with a couple who are selling the home their children grew up in.

It’s absurd to think that agent would do that. He’s already taking short money on the listing side, so he’s certainly not going to give money away at the selling side, too.

Remind me again what other good reasons there are for dual agency? (I mean good reasons for the consumers, not us agents.)

So as unlikely as it is that any benefit would come out of dual agency in a REO transaction, the chance for abuse is that much greater. Armed with information on the three, four, five or more offers that are on the table for a property, the REO listing agent can “suggest” what price & terms his/her client should make. That’s a no-brainer. And since the distance between Seller (asset manager) and Buyer is so far, nothing could ever be established as a cause & effect. It would be one of the easiest-to-get-away-with violations in the business. Who’s to say the listing agent’s buyer wouldn’t have made that same winning offer without the help of the listing agent’s inside information? Maybe they would. Then again…

To see if this kind of abuse really does go on, or if I’m just a cynic, I did a research project yesterday. I looked up all of the REO listings that had gone under contract within the past 7 days. There were 667 in North Las Vegas, Las Vegas and Henderson. Of those, 17% were dual agency (I included listings that had “non member” as the selling agent). I did a mirror search with non-REO properties and found that only 10% of them were dual agency. I’m no statistician, but that seems like a significant difference.

Is it systemic? No, I’d say not. Because three off the biggest REO agents in this city had 0, 0, and 1 dual agency transactions last week. They seem to actively NOT seek both sides for propriety reasons.

But some REO agents are almost certainly stacking the deck. One big Las Vegas REO agent represented both sides (or, rather, one side was unrepresented, wink-wink) in 46% of his escrows. He took both sides on thirteen of the 28 homes he put into escrow last week. That came as absolutely no surprise to me. Earlier this summer, one of my buyers had an offer in on one of his bank-owned homes. We countered back and forth a couple of times, and then the agent on his team I was working with quit taking calls and refused to answer emails. Out of the blue, he just quit. When the thing went into escrow, who do you think was representing the buyer? Anyone? Anyone?

Who, for crying out loud, does business like that where 46% of their business is dual agency? Well, a veteran woman agent in town beat his record last week. 100% of her REOs she put into escrow last week (3 for 3) were represented by her. Once again, as coincidence would have it, my buyer lost out to one of her buyers in one of those three.

Is it inherently bad for an agent to represent both sides on a transaction? Many states say, “Yes.” Or at least they say the risk of impropriety and conflict of interest outweighs any benefit from that practice. And when we’re talking about selling bank-owned homes, that risk of abuse goes up in inverse proportion to the likelihood of any benefit (reduced commission by the agent to make the transaction viable) taking place.

With our industry taking a lot of criticism (some deserved, much not) in the post-housing bubble, it would probably go a long way toward improving our image if we could adopt some self-policing practices like eliminating dual agency, at least as far as the bank-owned listings go.