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Global CRE Group Bans Dual Agency in UK, Unifying Standards in US May Prove More Elusive

CA Supreme Court Decision Puts Controversial Issue in Spotlight, Establishing Uniform US Standard Difficult Due to Wide Variation in State Laws
March 15, 2017
They have offically banned the real estate practice of dual agency across the pond.

This week, the Royal Institution of Chartered Surveyors (RICS), a global real estate accreditation body that certifies property and construction professionals, published a statement containing more stringent conflict-of-interest requirements in advance of standards specific to the United Kingdom.

The new requirements specifically ban the practice of dual agency in the UK, under which both buyer and seller in a real estate transaction can be represented by the same entity as long as the arrangement is fully disclosed to all parties.

Under the new policy, dual or multiple relationships between brokers and agents will only be allowed with informed consent of the parties involved in a transaction. The statement also requires clearer guidance on confidentiality.

Both of the standards go into effect Jan. 1, 2018. RICS issued the new statement at MIPIM, an international real estate conference held in Cannes, France.

In the U.S., where each of the 50 states sets its own laws governing real estate transactions, imposing a similar uniform standard would prove difficult, especially going so far as to impose an outright ban on the practice.

The real estate representation arrangement is back in the spotlight after the California Supreme Court last fall upheld a lower-court ruling that a listing broker had a fiduciary responsibility to both the buyer and the seller in a dual agency transaction involving the 2007 sale of a Los Angeles home.

The case, Horiike v. Coldwell Banker Residential Brokerage Co., turned on the larger issue of a real estate brokerage firm's fiduciary role when its agents or brokers represent both sides in a transaction. Since California is the most populous US state, the decision may have far-reaching consequences on how commercial and residential real estate brokerages do business, at least in the Golden State.

The change in the UK was prompted by the results of a study conducted by the University of Leeds. The study found that potential conflicts of interest and lack of transparency in UK property transactions could potentially harm tenants, especially small and medium-sized businesses that lack the resources and awareness of the potential financial impacts of double-dipping.

The Leeds white paper also found that property agencies that act for both tenants and landlords often do not have sufficient separation between departments. The report played an influential role in guiding RICS to toughen its standard on conflicts, including the dual agency ban coming next month.

While the RICS effort to define a global ethical standard on dual agency will have implications for firms doing business internationally, it is unclear how a similar new standard could be implemented in the U.S. with its wide array of state laws.

All 50 states provide conditions under which real estate agents and brokers can handle a real estate transaction under dual agency, but the requirements and practices can vary widely. For example, even though eight states have banned dual agency outright, several of those allow real estate agents and brokers to serve as “transaction brokers” or "designated brokers" without the fiduciary disclosure responsibilities. A number of other states allow designated agency without explicitly banning dual agency.

"I’d be surprised to see any U.S.-based brokerage firms support a ban on dual-agency -- but I doubt they’d oppose more transparency in the disclosures related to dual-agency," said Katie R. Jones, a real estate attorney with Walnut Creek, CA-based Miller Starr Regalia, whose practice focuses on the domestic CRE market.

More transparency is always a good idea, especially when dealing with the complicated nature of dual agency, Jones said.

"I don’t think I’d go so far as to say that dual agency should be banned, because there are times when it works well enough. But given the Horiike decision, it will make dual agency a real challenge in California."

The unlikelihood of a single U.S. standard was echoed by Del Markward and Allen Gump, SIOR president-elect and past president, respectively, who told CoStar in a statement that there is no "one-size-fits-all" answer when it comes to the issue of dual agency.

"There are situations where it is appropriate, others where it is not," they said. "States regulate agency relationships, and they vary from state to state."

Markward andf Gump added that ethics is at the forefront of the SIOR designation, and the best interests of the client, along with full disclosure to all parties, are paramount in every CRE transaction.

"We recommend that our clients consult with their attorney and their SIOR broker to ensure their best interests are being served through the agency relationship which they have contracted,” Markward and Gump said.

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