Of squirrels and dogs

No matter how fast or how slow the man encircled the tree, the squirrel kept to the other side of the tree. Half of those around the campfire argued that the man went around the squirrel. The other half disagreed: the man did NOT go around the squirrel. So when he returned to the camp site both sides looked to William James to break the tie.

In terms of compass directions, certainly the man went from the north to the east to the south to the west and back to the north of the tree, and so did indeed go around the squirrel. But in terms of going from the front of the squirrel to the right of him, to the rear of him, to the left of him, and back to the front of him - no the man did not go around the squirrel. Which side is right, said Professor James, depends upon how you define the word/concept.

A treasured parable from What Pragmatist Means. Invaluable in determining who is the best quarterback in the NFL, what is perjury, what is agency ......... Unless/until we share the same definition, there is limited understanding, limited communication.

So, what is a real estate agent? Does the word agent have the same meaning whether you are talking about a real estate agent, a State Farm agent, a travel agent?

It depends, does it not, upon how we define real estate agent: as a fiduciary, or, as a facilitator. A fiduciary is a trusted advisor, like a bank trust officer, an attorney. The defining characteristic of a fiduciary is undivided loyalty. On the other hand, a facilitator is more like a travel agent whose basic responsibility is to put together a requested agenda.

Two Walnut Creek, California, attorneys, Harry Miller and Marvin Starr are the authors of the highly regarded, multi-volume work, "Current Law of California Real Estate". Their definition of agency is on point:

"An agency establishes a 'fiduciary' relationship, and as a fiduciary the agent has the same obligations of diligence and faithful service as a trustee." (*n1)

Their comment on how brokers erroneously conceptualize agency is very instructive:

"Real estate brokers perceive themselves as 'facilitators' who serve the public by putting a buyer and seller together and assisting them in arriving at an agreement. They do not perceive the buyer and seller as competitors, nor do they perceive themselves as advocates. In many cases they do not realize the agency relationship created by their own practices or the rules of their own industry." (*n2)

In California the very format for the agency disclosure form is itself mandated by statute. The form provides that licensees owe to their client "A fiduciary duty of utmost care, integrity, honesty, and loyalty "(*n3). Very potent words: fiduciary, utmost, loyalty.

Incredibly, the identical language is used to describe the duty of a licensee who represents BOTH seller and buyer in the same transaction - referred to in the trade as a dual agent. Dual agent: classic oxymoron.

Again, Miller and Starr:

"The most critical issue in today's real estate transactions is the inherent conflict of interest created by the dual representation by real estate brokers in the usual real estate transaction. The problem is endemic in the common transaction and is apparent from the present decisions, but very few decisions by the court have yet to isolate the issue. However, it is a problem which has been recognized by the real estate industry, the Department of Real Estate, the Federal Trade Commission, the Attorney General, and the Department of Justice." (*n4)

In California the law permits dual agency - however, both parties must give their "knowledge or consent "(*n5). [Parenthetically, I suspect that the use of the word or instead of the word and is the result of sloppy draftsmanship].

So, dual agency. Think it's limited to educationally disadvantaged folk? Think again. Folks who take extreme care in selecting their child's orthodontist, their financial advisor, their attorney, even their Lexus dealer, accept dual agency with not a second thought. In real estate "the MLS system" includes payment of their buyer broker's commission in the purchase price. So whether folks hire the best in the field or the barber-college equivalent of a real estate licensee, there is generally no difference in "cost". So one would think that buyers would take advantage of the opportunity and would retain a very, very good broker with undivided loyalty to them. Do they? Read on.

In the 1998 case of Brown v FSR Brokerage Inc, 72 Cal Rptr 2d, 828, both buyer and seller were represented by FSR Brokerage - better known as Fred Sands. One Fred Sands agent advised the seller that he had to lower the asking price of his Beverly Hill residence from $2,495,000 to $2,400,000, or lose the buyer. The other Fred Sands agent told the attorney for the buyer that he thought he could get the seller to take $2,400,000. After escrow closed the seller's girlfriend was leafing through the documents and brought to the seller's attention his signature on a confirmation that FSR Brokerage had represented both parties. The seller sued, alleging that although he had signed the disclosure form, he had not KNOWINGLY CONSENTED to any such arrangement.

In ruling in favor of the seller the Appellate Court stated:

"Common sense and ancient wisdom join the law in teaching that an agent is not permitted to simultaneously serve two principals whose interests conflict about the matter served - at least, not without full disclosure and consent from both." (*n6)

Incredibly, the parties in Brown were in such a hurry that they opened escrow without a purchase contract! They needed to close within a week since the buyer had eleven dogs who were unhappy with their kennel. Talk about the tails wagging the dogs!


Footnotes:

n1 Miller & Starr, Current Law of California Real Estate 2d Ed, section 3.2
n2 Miller & Starr, Current Law of California Real Estate 2d Ed, section 3.8
n3 California Civil Code Section 2079.16
n4 Miller & Starr, Current Law of California Real Estate 2d, Section 3.8, fn 41
n5 California Business & Professions Code Section 10176
n6 Brown v FSR Brokerage Inc (l998) 72 Cal Rptr 828, 829


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