The Hidden Dangers of Caribbean Double-Dealing
John Redfern MRICS
Hotel & Real Estate Investment Advisory | Caribbean Real Estate Valuation & Appraisal | Development Feasibility | Transaction Management | Capital Introduction
Beware of “Double-Agents” when buying Caribbean Property!
A Dual-Agency comes with Many Hidden Costs & Limited Benefits
“Dual Agency” occurs when one Real Estate Agent represents both the Buyer and Vendor in a real estate transaction, also known as “double-dipping”.
It can create problems, Conflicts of Interest, and result in additional costs to the Buyer.
This form of representation may be preferred by some Agents, because they feel it’s more efficient when everyone works in the same office.
But studies show that Dual-Agency can harm buyers.
Is a Dual-Agent really?your Agent?
It sounds innocent enough. You walk into a villa’s open-house on the West Coast, and the Agent asks if you have a Buyer’s Agent representing you here on island. You say, no, and she offers to be your Agent.
Sounds good so far. Then you decide to make an offer on the Villa.
Suddenly, the Agent who is supposed to represent you, is also representing the Vendor.
If you ever were to file a lawsuit, do you want the same lawyer to represent you, as the defendant? Probably not. But this situation happens everyday in the Caribbean real estate industry.
Many Villa-Buyers, some even based off-island during a transaction, along with the Vendors, allow one Dual-Agent to represent them both — without always knowing all the risks.
Dual-Agency occurs when a Buyer and Vendor let a single real estate agent, or two agents from the same brokerage firm, represent them both in a transaction.
Dual-Agency is illegal in eight states within the USA: Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas and Vermont. The other states have different laws governing the disclosure of dual agency and the behaviour of Dual Agents.
The Royal Institute of Chartered Surveyors issued a Professional Statement which required all UK investment property agents to refrain from the practice known as Dual-Agency from 1st January 2018. It required Clients to be notified when Agents are representing two separate parties bidding for a scheme, and for incremental increases in services provided. RICS Professional Statements are essentially mandatory contents, or RICS law. Those not complying with the statement can be penalised, fined or barred from the RICS. The UK statement applied to commercial property, meaning anything that is treated as an investment for capital or yield. This meant residential was included, but not the owner-occupier market.
In situations where a Dual-Agency relationship is hard to avoid, it’s best to seek out independent legal advice or representation.
Find recommendations for a real estate lawyer that specialises in the particular market & type of real estate transaction you are entering into, and who will represent your interests during the transaction.
Sometimes it can work...
There can be Buyers and Vendors who see the advantages to a dual agency.
For example, because Dual-Agents keep the entire commission — a.k.a., “double ending” or “double dipping” — some may agree to reduce their commission.
But many experts believe that a Dual Agent can’t really serve as your Agent — not in the legal sense.???At best, they say, Dual Agents can’t fulfil their fiduciary obligations to both parties.??They can’t advance the best interests of both Buyer and Vendor because those interests ALWAYS diverge.
At its worst, Dual-Agency can create harmful Conflicts-of-Interest.
In Dual-Agency, Clients Often Suffer..
When one Agent serves the Buyer and Vendor, The Conflict-of-Interest is obvious.
A Dual Agent has a strong incentive to favour the Vendor; the higher the sale price, the higher the commission.
In theory, this Conflict-of-Interest is reduced when one Agent from a brokerage represents the Vendor, and another Agent from the same firm represents the Buyer.
In practice, one or both Clients are likely to suffer!
According to a study first published in The Journal of Real Estate Finance and Economics,
“...on very fast deals, list prices and sale prices are significantly higher
on houses sold via Dual-Agency.”
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The study also found evidence that some Dual Agents practice “first-resort selling.”
The agents prod the seller to set a higher price and Then try to convince “in-house” buyers to accept it.
In other cases, Dual Agents do the opposite. They convince the seller to set a lower price than the home could actually fetch. This is known as “strategic pricing.”
The study found “little difference between dual-agent (same agent) and within-agency (same agency, but different agent) deals.” In both situations, the researchers discovered;
“..evidence of distorted outcomes associated with Dual-Agency.”
Why an “Exclusive” Agent is best
The OLD-CAR approach to Duty-of-Care
The Agent’s fiduciary responsibilities are summarised with the acronym OLDCAR:
A Dual-Agency cannot advance a Client’s best interests
The biggest problem with Dual-Agency is this:
A Dual-Agent cannot by definition, nor at-times by law, represent both their Clients’ best interests.?
For example: if you’re a Buyer, you may want your Agent to advise you on what price to offer for a home. But a Dual Agent can’t do that because it would violate their duty of loyalty to the seller.??You also can’t ask if nearby properties might negatively affect the value of the villa, or how much the Agent thinks the villa is really worth.
As the Vendor, you can’t expect a Dual-Agent to provide advice on a counter offer, or whether the buyer’s repair requests are negotiable. That would violate the duty of confidentiality to the other party.
In short, when one person, or firm, represents the Buyer and Vendor, you can’t expect the kind of advice and counsel you’d normally get. For many people, this lack of advice and “intel” defeats the whole purpose of hiring an Agent.
To avoid Dual Agency, some agents work as “transaction agents.” Here, the agent’s official role is to facilitate the transaction without representing either party.
Read the fine print
When two agents from the same firm represent the parties, the agents can fulfill their OLD-CAR duties.
But you must do more, than sit-back & hope that the Agents are “honest actors” who won’t engage in Strategic Pricing or First-Resort Selling.
Before you sign a Vendor’s listing agreement or a Buyer’s Broker agreement, check the fine print.
Some agreements allow the Agent to become a Dual Agent if the situation arises.
Make sure you’re not consenting, in advance, to something that could harm your interests.
Both parties MUST give Informed Consent to Dual-Agency.
John Redfern MRICS
MathesonValuation.com
My path to being a Trusted Real Estate Advisor has been a varied & unique one. With a pursuit for excellence & understanding throughout my Professional Career. Drawing on my background working with a Leading European Property Consultancy, A Global Big-4 Accounting & Transaction Advisory Practice, and most recently as Expert Real Estate Appraiser for a Caribbean International Bank.
The?MV-Journal?is a source of expert real estate knowledge, focused on the Caribbean Region. Through our sharing & provision of expert advice & guidance. We are a hub for education in?real estate valuation?& transaction advisory, and for excellence in service delivery.
If you would like to learn more about my background & experience, please follow this link to my?MV-journey.
Owner, Espressotechno Ltd
1 年To quote an old saying " You can't run with the hare and the hounds" without adverse consequences
Chief of Me operations.
1 年Or the lawyer representing the vendor and purchaser; or the lawyer representing the mortgagor and the mortgagee. Great article.