Dual agency is defined as a real estate transaction in which one agent represents both buyer and seller in a real estate purchase.
Years ago, all agents represented the seller in every transaction. The buyer might or might not have a different agent to show them homes and property and to write the offer to purchase, but that agent was a sub-agent of the listing agent. Buyers had no actual representation.
Then buyer agency came along and it became possible for buyers to have an agent whose duty was only to them. That was the beginning of the controversy – and the lawsuits – over representation. Today agency issues outrank all other concerns in terms of legal liability.
The agency issue hinges on two primary areas of concern. One is confidentiality. An agent who knows the buyer or seller’s financial and/or domestic situation can inadvertently (or deliberately) give out information that would harm that client’s negotiating power.
The second issue assumes that the buyer and seller have limited knowledge with regard to real estate. They need an agent to inform and instruct them throughout the transaction.
The fact that those two issues are the basis of concern over agency make HUD’s new ruling ridiculous, as well as counter-productive. After all, the mere fact of a short sale reveals the seller’s financial position, and the bank’s negotiators, who have the final word, are presumed to possess real estate knowledge far beyond that of the average consumer.
And yet… In conflict with state laws that allow dual agency as long as it’s disclosed and accepted by the parties involved, as of October 1, 2013, it will no longer be permissible to use dual agency in a short sale involving a HUD home.
And they’re not just talking about one agent. The new rules specify that no agent in a brokerage may represent a buyer in the purchase of a HUD short sale listed by another agent in that brokerage- even if that brokerage consists of hundreds of agents working from different offices.
The reason, according to HUD’s Inspector General, is that they have detected fraud and abuse in the pre-foreclosure sales process. In addition, HUD short sales aren’t currently meeting “minimum net sales proceeds requirements.”
To date, no evidence has been offered to back up the allegations of fraud, and NAR predicts that those net sales proceeds will now drop as agents are prohibited from showing homes listed by others in their agencies.
In fact, many are predicting that agents will simply begin refusing to list HUD short sales.
Once again, bureaucrats with no real world experience in real estate have come up with a solution bound to have unintended – and negative – consequences.
NAR and agents nationwide are asking HUD to reconsider this unwise course of action.
Texas Mortgage Banker
36 Responses to Dual Agency in HUD Short Sales to Be Prohibited