Empowering the Consumer: A Discussion on Minnesota's Dual Agency Statute and a Proposed Solution that Puts the Consumer First

Abstract

Many Americans across this county strive to achieve the dream of home ownership. The obstacles that stand in the way of achieving that dream can be staggering and unique to the persons pursuing home ownership. To a certain extent, it is expected that there be some proverbial hoops of fire to jump through before finally turning that key to a new home. What the consumer does not expect is to find a statutory scheme that creates unnecessary obstacles, such as a broker with a divided loyalty and information barriers, at the expense of the public. This statutory scheme is enshrined in Minnesota Statutes, section 82. The statute provides for standardized disclosure and notices regarding the agency relationship between the broker/salesperson and the consumer — in all there are three required notices. Nor does the consumer expect the state to favor a brokerage’s bottom line over a consumer’s right to fully understand all the relevant aspects of the transaction. Yet in Minnesota, that is precisely what happens. All too often, a typical residential real estate transaction involves a broker with a divided loyalty — to buyer, to seller, and to self. The average consumer likely understands that an agent, or a party acting on behalf of a seller or buyer, owes a significant duty of loyalty to the represented consumer. Thus, when a broker represents both the buyer and the seller in a realty transaction, the consumer will likely sense that something is amiss. The interests of a seller and a buyer are fundamentally at odds. The seller will want to sell the property at the highest price possible, disclaim every warranty and representation permitted by law, adhere only to the minimum disclosure requirements, keep confidential information confidential, and have an aggressive representative to negotiate with the other side. The buyer on the other hand will want the price lowered as much as possible, obtain as many warranties and representations as possible above the statutory disclosure requirements, maintain confidential information secret, and secure aggressive representation to advance the buyer’s other interests in negotiations. The consumer may be surprised, however, to find that a real estate agent is permitted to represent both sides to the transaction. What is not surprising is that such representation is the source of many disputes. Despite the fact that this dual relationship is rife with troubles, the consumer will often find him or herself subject to it. This form of agency is called dual agency. Minnesota courts recognize the conflict of interest as an inherent one, yet they consider it an acceptable conflict so long as the parties can agree to it. Even though the required disclosure has been increasingly limited. But the question remains, to what extent the parties actually understand the implications of this conflict? It seems absurd that an informed consumer would consent to this kind of conflict in what is likely to be the largest and most significant type of transaction in which he or she will engage in. This article proposes a new approach to how Minnesota should view the agency relationship between a real estate broker/salesperson with consumers. This article focuses exclusively on the residential real estate-dual representation form of agency. In Part II, the article provides useful definitions of agency concepts and outlines current Minnesota law. In Part III, the origins of agency law is discussed and Minnesota’s common law history of agency is evaluated, along with the pattern of limiting consumer disclosures. Part IV discusses the legislative purpose of section 82 and how that purpose is evaded through the statutory text itself. Part V evaluates how other jurisdictions view the topic of dual and designated agency and how some of those jurisdictions strive to serve their legislative purposes, similar to those in Minnesota. Next, in Part VI, the article discusses how Minnesota and other states view the concept of the attorney-broker acting in a dual agency capacity. Finally, in Part VII, the article proposes various statutory amendments that will help align the text of the law with the purpose of the law, followed by a brief summation in Part VIII.