Do real estate buyers and sellers really know whose interests their real estate agents are representing when they tell them their deep, dark financial secrets?

The answer is a resounding no, according new research from the Consumer Federation of America (CFA), which mystery shopped real estate agents to underscore the abundance of costly and confusing practices.

Two-thirds of consumers believe the real estate agent they hire is “always” or “almost always” required to represent their interests, yet that is not true, CFA said. In fact, some state laws allow agents to represent the interests of other parties, such as their real estate agency, banks, builders or their own investments.

These are the findings of the CFA’s new research report:“The Agency Mess: Home Buyer and Seller Confusion."

"Given the huge expenditure of a home purchase and the conflict of financial interests between seller and buyer, it is important that consumers know who their real estate agent is actually representing," said the report's author, CFA Senior Fellow Stephen Brobeck. "Today, many home buyers and sellers do not know whether their agent is representing their interests, those of the other party, or neither."

While every state has its own law regarding real estate agent conflict disclosure, most of it is ineffective and relies on terminology such as “dual agency,” which consumers don’t understand, Brobeck said.

“For example, a subagent working with a buyer owes fiduciary allegiance to the seller. And the term dual agent is an oxymoron. No one agent can represent the fiduciary interests of both buyer and seller,” Brobeck added.

The effectiveness of the laws is diminished by the fact that these disclosures may be only required orally, may not require the use of a standard form and may not be required at an early stage in the home purchase.

As bad, real estate agents are not always conscientious, according to CFA’s mystery shopper survey. These calls revealed that 75 percent of agents failed to mention dual agency issues.

“State officials have made little effort to enforce the disclosure laws. Violations usually only come to light when agent practices are so egregious that they lead to litigation,” Brobeck said.

The ineffectiveness of state disclosure laws has harmed many consumers in the following ways, according to CFA:

• Home buyers and sellers who think their subagents or transactional agents are fiduciaries have mistakenly believed that their agent is seeking, respectively, the lowest or highest house price.
• Home buyers who think subagents are working for them often have disclosed information about their finances and house price ceilings that the subagents are legally required to share with sellers.
• Home sellers working with fiduciary agents may face pressure to allow dual agency when buyers are interested in working directly with those agents. They may not understand that, under dual agency, their fiduciary interests are no longer being represented. They also may not understand that a 5 percent to 6 percent commission captured by just one agent usually represents very generous compensation for limited services rendered.

These are some of the reforms that the reports said would greatly improve the content and timing of disclosures to home buyers and sellers:

• Dual agency should be prohibited; it is allowed in eight states.
• There should be a clear written and verbal communication from agent to consumer at the first substantive contact about whether the agent will function as a fiduciary agent, a subagent or transaction agent/facilitator.
• State real estate commissions should work with consumer and industry representatives to develop an effective disclosure document then enforce its use. If they refuse, state attorneys general should take on this responsibility.
• These commissions should also develop rules to minimize conflicts of interest when the same real estate firm represents both a seller and a buyer.

"These reforms would benefit both consumers and real estate agents," Brobeck said. "More informed home buyers and sellers will make better decisions. They will have a higher regard for, and complain less about, real estate agents. And agents will not face the risks and ethical dilemmas of dual agency and undisclosed subagency."