I certainly see that as an issue. I've written here before about how the recruiting industry could change, and my business model addresses that at least a bit. For one, almost all of my clients pay me flat fees up front, which is why I'm willing/able to advertise for them (as opposed to contingency recruiters doing free PR).

I'm also transparent with my candidates. If they have two offers and my fees are different with the two clients, I think it's my duty to let the candidate know so they can make an informed decision if they feel I am showing any hint of bias towards one client (of course the difference in fee is usually nominal at best).

Being retained or engaged by a client, as opposed to contingency, really minimizes the incentive to encourage a bad deal for either side in the transaction. I know I'm going to get my fee eventually, so I don't need to try to talk both sides into a marriage that isn't good for either.

The real estate example is a very good analogy for most contingency recruiting models though.

Only a bad real estate agent would do this. Their commission is percentage based, so a good agent will try to get you the most possible for your home. Also, it's unconventional, by try an agent who is open to dual-agent sales (represents both the buyer and seller). Their interest in that case is to get the most fair deal to each party.