Dual Agency Scenario

9 Replies

Hello and thank you to anybody who helps me understand this a little better.

I am currently working through an online school to get my real estate license. It has been brought to my attention that in my state of Colorado, dual agency, or representing both parties in a deal is illegal here. I had a realization that this could be an issue I may come across.

For example: Imagine I have investor friends who are always looking for investment properties. Now imagine I am also marketing myself to help people sell their homes. When a client asks me for help in selling their home, if it turns out to be a great investment property, how would I sell it to an investor friend? Would I just give up that half of my commission and let the buyers agent get a free payday? (even though i constructed the entire deal). I guess a better question is: How would I maximize my commission without breaking any rules?

@Trace Garretson while I don't operate in a state where it is illegal to practice dual agency, I have previously (and plan on doing so in the future) represented one party as a client and then facilitated a transaction for the other party.  Meaning that I was representing one individual's best interests as a real estate agent, and the other individual I simply dealt with paperwork, coordinating appointments, etc.  For doing so I charged 1.5x the commission.  So instead of charging what I would consider my full fee on both sides, I charged the client my normal fee on their side, and the party I facilitated for half of my normal fee.  I felt it was fair, they felt it was fair, and it got the job done smoothly.  

When practicing this way, make it very clear which party you are representing as a fiduciary and which you are facilitating for.  In my state, they require a disclosure to be signed outlining the difference, so make sure you explain and get it in writing that both parties are okay with this.  

The reality is you end up in this situation very infrequently. In fact  I bet that it doesnt happen for at least the first 5 years you are in the business.

But if it does, just refer your buyer to a colleague and collect a referral fee.

@Trace Garretson I would actually disagree with Russell Brazil if you are marketing the property correctly (through your own networks, social media, "coming soon" on Zillow, ect). In Colorado you cannot have dual agency, but instead you will be a "transaction broker" for both sides not owing a fiduciary duty to either side. When you sign your listing agreement with the seller you will need to explain that as a Listing Agent you will be receiving a "x" commission, but if you are able to find a buyer you will be representing both sides as a transaction broker at "x" commission. Some associates in my office do not discount this amount, some do. Just make sure to talk to your managing broker if you are related to the seller as this can cause a conflict where you would not be able to represent the buyer as a transaction broker, but instead as a customer. 

But hey, if you want to shoot a free buyer's agent commission to me I'd be more than happy to accept and happily provide a referral fee back to you ;)

@Trace Garretson

Rules of agency don't determine commission.

Agency is about who you represent during a transaction. The listing agreement determines the commission.

Whenever you are getting into a substantial conversation with a buyer or a seller, you have to disclose agency rules and the difference between and buyer's agent, a seller's agent, and the potential for dual agency.

Dual agency is when you specifically represent both parties with written agreements. Both parties have to agree to dual agency in writing. Like you mentioned, not all states allow it.

If you have a listing agreement with an owner and a buyer exclusivity agreement with the buyer, then that would be a situation of dual agency. Both parties would have to agree to it. If they don't agree to it, then you would have to find another agent to represent the buyer...

If you have the listing agreement and a buyer wants to put in an offer without representation, that's not dual agency, since your agency duty is still to the seller. Even if it is your buyer, if they don't have a signed agreement with you then it is not dual agency. You would still get the full commission per the listing agreement.

Some offices try to go the extra mile and make you use another agent in the office, even without an agreement. However, it's not necessary. Here's why...

Anytime you do not specifically have a buyer exclusivity agreement, you technically still represent the seller, even as a buyer agent. Why is that important? It's the difference between a customer and a client. 

If a buyer doesn't sign the exclusivity agreement, as a buyer agent you have no obligation to protect their confidentiality or negotiate on their behalf since they are only a customer. You still work for the seller. If the buyer does sign the agreement, then they become your client and you have a fiduciary responsibility to protect their interests and not the seller's.

With dual agency, you somehow have to protect the interest of both parties, so it is a murky situation.

This all comes down to what information you can share about the other party in a transaction and when. 

As an example, a listing agent has a duty to protect their client. So, the listing agent shouldn't divulge information about the seller unless they are legally obligated. If the buyer doesn't have an exclusivity agreement, the agents would be free to divulge the buyer's situation since the buyer is still just a customer.

This is important if there are ever lawsuits about a transaction and who was obligated to disclose or not disclose information about either party.

To really avoid these murky situations, many listing agents won't pay out a commission to buyers agents with an exclusivity agreement. To get a commission from the seller, you as the buyer agent would still have agency to the seller.  If you have an exclusivity agreement with the buyer, then you would have to get the commission from the buyer and this creates a more defined wall of agency.

Lots of good responses here so far.  While many states do not allow Dual Agency,  most if not all have a mechanism for an agent to "double dip" the commission.  In Colorado, the term appears to be acting as a transaction broker.  In Texas, the broker acts as an intermediary

Like @Greg H. stated above - in this scenario you drop the "agency" or "representation" for both sides and work as in intermediary. At least that's how we do it in Texas. In Florida, where I'm also licensed, agents are "transaction" facilitators from the beginning and only provide "representation" when specifically asked and contracted to do so. 

I believe my Florida license still has reciprocity with Colorado so their laws are likely similar.

Talk to you broker.

I think you are making it harder than necessary. I list or sell most properties as a "transaction broker" which means I am assisting in bringing the parties together to get the job done. You wouldn't be a "seller's agent" or "buyer's agent" unless that person were a family member or close friend, or if you own the property. You use the Brokerage Disclosure document that explains it and is part of most transactions on one side or the other.  Help me out here @Mindy Jensen and @Bill S.

Wow, thank you all for such timely and detailed responses! I am extremely grateful for the community here.... always giving me all the guidance and tools I need to succeed. A lot of these concepts are foreign to me and you all have consistently helped me break the ice and learn new things!

Hi Trace

This is a great and valid question. It is good to learn so that you have this in your knowledge arsenal ahead of time. But as someone put it earlier in the thread, Don’t over complicate yourself, you will cross that bridge when you get to it. A key for me is to always treat everyone fairly and to always disclose even if you don’t have to by decree or law, oh and get it in writing. And when you get there a good managing broker would help you in that regards.

Happy hunting!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here