Dual agency refers to a situation where a real estate agent represents both the buyer and the seller in the same property transaction. While there might be some benefits to this scenario, property owners should take extra care to make sure their interests are protected when entering a dual agency transaction.
A real estate agent has certain fiduciary duties to uphold when representing their client. They’re obligated to always act in their clients’ best interest, even when it might conflict with their own. Dual agency relationships call into question that duty of loyalty. If a single agent is representing two parties with opposing interests, can they uphold their obligations toward both parties with reasonable care?
Dual agency real estate transactions have come under ethical scrutiny of late. In 2019, the watchdog group Consumer Federation of America called for a nationwide ban on dual agency, saying that the practice adds too much confusion to both sides of the transaction. Currently, Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont have made dual agency illegal.
How does dual agency happen?
In the age of internet marketing, dual agency could potentially happen more often than you might think.
For example, a casual home browser may stumble across a home via a popular real estate site. Since they weren’t officially home shopping, they don’t have a realtor, so they just click on the “more information” button… which directs them to the listing agent. If it’s legal in their area, that agent may then become both the seller’s agent and the buyer’s agent, since the contact originated from their listing.
The same thing might happen at an open house. A couple out taking a stroll decides to pop in to an open house “just to look around” and ends up falling for that fourth bedroom and remodeled kitchen. If they decide to make an offer, the listing agent might then work for both parties.
Dual agency could also happen when a home buyer begins working with a specific agent to help in their home search. Throughout the process, they may become interested in a property that their agent is selling. At that point, the agent would be representing both buyer and seller.
Why is dual agency a bad idea?
No matter how it happens, dual agency may not be the best idea when entering a real estate transaction because it causes an automatic conflict of interest. A seller relies on their real estate agent to help them get the highest price for their property, while the buyer wants an agent who will get them the best deal.
If an agent represents two parties with opposing goals, will either party be satisfied with the outcome? Not likely. The seller will always wonder if they could’ve gotten a higher price, while the buyer will assume that they’re not getting a fair deal since agents work on commission. Lawsuits can and do arise from such circumstances.
Who benefits from dual agency?
The dual agent benefits the most from dual agency. Period. They end up with the whole commission (rather than the typical 50/50 split between buyer’s agent and seller’s agent), but do the same (or arguably less) work.
Similarly, the real estate broker who oversees the dual agent benefits as well. Brokers take a percentage of each agent’s commission. Higher agent commission means a bigger cut for the broker.
Are there any pros to dual agency?
While the agent and broker definitely stand to gain the most from dual agency, there are situations where having a dual agent may make sense.
One case may be a property sale between family members or good friends, where the property never goes on the market. A real estate agent may represent both sides of the transaction in more of a mediation or contract-review type of relationship. Since the sale is probably all but done prior to the agent getting involved, they’ll probably agree to a much lower commission, thus benefiting both parties.
Some also argue that dual agency can be good in hot markets where timing is everything. Communication is streamlined by having only one agent involved, making each negotiation point go faster.
For savvy buyers or sellers who are confident about what constitutes a reasonable deal in their market, dual agency can be a way to help leverage a better purchase price from both perspectives. Sometimes a dual agent will be willing to take a cut in commission in order to get the deal done. This amounts to a savings from the buyer’s and seller’s perspectives, while the dual agent still takes home more than they would have in a normal, two-agent deal. Wins all around.
How to cover your bases if you elect for dual agency
If you feel that dual agency could be in your best interest, be sure to do your own due diligence.
First of all, a dual agent is required to give full disclosure to both parties, informing both sides of their role and gaining consent from each. If you feel uncomfortable, you can and should opt out of the representation agreement. Sometimes, a brokerage will then assign you another agent as your representative—this is called “designated agency.”
But beware! Designated agency is seen as basically the same thing as dual agency in some states, due to the fact that the real estate broker/brokerage is still benefiting from both sides of the transaction. In addition, some question whether the designated agent might feel beholden to the originating agent and thus not give their client complete undivided loyalty. (After all, that originating agent basically just handed the designated agent a work-free commission check.)
If you do move forward with a dual agent, you may want to consider hiring an unbiased real estate attorney to look over your closing statement and contract. No matter how confident you feel about getting a good deal, another set of eyes on the legal terms could make all the difference. A few hundred dollars for consultation could end up saving you money and stress down the line.
Finally, if you work with a dual agent, be sure that they have methods in place to safeguard your confidential information. Agents are privy to basically everything but your blood type, since they’re supposed to be acting as your fiduciary. Make sure the agent can be trusted to keep your information private, especially from the other party in the transaction.
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