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Dual Agency: What Buyers Should Know About the Risks

TLDR

What You Need To Know

  • Dual agency happens when one real estate agent represents the buyer and the seller
  • The problem with dual agency is the agent can’t fully advocate for the best interest of either the buyer or the seller
  • You might consider dual agency if you want to work with a large brokerage with many properties and agents or are purchasing in an area with a small number of agents

Contents

With dual agency, one real estate agent represents the buyer and seller in one real estate transaction. Dual agency can benefit both parties, but you should consider the potential risks before greenlighting a dual-agency agreement.

We’ll show you how dual agency can affect the home buying process and the pros and cons of not using separate agents for a buyer and seller. 

What Is Dual Agency?

Dual agency happens when one real estate agent represents the buyer and the seller. It usually occurs in one of two ways: 

  • Same agent: A home buyer is represented by a real estate agent who also represents the seller of a home they wish to buy.
  • Same real estate company: The buyer and seller have separate listing agents who work for the same real estate company.

Separate agents (aka designated agents) are common. The listing agent represents the seller, and the buyer’s agent represents the buyer. Independent agents are less at risk because there are two eyes and ears. Each agent can focus exclusively on their client’s best interests.

How Does Dual Agency Work?

Whether you are a buyer or a seller, when you contract with a real estate agent, they must present you with disclosures. A dual-agency agreement may be among them. It will spell out the rules if they represent the transaction’s buyer and seller. 

Dual agency is a common practice at large agencies that employ hundreds of agents and have thousands of homes listed for sale. 

When a real estate company represents both the buyer and seller, each is assigned a designated agent to handle their side of the transaction.

Suppose you decline dual agency with a larger real estate company. In that case, you may limit your access to the real estate market because you won’t be able to gain access to properties listed by other real estate agents at the agency.

Again though, agreeing to dual agency can create a conflict of interest. Maybe not with the individual agents but with the company itself because both agents may become motivated to operate in their company’s best interest rather than their clients.

How is commission paid?

Real estate agent commissions – typically around 5% – 6% and paid by the seller – usually are split between the buyer’s agent and the seller’s agent when a home is sold. Dual agents, however, receive the entire commission.

The dual agent collecting the full commission can present a significant conflict of interest. They may be incentivized to sell the home for the highest price they can get, trying to produce the best possible outcome for themselves – not the buyer.

We’re not here to determine or cast judgment on an agent’s motivations, but the profit motive in a dual-agency scenario creates an environment ripe for potential abuse. 

Is dual agency illegal?

The National Association of REALTORS® has strict rules to protect buyers and sellers who have entered into dual-agency agreements.[1] To reduce conflicts of interest, dual agents can’t advise the buyer and seller.

Because of the high risk of unethical behavior, some states don’t allow dual agency. The practice is illegal in these states: 

  • Alaska
  • Colorado
  • Florida
  • Kansas
  • Maryland (which prohibits individual agents from being dual agents but allows two agents from the same brokerage to work on the same real estate transaction)
  • Oklahoma
  • Texas
  • Vermont
  • Wyoming

Even in states where the practice is legal, it’s often heavily regulated. There are disclosure requirements, and the buyer and seller usually provide written consent. 

When Should You Consider Dual Agency?

Before you move forward with a dual-agency agreement, weigh the benefits and risks and consider speaking with a real estate attorney familiar with the state’s laws. The problem with dual agency is the agent can’t fully advocate for the best interest of either the buyer or the seller. It is an ethical tightrope even the most veteran agents can struggle to balance.

You might consider dual agency if you want to work with a large brokerage with many properties and agents or are purchasing in an area with a small number of agents.

Here are a few scenarios where dual agency is more likely – and worth considering – during a real estate transaction:

  • Online listings: A buyer calls the listing agent directly instead of having their agent contact the listing agent.
  • Open houses: A buyer may decide to work with the seller’s agent after meeting them at an open house.
  • New construction: Agents in the sales office for new construction homes work for the seller. If the buyer doesn’t have an agent representing them, they can continue the transaction with the seller’s agent. 

Pros and Cons of Dual Agency

Buyers and sellers have so many items on their respective to-do lists. Fortunately, we can check off one essential to-do for both with a quick breakdown of the pros and cons of dual agency.

PROS of Dual Agency👍

Streamline communication

Communication can be seamless when the same real estate agent or agency represents the buyer and seller in a transaction. Reduced back-and-forth can lead to quicker sales and a smoother experience for everyone involved.

Property knowledge

In a dual-agency situation, the agent knows the ins and outs of the seller’s property and the buyer’s needs. Agents must balance disclosing too much information about the seller’s property and not too much about the buyer’s needs.

Possible savings for the seller

Because dual agents don’t have to split commissions like single agents, sellers may be able to negotiate a reduced commission on the home sale, benefitting both the buyer and the seller.

CONS of Dual Agency👎

Conflict of interest

The biggest concern with dual agency is the potential conflict of interest. Agents can find it hard to advocate for their clients’ dueling interests and remove their profit motive from the sale equation.

Tricky negotiations

Negotiations can become tricky at best and exploited by an agent at worst because they have access to the buyer’s and seller’s confidential information.

Checks and balances

Having two pairs of agents’ eyes on the transaction is better than one agent’s pair. A dual agent doubles their workload and is more likely to miss something.

One Agent or Double the Trouble?

Dual agency can be risky for home buyers and sellers. But if you can find an experienced agent you trust, the benefits may outweigh the potential risks. 

Remember, dual agency can’t happen without your consent. You can refuse dual agency if it doesn’t feel right for you. 

  1. National Association of REALTORS®. “2022 Code of Ethics & Standards of Practice.” Retrieved September 2022 from https://www.nar.realtor/about-nar/governing-documents/code-of-ethics/2022-code-of-ethics-standards-of-practice

ICYMI

In Case You Missed It

  1. Separate agents are seen as less of a risk because there are two sets of eyes and ears on the deal. Each agent can focus exclusively on their client’s best interest

  2. When one agent represents the buyer and seller, both parties benefit from streamlined communication, which may speed up the sale

  3. When a real estate company represents both the buyer and seller, each is assigned a designated agent to handle their side of the transaction

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