Homebuyers and sellers are often confused about real estate agents' roles in a sale or purchase. If you are buying or selling a house and working with a real estate agent, you may wonder who the agent represents, who they are loyal to, and whether there are any rules around agent relationships.
Many states require that agents give buyers and sellers an agency disclosure form to sign, which clears up these questions. The form used in California, for example, is not a contract between two parties, but rather it is a disclosure from one to the other. It clarifies the many types of agency functions that may come up when buying or selling a home and specifies the rules agents must adhere to. All parties must read it so they know what to expect from each other; the form also allows them to select the type of agency relationship they prefer.
- Dual agency refers to an agent that works with both the buyer and seller of a home.
- Two agents can work for the same broker on the same transaction, causing a dual agency situation.
- Single agency refers to an agent or real estate broker that works with only one party in a real estate transaction.
- Most states require that buyer and seller of a home agree to be represented by the same agency or agent.
All agents who represent clients under single agency must treat their clients with a certain standard of care. This sounds pleasant, and it is, but it is a legal standard that dictates certain rules that come with the job.
For instance, all real estate agents owe a fiduciary responsibility to their clients. This means many things, but among the most crucial are that they have to act in the best interest of their client's finances, and they cannot share confidential information with the other party or the other party's agent. In addition, agents acting in single agency must use care and due diligence to perform duties, disclose all material facts, and be honest.
The duty to disclose is a tricky thing in real estate. State laws govern what agents are required to tell their clients, so there might be some items that an agent does not disclose. "Material" facts set the standard, defined as those that are crucial in the choice of whether to buy or sell a home.
In some states, an agent must disclose issues with a building code or a pending lawsuit but may not need to reveal that a house was the scene of a crime.
Buyer's Agents vs. Seller's Agents
Agents who work for people shopping for homes act in a single agency capacity as a buyer's agent. Agents who work for people listing their homes to sell act in a single agency capacity as a listing agent.
Buyer's agents and the buyer will often sign a buyer's broker agreement, which lays out the duties and obligations of the agent. In some states, if buyers do not sign this form with the agent, that agent does not represent the buyer. Instead, they become a sub-agent of the seller.
Sub-agents owe the same duties to the seller as the listing agent. The seller's agent and the seller sign a listing agreement, which also lays out the duties and obligations of the agent. Listing agents and buyer's agents each owe their clients loyalty, confidentiality, and accountability.
Can My Single Agent Work for the Other Party?
Many agents work all angles: as a buyer's agent with buyers and as a seller's agent with sellers. Some agents work as exclusive buyer's agents and never take a listing. Other agents work exclusively with sellers and never show a home.
If you are looking to buy or sell a house, you may prefer to deal with these types of agents over general agents because they can provide a more focused point of view. You may also have a clearer notion of what to expect in terms of duties of care.
Duty of care is the agent's legal responsibility to inform their client and act in their best interests.
Dual Agency With Two Agents
All real estate agents are licensed under a real estate broker. If you're buying, you may end up working with an agent who is licensed by the same broker as the listing agent. If you're selling, the buyer might work with an agent who works for the broker your agent works for.
When this happens, it creates a dual agency. The agents could work at two offices across town and not know each other, but they are still working under dual agency since they have a license from the same broker. Simply put, one agent represents the buyer, and the other represents the seller.
Should I Be on the Lookout for Conflicts of Interest?
At first, an agent may have created a single agency relationship with the buyer, but when the buyer chooses a home listed by that agent's broker, the agent's relationship with the buyer changes. This can be complex when loyalty is in play, because as your buyer's agent, their duty is to help you find a home, and they want to help you get the best price.
But when the house is listed with their broker, they make more money on a higher sell. This can create a conflict of interest on the agent's part; you can see why it is crucial to find an agent you trust.
If you have a single agent helping you buy a house, and you find a home listed with that agent's broker, your agent may end up working both sides. Not all single agents note the distinction.
You should always ask about dual agency when hiring an agent to find out their policy and if you're required to stay with them if the situation develops.
How Can I Prevent my Agent From Working With the Other Party?
Laws vary from state to state, but for the most part, both parties must agree to dual agency in writing. In California, for example, standard exclusive buyer's broker agreements contain terms that allow dual agency, so most buyers don't realize their agent and broker are working in dual agency.
If you want to be certain that your agent is yours and yours alone, ask for exclusivity. The only agents who will never work in dual agency are exclusive buyer's agents and listing agents whose practice consists only of listings.
Dual Agency With the Same Agent
A listing agent for a house who also represents the buyer is a dual agent. Dual agents cannot act in a fiduciary relationship with either party and must treat both sellers and buyers equally. They cannot share confidential information or provide confidential advice.
The dual agent cannot advise on home price, terms, or negotiate on anyone's behalf. Therefore, they cannot try to obtain the highest price for the seller or the lowest price for the buyer.
Dual agents have a fiduciary responsibility to both the buyer and seller, so they must be careful how they conduct the transaction.
Some buyers prefer to work only with listing agents because they know the agent gets two commissions—one as a listing agent and one as a buyer's agent. They feel the listing agent is motivated when a buyer makes a purchase offer to get that offer accepted. They might also ask the dual agent to negotiate the real estate commission to increase the seller's profit on a low-ball offer.
How Neutral Transaction Agents can Help
To avoid dual agency, some agents work as transaction agents. Transaction agents do not represent either party and do not protect their interests; they facilitate the transaction between them and ensure the process runs smoothly.
A transaction agent helps fulfill the terms of the purchase contract and provides the paperwork needed for each side. Having an agent of this type can help all parties avoid any conflicts or issues around loyalty that may arise when working in a dual-agent setup.