What Is a Dual Agent in Real Estate?
What Happens When One Agent Represents Both Buyer and Seller
In real estate, your agent works on your behalf, whether you're the buyer or the seller. Dual agency means that one agent represents both the seller and the buyer in the same real estate transaction. A dual agent must walk a narrow tightrope to be neutral toward both parties, and they may not disclose confidential information to either party. Dual agents, also sometimes called transaction brokers, are not legal in all 50 states.
How Dual Agency Happens
Dual agency happens when the listing agent and the buyer's agent are the same; it can also happen when they both work for the same brokerage firm. Since the brokerage benefits from both sides of the transaction, the broker's relationship with the buyer and the seller is what determines dual agency.
For example, if Betty Smith, an agent for the Smith Brokerage firm, lists a home for sale on Main Street, and another agent for Smith Brokerage, John Doe, presents an offer on behalf of a buyer, Smith Brokerage is acting as a dual agent. The company stands to benefit from both ends of the deal.
More complicated forms of dual agency can occur, too. For example, if Betty Smith represents one client as the listing agent and finds him a buyer for his home—and then signs a listing agreement with the buyer to help her sell her home so she can buy the listing.
Dual agency can cause legal issues because real estate agents are bound by fiduciary duties. These duties require undivided loyalty to their clients. A buyer's agent must act in the best interests of the buyer, and a seller's agent must act in the best interest of the seller. A dual agent would require loyalty to both sides of the negotiating table—a tricky, if not impossible, task.
The fiduciary duties of real estate professionals are written into state, contract, tort, and licensing laws. Therefore, real estate agents must fully disclose dual agency relationships, and all parties must understand the terms and give full and express consent to it to remain compliant with the law.
Consumers should be aware that agreeing to dual agency means that they're giving up, to some extent, their right to their agent's undivided loyalty.
Dual Agency and Your Real Estate Contract
Dual agency circumvents a real estate agent’s fiduciary duty to be loyal to you. Although the agent continues to be legally obligated to keep your private information confidential, and although he can't use it to give his other client in the transaction an unfair advantage over you, an attorney might advise you to be cautious of what you say around your agent.
As a client, you have the right to refuse dual agency representation even when the clause is presented to you in a boilerplate real estate listing or buyer agency agreement. You can hire another broker to represent you if you're uncomfortable with a dual agency arrangement.
Can Dual Agency Be a Good Thing?
Very few things in life—and particularly in business—are purely good or completely bad. Although dual agency presents some unique concerns and problems, those potential problems can be balanced somewhat by a few advantages.
If you're in a dual agency relationship, it might speed up some response times. Maybe you're trying to purchase a home and you have a question for the listing agent. It's not a question that would divulge privileged information, but rather something that any potential buyer would want to know. You won't have to cool your heels waiting for the listing agent to call your agent back with the information because your agent and the listing agent are one and the same.
Dual agency can also streamline the transaction process whether you're the buyer or the seller. With one fewer agent in the mix, scheduling various events is a little easier.
You could also potentially save some money, particularly if you're the seller. Normally, you would have to pay a commission to your agent—often 6%—which would then be split with the other agent. If you're dealing with just one agency, agent, or entity, you may be able to catch a break by negotiating that percentage down a little.
When Dual Agency Isn't Such a Good Thing
Complications can arise in dual agency transactions that are problematic for all parties—including the agent. For example, a dual agent can't use her tough negotiating skills to get both the highest price for her seller and the lowest price for her buyer. It's impossible. What's more, a dual agent might be tempted to go for a higher selling price in order to put more money in his pocket via the commission. This is one of a handful of reasons that dual agency isn't legal in all 50 states.
And how many times have you asked someone else to double-check your work, to look at it with fresh eyes to catch something you might have missed? There are no fresh eyes in a dual-agency situation. Having two separate agents, brokers, or entities involved can mean that one party might—or at least should—notice if the other takes a misstep so the issue can be corrected. An agent that's responsible only to one party is called a single agent, and their loyalty is much more clear.
Single-agent negotiations can make for a more flawless transaction and it can create a more level playing field. No one person or entity is holding all the cards. This can be particularly important when an agent isn't entirely scrupulous and might be willing to fly in the face of his fiduciary responsibilities.
In the end, it can come down to what's most important to you. Do you care more about saving a little money and a streamlined process, or would you rather know for sure that your agent really has your back?