What Is Dual Agency, and Is It Risky?
Updated: Feb 22
You’re on your way to view a new home. But, when you get there, you learn that your real estate agent is also the listing agent on the property. While that may seem a little unconventional, the agent reassures you it is a common occurrence. But it leaves you with an uncomfortable feeling — and it should!
It’s typical for one agent to represent the seller and another agent to represent the buyer. But with dual agency, there are two ways it can occur:
1. One agent represents both the buyer and the seller. This can sometimes create a conflict of interest since realtors are not supposed to lean more toward the best interest of either the buyer or the seller. While it is legal in most states, there is a lot of room for error, as one agent is doing all the work, but also keeps the full commission. So, it begs the question, who is the agent representing – the buyer or the seller? The agent is only looking out for themselves and does little for either the buyer or the seller.
2. Agents from the same firm represent each party (i.e., Joe and Pat are agents at XYZ Realty where one is representing the buyer and the other is representing the seller). This can sometimes create a conflict of interest as the brokerage benefits and the agents are willing to lean more toward the best interest of each other.
Here, we’ll dive in and take a deep look into dual agency listings and the potential pitfalls.
How Does Dual Agency Work?
In an ideal world, here is how dual agency works. When someone hires a real estate agent, they can decide whether they want to work with a dual agent, and they fully understand the trade-offs of doing so. The agent asks any client who says they’re fine with dual agency to sign an official disclosure from the state’s department of real estate.
However, not all states require such disclosures at the beginning of an agent-client relationship. Even when they do, these forms aren’t always written in plain language, or easily understandable.
Clients don’t have to agree to dual agency. In fact, a dual agency is even illegal or heavily restricted in eight states:
In some of these states, agents can’t even allow dual agency to happen by accident. This can happen in a case where someone finds a home online that they want to purchase, but that home is listed for sale by the same agent they’ve hired to represent them as a buyer.
Pros and Cons of Dual Agency
Whether you are using the same agent as your buyer or your agent and the listing agent works for the same brokerage company, both are considered a dual agency situation. If you are considering a dual agency agreement, look at this list of pros and cons before you sign the final agreement.
· Faster communication: all parties can quickly be on the same page if the same agent represents the buyer and seller.
· Full disclosure: both parties must be made aware of the dual agency arrangement and sign off.
· Larger property pool: if the dual agency comes as two separate agents working for the same firm, you may miss out on potential properties if you do not agree to a dual agency.
· Possible savings: since the commission is going to one agent instead of two, you may be able to negotiate a lower amount.
· Conflict of interest: This is the biggest drawback to dual agency and the reason why some states ban it. Human nature and financial incentives can make it hard for an agent to be neutral when representing both the buyer and seller or both the landlord and tenant.
· Lack of advice: to avoid a conflict of interest, the dual agent cannot offer either party advice on any portion of the home sale. For example, the buyer will have to come up with the price they want to offer and decide whether to counteroffer without their agent’s input.
· Clients must look out for their own best interests: A dual agent can’t possibly represent the best interests of two parties with different goals. That means a dual agent acting ethically can’t do more than facilitate the transaction.
When you consider both sides of the equation, there are plenty of reasons why using a dual agency should be avoided and it’s easy to see why a dual agency is not an option worth considering.
Why Avoid Using a Dual Agent
On the outside, a dual agency agreement may look like a way to streamline the selling process. But, if the dual agent is performing their job ethically, it hinders the process overall. Legally, there are many questions that a dual agent cannot answer throughout the home-buying process. Examples of questions a dual agent cannot answer for both parties are listed below:
· How much is this property worth?
· Is the online estimate accurate for the property?
· What would be a fair offer for the home?
· How much should my counter be to the buyer’s offer?
· Is there anything that can lower the property’s value nearby?
· Are there any sex offenders living in the range of the home?
· What repairs or concessions do you recommend?
· Should I agree to the buyer’s repair requests? Are they unreasonable?
· Is the appraisal too low? How should I dispute the appraisal, and who can help?
As a buyer or a seller, you are likely to have plenty of questions. There are many you can ask when choosing a buyer agent or listing agent. Whether it is your first time, or you are a seasoned pro, it is common to have questions.
If your dual agent can’t answer your questions, then they are not performing their duties to the fullest, and frankly, cannot effectively fulfill their contractual agreement with either the seller or the buyer.
The Bottom Line
Although there is nothing illegal in working with a dual agent – in states where it’s legal – it can be tricky to confirm that your real estate agent is working for your best interests. It may be an easier option to work with your own agent to make sure that your interests are being taken care of.
Take your time to weigh the pros and cons before working with a dual agent. Once you’re ready to look at homes and find a trustworthy real estate agent, start the mortgage process. This way, you’ll be able to make an offer as soon as you find a house you love.