The term “dual agency” in the real estate industry occurs when an agent from the same real estate agent serves as both a buyer and the seller’s agent of a real estate purchase. Additionally, dual agency can happen when multiple agents of the same brokerage are representing both the buyer as well as the seller in a sale deal. Though dual agency is somewhat common, it could lead to conflicts of interest and result in the sellers as well as buyers that they need to be fully taken care of.
The majority of homeowners and sellers don’t realize there are several types of agents, based on an analysis by the Consumer Federation of America, an advocacy, research, and education-based organization with its headquarters within Washington, D.C. What’s even more concerning, is that some (if not most) people don’t understand that a real estate professional must represent the best interests of their clients.
What Is Dual Agency In Real Estate?
Dual agency refers to the situation where an agent for real estate serves as both the buyer and the seller in a property transaction. This can also happen in cases where an agent is representing both the landlord and tenant or one real estate firm is the representative of both parties during a purchase or lease transaction.
Single agency refers to a situation where the agent is representing only one person. An agent working at a different organization represents the other party in the transaction. In most traditional real estate transactions, single agency allows an agent to represent their client’s best interests without any conflict.
How Does Dual Agency Work?
The dual agency system is a little questionable at time, and really only “works” in the following ideal scenario; if someone is interested in purchasing a property, they will employ an agent for real estate. In many states, they person employing said real estate agent is given the option of deciding whether they’d prefer to utilize that agent as a dual agent and therefore are made fully aware of the advantages and disadvantages of working with a dual agent. The agent will ask the client to sign a formal statement from the Department Of State of real estate stating they agree to work with a dual agent.
However, many states don’t have these disclosure requirements before starting a client-agent contract. If they do, the documents don’t necessarily have plain written language that is easily understood or understandable.
Dual Agencies Are Illegal In Some States
To be clear; real estate clients do not have to agree to or be a part of dual agency. Actually, dual agency is prohibited or restricted in 8 states:
In a few of these states, agents aren’t allowed to let dual agency happen accidentally. This could be when a buyer discovers a property on the internet that they would like to buy, meaning the property is listed as being sold by the same agency they’ve hired to represent them as buyers.
What Is a Dual Agency Agreement?
A dual agency agreement is made between the seller, the buyer, and a real estate agent in which the agent is required to act as the buyer’s agent and the seller’s agent when selling the property, in line with the state’s law.
The agreement also specifies what the agent’s role is in their role in representing both parties. This includes the requirement that agents are not allowed, absent authorization, to reveal secret or sensitive information concerning either party to the other.
Who Pays Commission In Dual Agency?
When a single real estate agent represents both the buyer as well as the seller, typically, the seller will pay the entire commission, as the buyer would normally. It is typically between 5% and 6% of the purchase cost. Most of the time, outside of a dual agency arrangement, the seller’s agent will split the commission equally along with the buyer’s representative.
Dual Agency Pros and Cons
The state laws governing whether agents must disclose their dual agency and whether they are required to make it clear either in writing or verbally can put homebuyers and sellers in a state of confusion. In addition, there are agents who may violate the law.
In order to limit the chance of a dual agency that is not disclosed, contact your agent as early as possible if they’ll solely work with you as a one-time agent or if they’re employed or could operate as a dual agent that is also representing the other side. Do not wait until the end of the day to discover.
When you’re a potential buyer who is looking to use a dual agency, here are the advantages and disadvantages that you must consider prior to making a choice.
Pros
- More efficient communications when an agent is on both sides of a deal, there may be a shorter time lag in negotiations for price or obtaining the response to a query. But the agent might receive a delayed reply from the buyers or sellers. But, since there are only so many agents, it’s one more party that can slow things down.
- Savings Agents who are likely to receive an additional commission could opt to take a lower fee. Sellers typically pay the commissions of both agents, which means that it is the seller who will directly benefit when this happens. However, if the selling costs are less, they might agree to an offer at a reduced price for the purchaser. The buyer, seller, and agent may all gain from the deal.
- A greater understanding of the property from a prospective standpoint of a tenant or buyer using the sellers or agents for landlords could give them the ability to know more about the house. However, certain information you’d like to know could include the exact information the owner or tenant would prefer to keep private. In fact, an ethical agent would remain private about this information.
Cons
- Conflict of interest: This is the most significant disadvantage of dual agency and a major reason that some states have banned dual agency. The human nature of humans and the financial incentive could make it difficult to ensure that an agent is neutral in representing both buyers and sellers as well as the tenant and landlord.
- Tricky negotiations A person that represents two parties who have opposing interests cannot advocate for the other. When a duo agent recommends buyers make a deal that is less than the list price, the agent is in the buyer’s best interests. Also, if the double agent instructs sellers not to take any offer lower than the cost of the list price, it is against the best interests of buyers.
- Clients must look out for their personal interests. The dual agent isn’t able to serve the interests of two people with differing objectives. This means that a double agent who is ethical cannot do anything more than assist in the sale. As an example, the purchaser must determine the amount they’d like to give and decide whether they wish to accept the counteroffer with their agent’s help.
When To Consider Dual Agency
A few real estate agents, as well as consumer advocates, suggest that there is no need to think about the dual agency option. They are skeptical about whether dual agents can effectively be neutral in helping to facilitate a transaction in which they are representing both the buyer as well as the seller. This is due to the fact that sellers are likely to want to offer their house at the best price, and buyers will be looking to purchase at the cheapest cost.
Some real estate agents believe that dual agency doesn’t pose an issue and could aid both parties in speeding down communication and helping to make closing the transaction quicker. Other points are important to take note of but.
Sometimes, dual agency is very difficult to avoid if:
- A major real estate company employs hundreds of agents in the same field.
- In a small region, there are only a few agents.
Sometimes, dual agency may occur without the purchaser noticing it, for example:
- Construction is new. Going to the sales office to purchase a new construction house involves speaking with agents representing the builder (the constructor). The relationship may not be apparent to prospective buyers. Smart buyers hire an agent to assist them when purchasing the construction of their dreams. However, most buyers need to learn that they can benefit from this service.
- An open house. Agents who host an open house represent the vendor. The agent will also provide the sign-in form to record the names and numbers of people who would like to purchase the property. If one person wants to purchase the open-house property and is in developed a rapport with the agent who is listing it, They may want to work with them without knowing the possible disadvantages.
- Listings on the internet. There’s a website where you can search for houses and come across a home that you are looking at. It has contact details of an agent. If you make contact with them instead of having your personal agent (one working with a different firm) call them, you could end up being in a dual agency.
