When buying a home, a real estate agent usually represents you, and the seller also has their agent representing their interests. But sometimes, the buyer and the seller use the same real estate agent. This is known as a dual-agency arrangement.
While this situation can make the transaction easier in some ways, there are some risks and downsides to watch out for. The dual agent cannot always represent the interests of both parties and will likely have to side with one over the other at some point.
For this reason, this practice is outlawed in some states. But if it isn’t in your state, is it worth considering dual agency in real estate? Let’s take a look.
How dual agency works
In real estate, there are two forms of dual agency. One is a generally accepted practice, and the other is heavily scrutinized for good reason.
The acceptable form of dual agency is when two agents working for the same firm represent a buyer and seller. In this situation, the buyer and seller have a representative working to achieve their best interests. They work hard to fulfill the client’s goals.
This form of dual agency is called a designated agency in many states.
The second form of dual agency is when one agent “represents” both the buyer and seller. The word represents is a terrible word to use because the agent doesn’t truly represent either.
The agent becomes a neutral party.
Often this situation can occur when the buyer does not hire their own agent and contacts the seller’s agent directly.
Both parties in the transaction have to agree to this situation. The buyer and the seller must give their informed consent, indicating they understand and are happy with the arrangement.
The problems with single-agent dual agency
With one agent representing both the buyer and the seller, it seems almost inevitable that there will be some form of conflict of interest during the transaction.
Since the agent is paid by commission, they will earn more when the home sells at a higher price. This could lead to the agent favoring the seller in negotiations.
It could also lead to both parties believing that the agent favors the other party. There could also be suspicions that the agent is acting unethically in negotiations.
However, the most significant problem with dual agency is that the agent becomes a neutral party and cannot offer counseling and advice like in a traditional buyer or seller agent relationship. Doing so would be a conflict of interest to the opposite party.
Yes, you read that correctly–no advice. The very reason why most consumers hire a real estate agent is for their expertise. It’s the most significant reason dual agency is considered bad.
Are dual agency agreements illegal?
It is illegal to operate a dual agency arrangement in the following states:
Even if you are not in one of these states where the practice is prohibited, it might make you question whether this arrangement is a good idea for you.
The benefits of a dual agency
The buying process can be faster when you don’t have to wait for one agent to contact another. The dual agent will also know everything about the home, so any questions you might have can be answered immediately.
This situation can also reduce the REALTOR® commission the seller has to pay. As there is only one agent involved in the transaction, the seller could negotiate a reduction in the percentage they pay in commission.
How is the commission paid in a dual agency?
Since only one agent is involved in the transaction, they will receive all the commission for the sale. Normally, the commission will be split between the buyer’s and the seller’s brokerages.
Even though only one brokerage is involved in a dual agency transaction, they will normally be paid about the same amount, around 5%. However, since only a single agent is involved, they are more likely to discount the percentage the seller pays.
The bottom line on dual agency
There are potentially more risks in a dual-agency transaction. If you are entering into this type of transaction, you need to be fully aware of what the potential problems can be.
You need to understand that the agent is not allowed to give you any counseling or do any research on your behalf.
If you are buying a home, there are many advantages to having a buyer’s agent who is your fiduciary. You can be sure they are looking out for your best interests, and you don’t even have to pay them.
With a buyer’s agency, a relationship is built on trust, which is difficult to achieve under a single-agent dual-agency arrangement.