When looking to buy or sell a property, your best interests are better served by working with someone who has your back. This is why homebuyers are encouraged to use the services of a real estate agent who works exclusively for them. In exchange for a commission on the final sale price, the agent helps you find and negotiate the purchase of a home at a good price.
One of the most important decisions you will have to make when choosing a real estate agent is whether or not to hire a dual agency.
What Is a Dual Agency in Real Estate and How Does It Work
A dual agency is a practice in which a real estate agent represents both the buyer and seller in the same transaction. They act as a dual agent who seeks to guide both parties toward the same goal of buying or selling. This type of transaction comes with legal and ethical issues so it is important to know how this can work in your favor.
Having one agent who represents one client in two separate transactions is not considered a dual agency. For example, you decided to sell your current house and move to a new one so you would typically hire a listing agent to find your next house and sell your existing property.
Is Dual Agency Illegal in Some States?
Before hiring a realtor or working with any real estate professional, you should be aware of the legal and ethical implications of dual agency.
The National Association of Realtors does not prohibit its members from practicing dual agency. However, it requires them to advise both parties, the buyer and seller, of any potential conflicts of interest and put all the terms and conditions in writing—such as in an agreement. However, modern real estate agents tend to discourage dual agency because of several problems that can create a negative impact on both parties. New buyers and sellers should also be aware that dual agency is illegal in some states.
What States Allow Dual Agency?
A buyer might find a home listed online that they want to make an offer on, but if that home is listed for sale by the same agent who is currently representing them as a buyer’s agent, the conflict of interest becomes obvious. Dual agency is illegal in some states while other states have regulations on how this kind of service may be practiced. Below is a list of states that strictly prohibit hiring a dual agency.
The Benefits of Working With a Dual Agency
While it may seem like a risky proposition, dual agency proponents claim that there are actually several benefits to working with a dual agent.
- Extensive Service. Because dual agency represents both parties, they have a vested interest in ensuring that the deal is fair and equitable for all involved. Dual agencies are also able to offer a more comprehensive level of service, as they are familiar with the property from both the buyer’s and seller’s perspectives.
- Better Information. A dual agency is able to keep all parties informed and up-to-date on the status of the transaction. It’s important that dual agents are honest and transparent with both buyers and sellers, and that they don’t take sides. If done properly, dual agency can help to ensure a smooth transaction for all parties involved.
- Conflict Resolution. Dual agents can help resolve any conflicts that may arise during the transaction. They are also able to provide more unbiased advice, as they are not representing either party. This can be extremely helpful, especially for first-time homebuyers who may not be familiar with the process.
- Market Expertise. The dual agency typically has a good understanding of both the real estate market and the negotiating process. They are typically very experienced and know all of the ins and outs of a real estate transaction, which can give both buyers and sellers a great deal of peace of mind during what can be a stressful process.
The Potential Risks of Working With a Dual Agency
Understanding the potential risks involved in working with a dual agency before signing any agreements will help you make an informed decision and minimize the chances of negative experiences.
- Conflict of Interest. A dual agency might be inclined to favor one party over another or to encourage them to accept less favorable terms than they would otherwise agree to. This can be done either intentionally or unintentionally, but it undermines the purpose of having an agent represent you — to protect your interests against those of another party.
- Partial Service. A dual agency may have a harder time remaining impartial in a transaction. They may not be able to give their full attention or provide all the information needed for both parties involved in the transaction if they are trying to get the best price for the seller while also getting the best deal for the buyer.
- Inefficient Transaction. A dual agency may have divided loyalties which could impact how well they negotiate on your behalf. In addition, they are often more likely to try to pressure buyers into making a decision quickly, rather than allowing them to take their time and explore all their options which may lead to inefficient transactions and bigger losses.
- Poor Information Management. Serving two masters in a real estate transaction is tantamount to pleasing both the seller who wants to sell their house for the best price and the buyer who wants the best deal. A dual agency will have access to confidential information from both parties which may lead to the mishandling of each party’s confidential information.
Tips for Avoiding Potential Problems With Dual Agency
Now that you’re aware of the potential problems that can arise when working with a dual agency, here are some tips for avoiding this kind of practice.
- Talk to your agent about their experience with a dual agency and find out what protections are in place for you.
- Make sure all agreements are in writing and signed by both parties. A written agreement helps both parties understand their obligations to each other to avoid potential problems.
- Stay informed and keep track of what is happening during the transaction. Make sure that every detail in your partnership and transaction is clear and understandable to both parties.
- Ensure that your interests are primarily served by the agent involved by entering into a disclosure agreement. Make sure that your agents are transparent and disclose any potential conflicts of interest.
- Read all of the forms that the realtor gives you and ask questions if there is something that you don’t understand. Never sign any documents without reading it and understanding it first.
Alternatives to Dual Agency
The role and obligations of the real estate agent is not a simple one. Responsible agents are not just a salesperson, they are a confidante, guide, and advisor. They spend countless hours driving you around, showing you homes, and chatting with you about what’s really important to you when it comes to buying a home for you and your family.
But with dual agency, there will always be one big question in the back of your mind: Are they on your side?
The solution is to find out the best alternatives to dual agency.
- Designated Agency
With a designated agency, a brokerage can appoint two agents from the same firm to represent both the buyer and seller independently. It is important for buyers and sellers to understand which real estate agent represents them during a transaction so there is no confusion around who will work in their best interests.
- Transaction Brokerage
A transaction brokerage is where an agent works with both sides of the deal but does not represent either as their fiduciary. Instead, this type of arrangement allows for agents to focus on making sure everything runs smoothly during the transaction. The agreement creates a relationship that is less formal than traditional agency relationships but still requires the broker to assist in good faith with facilitating the transaction.
- Dedicated agent
Working with a single real estate agent from a trusted real estate company can help to eliminate the risk of dual agency. A reputable agency will not advocate dual agency.
A dedicated real estate agent will often go above and beyond the call of duty to provide clients with great service. Many top-performing agents regularly take classes and seminars to sharpen their skills, ensuring they can provide the best service possible for their clients.
The Bottom Line
Real estate professionals are trusted advisors and they are held to a high ethical standard. If you were to ask any realtor whether they are on the buyer’s or listing agent’s side (also known as dual agency) the answer would be clear: they must represent the client’s best interests. The question is whether that is how it always plays out in practice.
Dual agency can be a valuable resource for both home buyers and sellers. However, it is important to understand the potential risks involved in working with one of these professionals. By knowing that dual agency is illegal in some states and finding out what to watch out for, you can minimize the chances of any negative experiences that may result from this kind of representation. Have you ever worked with a dual agency? What was your experience like? Let us know in the comments below.