What is dual agency in real estate - and why is it sometimes illegal?

Posted on Jan 08, 2021

When you go to buy or sell a home, you may come across the term dual agency — and learn in the process that some states have made this type of real estate transaction illegal. Does working with a dual agent help or harm you — and why? Here’s what you need to know.

What is dual agency?

In a typical real estate transaction, the buyer’s agent represents the buyer, while the listing agent represents the seller. Each agent speaks on behalf of their client, so that the two clients needn’t interact directly with each other.

A dual agent, though, represents both sides of the transaction. This may happen when a listing agent is approached by a potential home buyer, and encourages the buyer to see their listed property. 

In a dual representation situation, the agent then nets the commissions from both sides of the sale.

Undisclosed Dual Agency

It is illegal to represent someone as a dual agent without disclosing this. Both the buyer and the seller must be aware, and consent to it.

Is dual agency a good thing?

An agent hoping to net double their normal commission from one house may make dual agency sound enticing to clients. If you’re the seller, they may note that they have a buyer already lined up, allowing for a swift sale. And if you’re the buyer, you may be encouraged to work with someone who already has a line of communication with the seller.

However, the main drawback of this setup is that the agent no longer represents your interests alone. If you run into complications or disagreements over price, you ultimately will want your agent to be on your side 100% and advocating for your needs.

Negotiation represents one of the largest hurdles for dual agents because they have a fiduciary duty to represent both clients to the best of their abilities. Normally, when there is an agent for each side, that may mean encouraging a buying client to walk away (such as when a home inspection reveals more extensive, costly issues than expected). Yet, because the dual agent is also representing the sell side, they will be reluctant to let the deal fall apart.

“The downside would be, as a buyer or a seller, you want your best interests represented to the max capability. If you have a dual agent, just naturally you’re inclined to compromise a little bit of your interests,” notes Baltimore-based Realtor Sophia Matsangakis.

Normally, the buyer’s agent is trying to get the seller to the lowest possible price, while the listing agent is trying to get the buyer to the highest possible price. So how can the dual agent really accomplish both? In a dual agency situation, the agent can’t advise the buyer on how much to offer, nor can they advise the seller on whether to accept or decline — and both sides may lose out on valuable financial advice in this way. 

Is there an advantage to dual agency?

Because the agent nets both sides of the commission, they may be willing to give the seller a discount on their services — which is definitely perceived as an advantage. 

Sellers who prioritize a quick sale — such as homeowners who need to move ASAP — may also find that dual agency offers its advantages. In a typical real estate transaction with two agents, sellers and buyers may find themselves waiting hours or days for agents to reply to each other. Dual agency streamlines the communication process since there’s only one agent. Additionally, finding an existing buyer through an agent can cut down on how long it takes to find a buyer for the home.

“The upside is that we have a big rolodex of people and we could potentially bring a buyer to the listing, and the seller wants that because they want to sell their home faster,” explains Matsangakis. “On the buyer side it’s probably less advantageous, but on the seller side they sometimes see it as a positive.”

Dual Agency is illegal in some states

Because conflict of interest is nearly impossible with dual agents, some states have gone the extra step and banned it outright. Dual agents cannot operate in the states of: 

  • Alaska
  • Colorado
  • Florida
  • Kansas
  • Maryland
  • Oklahoma
  • Texas
  • Vermont

However, the National Association of Realtors (NAR) allows dual agency in its Code of Ethics so it is not considered universally “bad.”

Unlike most brokerages, Houwzer has agents that specialize 100% in either buying or selling. This not only allows them to be experts on their side of the transaction, but it also ensures that agents like Matsangakis won’t have to navigate complicated dual representation deals and conflicting interests. Houwzer’s model ensures that an agent’s focus is always the client’s best interests.

“I think if I had to represent both sides, it would be tough, to be completely honest. It would be super uncomfortable to try and negotiate the best that you can for both,” says Matsangakis. “As long as you’re not being unethical, though, I think it’s possible — I just don’t know that you’re going to be pushing as hard.”

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