What is Dual Agency in Real Estate?
Dual agency is a term used to describe an agency relationship in a transaction where one broker represents both the buyer and the seller. Traditionally the buyer will have an agent, and the seller will have an agent (or one or both of those parties will opt to negotiate for themselves). But, it may be advantageous for one broker to represent both the buyer and the seller in certain situations.
In a dual agency, the broker is expected to do his or her best to remain neutral and work in both clients’ best interest. This situation could cause a serious conflict of interest if the broker were to show favoritism to one client while pretending to represent the interests of both.
It’s a relationship that only works if all parties trust one another and agree on the sale’s details. There is little ability to negotiate in a dual agency relationship because the broker is incentivized to do what’s best for both clients.
Keep in mind that a dual agent is different than a transaction agent. A transaction agent is a neutral third party who merely facilitates a sale. A dual agent represents both parties, while a transaction agent doesn’t represent either. A dual agent can still provide guidance and perform specific tasks on the client’s behalf. In contrast, a transaction broker is merely a neutral party hired to ensure a sale is appropriately officiated.
When Does Dual Agency Make Sense?
Dual agency often occurs in a situation where a buyer contacts a broker looking for representation and is interested in a property being offered by a seller that the broker represents. If the buyer is willing to agree to all the terms the seller is offering and doesn’t want to bother looking for a new agent, he or she will likely agree to the dual agency to secure the property. The broker may even charge a lower commission to both parties than is standard because he or she is receiving two commissions instead of one.
Dual agency works for those who know what they want and don’t need a broker to negotiate on their behalf. A dual agent will still show a property, interface with the seller, prepare the closing, hold money in escrow, provide insight, and offer any other brokerage service typically expected in an agency relationship. The only difference is that a dual agent will be performing these duties for both parties and has a fiduciary responsibility to look out for the interests of both.
Is Dual Agency Legal?
Dual agency is legal in some states and illegal in others. Each state has its own separate real estate laws and therefore is allowed to outlaw certain practices. Dual agency is a risky agreement and will only work if the broker is a professional, and both parties trust him or her to look out for their best interest, despite the conflict. In most cases, a dual agency relationship is not advised. But in certain select circumstances, it does make sense.
In the states where dual agency is legal, both the buyer and seller are required to give their consent to the arrangement in writing for it to be allowed. Oral agreements are not permitted because it can cause problems later on if one party claims they were taken advantage of, and there is nothing in writing to prove that they consented to the arrangement. Agreeing to a dual agency relationship means that both parties are in agreement that using one agent makes sense, and they trust the broker will adequately represent their interests. Unless it is later discovered that the broker acted unlawfully or blatantly violated fiduciary responsibilities, it can be tough to dispute the agreement if one party feels jilted. That’s why some states outlaw the practice altogether.
What States is Dual Agency Illegal In?
Certain states have opted to outlaw dual agency completely to avoid any potential conflicts. In certain situations, a broker is permitted to represent one client and act as a facilitator for the other, in a circumstance where dual agency may make sense. You should reference your local real estate laws regarding dual agency if you are becoming an agent. The following states outlaw it outright:
Other states like Iowa and Tennessee allow it but require all interested parties to fill out a lot of paperwork beforehand. Many states also allow dual agency but discourage it to avoid conflict of interest.
Overall, dual agency doesn’t usually benefit the consumer. It should only be considered in states where it is legal, and the ease of using one agent outweighs the necessity for separate representation. As long as all parties are on board, it can work out fine. But in most cases, it will cause too many conflicts.