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Dual Agency in Real Estate: Buyer (and Seller) Beware


May 10, 2020 by Matt Frankel, CFP

In most real estate transactions, there are two agents involved -- one representing the seller and one representing the buyer. It's also possible for both parties to be represented by the same person, a situation known as dual agency.

While dual agency is certainly beneficial to the real estate agent, it is typically not a favorable arrangement for either the buyer or the seller. In this discussion, we'll dive into the concept of dual agency and why it's not a great situation, especially for inexperienced buyers and sellers.

What is dual agency?

Dual agency real estate is a situation where one real estate agent or broker represents both the buyer and seller in a real estate transaction. In most real estate transactions, the person buying the home has their own agent (known as the buyer's agent) and the party selling the home also has their own real estate agent (known as the seller's agent or listing agent). This is in contrast to single agency, where the buyer's agent and seller's agent are two different people who work for two different real estate companies.

Dual agents are required to be neutral when it comes to all parts of a real estate transaction, and dual agency is only permitted if both the buyer and seller consent to it.

A similar, but somewhat different concept is designated agency. This is a situation where the buyer and seller each have their own real estate agents, but both work for the same real estate brokerage.

Possible advantages of dual agency

If you're willing to agree to the possibility of dual agency, it can help your home sell faster in some cases. The standard real estate commission in the United States is about 6%, with half of this typically going to the buyer's agent and the other half going to the listing agent. However, a dual agent gets to keep both sides of the commission, which can make them very motivated to find buyers themselves for homes they're listing.

Because a dual agency contract effectively doubles an agent's income, it's in their best interest to keep the sale price as high as possible. This is a positive from a seller's perspective, but it could certainly be a drawback from the buyer's perspective.

In fact, many agents offer incentives to attract buyers for their listings, such as a credit at closing if you're represented by the listing agent as opposed to your own. And, they are often willing to negotiate commissions with a seller who is willing to sign a dual agency agreement. If you decide to accept a dual agency arrangement, I strongly suggest you negotiate some amount of savings for you, as it's one of the only good reasons to consider such an arrangement.

Dual agency can be most favorable for experienced buyers and sellers, particularly seasoned real estate investors who don't need quite as much guidance as someone who is new to the process or uncomfortable with negotiations.

Why dual agency is typically not desirable

The main problem with dual agency is that you lose one of the biggest benefits of working with a real estate agent or real estate broker -- their fiduciary responsibility to you. A real estate agent is required to act in their client's best interest at all times during a transaction. For example, when negotiating the price, asking for concessions, and throughout the escrow period, your real estate agent is there to get the best deal and terms for you.

Unfortunately, in a dual agency transaction, that isn't possible. There's no way that an agent can simultaneously negotiate the best possible deal for the buyer and the seller. They can't put the interests of one party over the other. Dual agents are completely neutral parties in a real estate transaction, which can be a major drawback as opposed to having an agent who is 100% on your side.

Just to name a few limitations, a dual agent cannot give you their opinion of how much a property is truly worth, cannot help advise you when it comes to accepting offers or making counteroffers, and cannot tell you what repairs or concessions you should ask for from the seller or agree to for a buyer.

If these are the types of questions you expect your real estate agent to answer, you'd better make sure you have an agent who works for you, not both parties. Even if you get some type of commission discount or closing credit, it could be worth less than you could potentially save by having someone on your side who can effectively negotiate on your behalf.

In fact, dual agency is such an unfavorable arrangement for most homebuyers and sellers that it's actually illegal in eight U.S. states.

Dual agency can be good, but usually not for the buyer or seller

The bottom line is that dual agency can be beneficial, but typically the biggest beneficiary is the real estate agent. They actually have less work to do than they normally would -- since they can't try to exercise their fiduciary duty to either party -- and get paid twice as much.

I've dealt with dual agency personally, and I'd call it a generally negative experience. We listed our first home years ago, and our agent told us a few days later that he'd found an interested buyer. He asked if we'd be interested in allowing him to be a dual agent, and since we wanted to sell as quickly as possible (my wife had accepted a job in another state), we agreed. A few days later, his buyer made an offer, we accepted, and our home went under contract.

So we had a quick sale, but that's where the benefits of dual agency ended. Throughout the rest of the process, we constantly felt like our best interests weren't being represented by our agent (and they weren't).

For example, the buyer's inspection revealed an issue with the roof, and the buyer asked for a hefty concession. We asked our agent if it was a fair amount they were asking us to reduce the price by, and he couldn't answer the question -- he simply warned us that pushing back too much could cost us the sale. The same thing happened a few days later when the HVAC inspection revealed a repair that was needed. We were dealing with our first home sale and didn't really know what we were doing yet -- and could have used guidance.

The bottom line is that dual agency is certainly a good thing for the agent but is typically a negative scenario for both the buyer and seller, as neither party is getting fair representation. This is an especially negative arrangement for inexperienced buyers and sellers who really need professional guidance. The only potential advantage is getting a quicker home sale, but even then, the process isn't likely to go as favorably for you as it would if you had your own real estate agent.

In short, when you're buying or selling a home, having a buyer's agent or seller's agent who is representing you can bring a tremendous amount of value to the table. Keep this in mind before agreeing to a dual agency relationship.

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