HomeBusinessThe Dangers of Dual Agency: What Buyers and Sellers Should Know

The Dangers of Dual Agency: What Buyers and Sellers Should Know

Real estate transactions in the U.S. typically involve two agents: a listing agent representing the seller and a buyer’s agent representing the purchaser. In some cases, however, a single real estate agent may represent both the buyer and the seller in what is known as a dual agency.

In theory, a dual agent sounds like a good idea. There’s one less agent to deal with and the potential for a quicker, smoother transaction.

But in practice, a dual agency relationship can often be problematic. Because the agent’s loyalty is split between both parties, it can be difficult for them to advocate for either the buyer or the seller. This can lead to a situation where both parties feel like they’re not getting the best possible representation.

Is Dual Agency Legal?

While it may seem unethical, dual agency is allowed in most markets across the U.S.

The few states that make it illegal are Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont, and Wyoming, citing an inherent conflict of interest as the main reason.

Put another way, these states believe that agents who owe a fiduciary duty to their clients, as is the case in agency relationships, cannot offer fair and unbiased representation to both parties.

How Are Commissions Paid in a Dual Agency?

In a typical real estate transaction, the listing agent and the buyer’s agent split the commission that’s paid by the seller at closing.

In a dual agency situation, a single agent receives the full commission, which is usually 5% or 6% of the sale price.

Dual Agency Drawbacks

Key drawbacks of a dual agency relationship include:

1) Less confidentiality

Because the agent is representing both parties, it can be difficult to keep confidential information confidential. This could lead to a situation where one party learns about the other’s negotiating tactics or bottom line, giving them an unfair advantage.

2) Impartiality

It can be hard for an agent to remain impartial when they’re representing both the buyer and the seller. In some cases, the agent may show more loyalty to sellers because they were the ones who hired the agent in the first place.

3) Limited representation

A dual agent may not be able to provide information to either party that would otherwise prove useful. For example, the agent is expected not to disclose how low the seller is willing to go on the price or what the buyer’s maximum budget is.

What Are the Risks of Dual Agency?

While it isn’t always the case, an agent who represents both the buyer and the seller can steer the deal in the direction they want, often to the detriment of one or both parties.

For buyers, this could mean paying more for the property than they should or not knowing about potential problems with the home.

For sellers, this could mean selling for less than they could have or not getting the full story on the buyer’s financial qualifications.

Dual Agency Gone Wrong

There are a few ways in which a dual agency can go wrong:

Example # 1

After a busy open house, the seller’s agent takes note of which potential buyers showed up without representation. A few days later, the agent compiles all offers and presents them to the seller.

When the seller asks for feedback, the agent says that they have a “really good feeling” about offers A and B, even though the offers came with smaller down payments and a longer due diligence period compared to others. “These particular buyers were very motivated,” the agent says. “Based on their financial profile, they’re likely to secure the loan.”

What the agent doesn’t say is that offers C and D, which came with higher down payments and a quicker period to close, are also legitimate. It’s just that these buyers are represented by other agents.

In this situation, the agent has put their interests ahead of those of their clients. By steering the seller toward certain offers, the agent is more likely to get the full commission.

Example # 2

The seller’s agent secures an approved offer from a direct (unrepresented) buyer. At this point, the seller is unaware that the agent is also representing the buyer.

During the initial paperwork, the seller receives an email from the agent that contains a dual agency agreement. The seller, having signed many similar forms in the past, assumes that this is just a standard disclosure and executes the agreement without paying much attention to the details.

As the sale progresses, the seller becomes suspicious when the agent isn’t providing them with as much information as they usually would. The agent then discloses verbally that they are also representing the buyer and that they’re not able to reveal any confidential information to the seller.

In this case, the agent has failed to properly disclose their dual agency status. By keeping it under wraps, the agent now stands to make more money at the expense of the unsuspecting seller.

Are There Any Advantages to a Dual Agency?

The fact that several states have banned dual agency should give buyers and sellers pause to consider the pitfalls of one agent representing both parties.

That said, some brokerages might argue that there are advantages to a dual agency, such as:

1) Cost savings

In a dual agency transaction, the agent may be willing to work for a reduced commission or offer other incentives to keep both parties happy.

2) Efficiency

Because both the buyer and the seller are represented by the same agent, communication can be more or less streamlined and negotiations may move along quicker.

3) Expertise

A real estate professional with dual agency experience may be able to anticipate any potential problems that could arise from a conflict of interest and address them before they become an issue.

The Bottom Line

Not only is dual agency legal in most states. It’s also fairly common.

Sometimes, sellers have no choice but to accept a dual agency situation. They can’t force direct buyers to hire an agent who would represent their interests exclusively. Likewise, buyers can’t force the seller to switch agents when the deal goes sour.

This is why buyers and sellers need to be aware of the potential risks involved in a dual agency and take steps to protect their interests. One crucial step is to review all disclosures, paperwork, and agreements carefully, and to ask questions if something doesn’t seem right.

After all, buying or selling a home is a major transaction, with a wide spectrum of emotions involved. So it pays to be as informed and level-headed as possible.

Ivan Suazo is a copywriter and SEO blogger with over ten years of experience in the real estate industry. He's also the founder of a wellness blog, QWERTYdelight.com, and writes sleep stories for the Slumber App.

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