In a real estate transaction, “dual agency” happens when one agent represents both the buyer and the seller. It can cause issues and increase the buyer’s costs.
- A conflict of interest cannot be avoided. The interests of the vendor and the customer always diverge at some point.
- Because higher sales prices mean more commission money, dual agents favor sellers.
- In some states, dual agency is prohibited.
Some agents may prefer this type of representation since they believe it is more efficient when everyone works in the same office. However, research demonstrates that dual agency might be detrimental to customers.
Is a dual agent genuinely working for you?
It appears to be harmless. When you arrive at an open house, the agent inquires if you have a buyer’s agent. She offers to be your agent if you say no. So far, everything sounds excellent.
After that, you place an offer on the home. The agent meant to represent you is suddenly representing the seller. This could be a problem.
However, this scenario occurs frequently in the real estate industry. Despite the hazards, many house buyers and sellers agree to have one realtor represent them both.
Is a real estate agent required when purchasing a home?
A dual agency arrangement occurs when a buyer and seller agree to have a single real estate agent represent them in a transaction.
Eight states prohibit dual agency: Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont.
The regulations governing the disclosure of dual agencies and the actions of double agents vary in the various states.
Dual agency has advantages for some consumers and suppliers.
Because dual agents keep the entire commission — a.k.a. “double ending” — some dual agents will agree to lower their commission.
However, many experts argue that a dual agent cannot legally act as your representative.
Dual agents, they claim, can’t fulfill their fiduciary commitments to both parties at best.
Clients frequently suffer in dual agency situations.
The conflict of interest is apparent when one person serves both the buyer and the seller. A dual agent has a vested interest in promoting the sale. The fee is proportional to the sale price.
When one agent from a brokerage represents the seller, and another agent from the same business represents the buyer, this conflict of interest is theoretically reduced.
One or both clients are likely to suffer in practice.
“On very rapid deals, list prices and sale prices are much higher on residences sold via the dual agency,” according to a study published in The Journal of Real Estate Finance and Economics.
According to the report, some dual agents engage in “first-resort selling.”
The agents pressure the seller to raise the price and then persuade “in-house” purchasers to accept it.
In some circumstances, dual agents work in the reverse direction. They persuade the seller to establish a lower price than the house is worth. “Strategic pricing” is the term for this.
“There is little difference between dual-agent (same agent) and within-agency (same agency, but different agent) arrangements,” according to the report.
In both cases, the researchers found “evidence of altered outcomes linked with dual agency” in both cases.
Why you should hire an “exclusive” agency
Hiring a real estate agent who always works in a “single-agency capacity” is the most straightforward approach to avoiding dual agency.
If you’re a buyer, engage a buyer’s representative rather than a seller’s agent.
If you’re selling, look for an agent who only works with sellers.
Buyer’s agents will typically ask you to sign a buyer’s broker agreement, which outlines the agent’s legal obligations and responsibilities.
The seller’s agent will request that you sign a listing agreement that outlines the same responsibilities and obligations.
The abbreviation OLDCAR is used to describe these fiduciary responsibilities.
- Obedience: The agent is required to carry out your orders.
- Loyalty: Your agent must prioritize your interests over the interests of any other party, even their own.
- Disclosure: Any “material facts” – that is, facts that could impact your decision on the deal – must be disclosed to you by the agent.
- Confidentiality: Without your approval, the agent cannot share anything they uncover about you with anybody else.
- Accounting: The agent is responsible for keeping track of all documents and funds associated with the transaction and reporting on them.
- Reasonable Care: The agent must essentially do everything possible to safeguard and advance your interests.
A dual agent will not serve your best interests.
The fundamental issue with the dual agency is that, by definition and sometimes by state law, a double agent cannot serve your best interests—the individual functions more as a referee than an agent.
For example, if you’re a buyer, you might want your agent’s advice on how much to offer on the house. On the other hand, a dual agent cannot do so because it would be a breach of their duty of loyalty to the seller.
You also can’t inquire about whether surrounding properties may hurt the property’s value or how much the realtor believes the home is worth.
You can’t expect a dual agent to advise you on a counter offer or whether the buyer’s repair requirements are negotiable as the seller. That would be a breach of the other party’s confidentiality obligation.
In short, you can’t expect the same level of advice and counsel when one individual represents both the buyer and the seller. For many people, the absence of counsel and “intelligence” negates the entire point of having an agent.
Some agents function as “transaction agents” to avoid dual agency. In this capacity, the agent’s formal role is to arrange the transaction without representing either side.
Pay attention to the fine print.
The agents can execute their OLDCAR duties when two agents from the same firm represent the parties. However, you must hope that the agents are “Honest Johns” who will not use strategic pricing or sell as a last resort.
Check the fine print before signing a listing agreement or a buyer’s broker agreement.
Some agreements allow the agent to become a dual agent if the need arises.
Dual agency requires the consent of both parties. Make sure you do not agree to something that could harm your interests in advance.