What is Dual Agency in Real Estate and Should you Avoid it
Most buyers and sellers are familiar with how listing agents and buyer’s agents work which leads us to the question of what is dual agency in real estate? Dual agency isn’t particularly common, but it does tend to happen from time to time, so it is always best to be informed on the intricacies of this transaction type. My first transaction as a Real Estate Agent was as a dual agent representing both the buyer and the seller. Initially, the seller tried to sell his home by himself before soliciting my help and I was able to get it sold for him to one of my clients.
What is Dual Agency in Real Estate?
Dual agency is when a real estate agent works with the buyer and the seller on the same transaction simultaneously. Here’s a common scenario on when dual agency may occur:
A real estate agent is hired to sell the home of a client named Mary. That real estate agent has a second client, named Rob, who is in the market to buy a home. Rob tours Mary’s home and decides he wants to purchase the home. Because both Rob and Mary are clients of the same real estate agent, the transaction is considered an example of dual agency. Another example of dual agency is if Rob and Mary are represented by different real estate agents, but both real estate agents work for the same brokerage company.
A third example is if a real estate agent is hosting an open house and meets a buyer who is interested in buying the home. If the buyer is not represented by a real estate agent, the buyer may request that the seller’s agent represent them in the transaction. If both the buyer and seller are in agreement that the same real estate agent can represent both parties, the realtor becomes a dual agent in the transaction.
It's important to note that dual agency is different in each state. There may be different forms of dual agency as well such as designated dual agency which is something we have here in Raleigh and Charlotte.
Dual agents, which represent the interests of both the buyer and seller simultaneously, are also known as transaction brokers.
What are the Pros and Cons of Dual Agency?
Pros of Dual Agency:
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May Streamline a Transaction
In some circumstances, when a buyer and seller are both working with the same agent, the agent and clients may feel that the process is a bit more streamlined, as the real estate agent can prepare forms and documents for both the buyer and seller and communicate between both parties quickly. Dual agency eliminates a second real estate agent from the equation since both the buyer and the seller are working with the same realtor.
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Dual Agent May Have More Information on the Home
A dual agent will understandably have far more information about the home being sold than other agents because the dual agent has been hired to sell the home. This may prove advantageous to buyers as they will typically learn insights about the home that they wouldn’t have learned if they were working with a buyer’s agent. This can also expedite the transaction process because answers regarding the house are resolved faster.
Cons of Dual Agency:
Although the positive aspects of dual agency may sound tempting, the cons tend to outweigh the pros in most transactions.
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Conflict of Interest
When a real estate agent represents a seller, they are supposed to obtain the highest possible price for their seller. Similarly, when an agent represents a buyer, they are supposed to help them get the lowest possible price. However, if the same agent is representing both the buyer and the seller, adhering to getting the client the best price becomes extremely difficult. If the real estate agent is selling a home that is overpriced, they cannot disclose that to the buyer because they are going against their loyalty to their seller. However, they are also doing a disservice to their buyer because they are knowingly selling an overpriced home and are unable to advise the buyer against purchasing it out of loyalty to the seller. Without realizing it, the agent may also favor one side of the party a bit more than the other, depending on how long the real estate agent has known the buyer/seller, personal relationships, etc. This may be completely unintentional but can happen without the real estate agent realizing it.
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More Likely to Overlook Important Details
Being a dual agent is extremely stressful and puts the real estate agent in a precarious situation. Managing both a buyer and a seller on the same transaction simultaneously may lead the real estate agent to mix up certain documents or miss important information altogether without meaning to do so.
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Inability to Negotiate List Price or Inspection Issues
In dual agency, the real estate agent is working in the best interest of both the buyer and the seller, making negotiations tricky. In a standard transaction scenario where a buyer’s agent and seller’s agent are both involved, the seller’s agent will advocate on the seller’s behalf to ensure the seller does not have to pay excessive repair costs if an inspection report comes back with several issues. The buyer’s agent will do the same for their buyer, negotiating that the repairs are taken care of or the buyer is credited in some way for excessive repair costs. However, this is difficult to do as a dual agent because the real estate agent’s interest is divided equally between the buyer and seller.
For the reasons outlined above, some real estate agents refuse to participate in dual agency altogether, as they recognize that it is not fair to their clients. An ethically-minded real estate agent always puts their clients’ needs first, even if that means giving up a larger commission. This leads us to our next point:
Is Dual Agency Ethical?
When a real estate agent chooses to be a dual agent, they will receive possibly double commission because they are representing both the buyer and the seller. For that reason, they may be tempted not to disclose important information to the buyer or seller in fear of the deal collapsing and losing double commission. Legal and ethical issues may also arise because the agent is working on their own without a second agent involved. The buyer and seller are typically unaware of the legal implications involved in a transaction and may not be aware that an agent is going against the law or partaking in unethical behavior to ensure the deal closes. When a second agent represents the buyer, they may be far more likely to pick up on illegal activities and unethical behavior.
An agent may also unintentionally provide confidential information to the buyer or seller without even realizing it. Real estate agents are humans after all and may accidentally mention something to the seller that the buyer does not want the seller to know, and vice versa. This tends to be more common when the real estate agent has a close relationship with the buyer, seller, or both. Dual agency tends to be a slippery slope in that regard and may lead to legal repercussions if the realtor isn’t extremely careful in the way he or she represents both sides of the transaction.
Is Dual Agency Bad or Illegal in Some States?
Dual agency is illegal in Texas, Colorado, Florida, Alaska, Kansas, Maryland, Oklahoma, and Vermont. The remaining states have different laws surrounding dual agency, but most states require that the agent must disclose that they'll be representing both sides of the transaction to their clients. A Real Estate Agent cannot represent both parties without both the buyer and seller knowing their involvement and commitment to both parties. The Agent acts more as a referee vs. an advocate.
Who Pays the Commission in Dual Agency?
The seller typically pays the commission in dual agency. While this varies, the commission typically totals five or six percent of the sale price. When the real estate agent is not acting as a dual agent, the commission splits that percentage with a second agent, so each agent may receive a percentage commission on the total sale price. However, in dual agency, the agent retains the full commission and does not split it.
Does a Dual Agent Receive Both Buyer Agent and Seller Agent Commission?
The dual agent receives a commission from both sides of the transaction, on the buyer and seller’s side, but the seller pays the total commission cost. Earning double commission is certainly an attractive element to dual agency, but it is not always in the best interest of the buyer and the seller.
Should I Negotiate Commission in Dual Agency?
Depending on the scenario, some agents may be willing to lower the commission if the buyer and seller agree to dual agency. It is recommended that the seller negotiates dual agency commission prior to listing the home for sale so that the seller and real estate agent are in agreement early on. Or, if you don’t want to partake in dual agency at all, that should also be discussed with your real estate agent prior to signing a listing agreement.
Should I Avoid Dual Agency in Real Estate?
To protect your finances and ensure you are selling or buying at the best possible price, it is probably best to avoid dual agency.
Buyers or sellers may be inclined to work with a dual agent because they want to obtain confidential information about the person buying or selling the home. As a seller, you may assume you can sway the real estate agent to tell you the highest price the buyer is willing to go to buy your home. Similarly, buyers may assume that working with a dual agent means that they can find out how low the seller is willing to sell their home for. In the state of North Carolina, and in many other states, real estate agents cannot disclose the party’s motivation to sell, possible agreement to price, or any other confidential information. So, if having access to privileged confidential information about the other party is the primary intent of the buyer or seller, dual agency will not provide access to those insights.
A real estate agent may have the ability to execute a transaction as a dual agent in the extremely rare event that the buyer and seller do not choose to negotiate any elements of the sale. If both are in mutual agreement on price and there aren’t any glaring issues that come up on the inspection report, the agent may be able to negotiate the sale with relative ease. Unfortunately, this is extremely rare. Nearly all buyers and sellers will want to negotiate some elements of the transaction – whether it is the list price, closing costs, or repairs.
Do You Pay the Real Estate Agent if You are the Buyer?
The buyer does not pay a commission to the real estate agent; the commission is the responsibility of the seller. The seller pays the Real Estate Firm from their proceeds and the firm then pays the cooperating real estate firm representing the buyer. This is how Real Estate Agents get paid and in a dual agency transaction, they are getting paid from both sides. With that being said, the buyer is responsible for paying closing costs, which typically range between one and two percent in the state of North Carolina. After a house sells, the seller pays a commission, which typically totals five or six percent of the sale price, to the brokerage that the buyer’s agent and listing agent are affiliated with. The agents typically split the commission, with each agent getting a certain percent of the commission on the total sales price, but a dual agent receives the full commission.
Key Takeaways
Knowing that you as the buyer are not responsible for paying commission to a real estate agent, it is most likely in your best interest to hire a buyer’s agent to represent you exclusively rather than risk getting entangled in a complicated dual agency situation. Having someone advocate on your behalf who does not have a relationship with the seller, and can make your questions and concerns their top priority, is typically the best route for buyers.
Dual agency may initially sound appealing to buyers and sellers. Having one agent means that both sides of the transaction are communicating through one person, helping to move the process along faster. While some transactions where a dual agent is involved may move faster, that can, unfortunately, be due to the real estate agent expediting the process so that they can collect their commission, meaning they fail to communicate pertinent details to the buyer and seller. Of course, that is the worst-case scenario. The more common scenario typically involves the real estate agent doing everything in their power to represent both the buyer and seller accordingly but being legally limited in their ability to do so.