Dual Agency in Real Estate
What is dual agency in real estate? Understanding dual agency before you buy or sell can save you thousands and protect your interests.
When navigating the real estate market, you might encounter a situation where one agent represents both you and the other party in a transaction. This arrangement, known as dual agency, can offer certain advantages but also presents unique challenges that every buyer and seller should understand before proceeding.
The decision to work with a dual agent should not be taken lightly. While some real estate professionals advocate for dual agency as an efficient solution, others argue that it inherently compromises the level of representation each party deserves.
Whether you're a first-time homebuyer or an experienced investor looking at Raleigh properties, the type of representation you choose can significantly impact your transaction outcome.
Here is what you need to know about dual agency.
1. What is Dual Agency in Real Estate?
Dual agency occurs when a single real estate agent or brokerage represents both the buyer and seller in the same transaction. In North Carolina, this arrangement is legal but heavily regulated, requiring written disclosure and consent from all parties involved.
There are two primary types of dual agency situations:
Single Agent Dual Agency: One individual agent represents both parties.
Designated Agency: Different agents within the same brokerage represent the buyer and seller, but the brokerage itself serves as a dual agent
In Raleigh's market, dual agency most commonly occurs when a buyer falls in love with a property that's listed by their agent's brokerage, or when an agent has an existing relationship with both parties in a transaction.
It's important to note that dual agency is different in each state. Dual agents, which represent the interests of both the buyer and seller simultaneously, are also known as transaction brokers.
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2. The Pros of Dual Agency
Streamlined Communication
With one agent handling both sides, communication can flow more efficiently. There's no need to coordinate between multiple agents, which can speed up negotiations and reduce the chance of miscommunication during critical moments.
Intimate Market Knowledge
A dual agent often has comprehensive knowledge of both the property and the local market conditions. They understand the seller's motivations and the property's history while also grasping the buyer's needs and constraints.
Faster Transaction Process
Dual agency can accelerate the entire transaction timeline. Since one agent is managing all aspects, scheduling inspections, coordinating with lenders, and managing paperwork often happens more quickly than in traditional transactions.
Potential Cost Savings
In some cases, dual agents may offer reduced commission rates since they're earning from both sides of the transaction. This can translate to savings for sellers and sometimes benefits for buyers through seller concessions.
Simplified Coordination
Having one point of contact for all transaction-related questions and concerns can reduce stress and confusion, particularly for first-time buyers or sellers who may feel overwhelmed by the process.
3. The Cons of Dual Agency
Conflict of Interest
The most significant drawback is the fundamental conflict of interest. An agent cannot fully advocate for both parties when their interests are naturally opposed. Sellers want the highest price while buyers want the lowest.
If the real estate agent is selling an overpriced home, 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 and seller. This may be completely unintentional, but it can happen without the real estate agent realizing it.
Limited Negotiation Advocacy
Dual agents cannot provide the aggressive negotiation tactics that dedicated buyers' or sellers' agents might employ. They must remain neutral, which can disadvantage both parties in different ways.
Reduced Confidentiality
Information you share with a dual agent cannot remain confidential from the other party. Your agent cannot keep your maximum budget secret from the seller or hide the seller's motivation to sell quickly from you.
Potential for Inadequate Representation
With divided loyalties, dual agents may not provide the level of specialized advice and protection that dedicated representation offers. This can be particularly problematic in complex transactions.
Legal Vulnerability
If disputes arise, dual agency situations can become legally complicated. Questions about whether the agent properly represented each party's interests can lead to challenging legal situations.
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.
4. Is Dual Agency Ethical?
The ethics of dual agency remain hotly debated within the real estate industry. Legal and ethical issues may 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.
Dual agency tends to be a slippery slope in that regard and may lead to legal repercussions if the realtor is not extremely careful in the way he or she represents both sides of the transaction.
While legal in North Carolina with proper disclosure, the practice raises several ethical considerations:
Professional Standards: The National Association of Realtors allows dual agency but emphasizes the importance of transparency and limited representation rather than full advocacy.
Fiduciary Duty Complications: Traditional real estate relationships involve fiduciary duties to act in the client's best interest. Dual agency necessarily limits these duties since the agent cannot fully advocate for opposing parties.
Disclosure Requirements: North Carolina law requires written disclosure and informed consent, but critics argue that many consumers don't fully understand the implications of agreeing to dual agency.
5. Is Dual Agency Bad or Illegal in Some States?
Dual agency is illegal in eight states: Texas, Wyoming, 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.
6. Who Pays the Commission in Dual Agency?
In dual agency situations, the commission structure typically follows these patterns:
Traditional Structure: The seller pays the full commission (usually 5-6%), which is then split between the listing and selling sides. In dual agency, this entire commission goes to the dual agent or their brokerage.
Negotiated Rates: Many dual agents offer reduced commission rates since they're representing both parties. Sellers might pay 4-5% instead of the full 6%, with the savings potentially passed to buyers through seller concessions.
Disclosed Arrangements: North Carolina law requires clear disclosure of how commissions will be handled in dual agency situations before the agreement is signed.
7. Should Commission Be Negotiated 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 negotiate dual agency commission before listing the home for sale so that the seller and real estate agent agree early on.
A fair dual agency commission typically ranges from 5% to 6% of the sale price. Dual agency presents a unique opportunity for commission negotiation because:
Increased Agent Compensation: Since the agent receives compensation from both sides, there's room for negotiation that benefits all parties.
Seller Leverage: Sellers should negotiate reduced rates since the agent doesn't need to split the commission with another brokerage.
Buyer Benefits: Savings from reduced commissions can be applied toward buyer closing costs, repairs, or purchase price reductions.
Market Competition: In Raleigh's competitive market, commission negotiation in dual agency can provide the edge needed to close a deal.
8. Should Dual Agency Be Avoided?
Whether to avoid dual agency depends on several factors specific to your situation:
Consider Avoiding If:
- You're a first-time buyer or seller unfamiliar with the process
- The transaction involves complex negotiations or unusual circumstances
- You're uncomfortable with limited confidentiality
- You prefer aggressive advocacy in negotiations
Dual Agency May Work If:
- You have prior real estate experience and understand the limitations
- The transaction is relatively straightforward
- You trust the agent's integrity and competence
- The potential benefits (speed, cost savings) outweigh the drawbacks
Red Flags to Watch For:
- Agents who don't clearly explain dual agency limitations
- Pressure to agree to dual agency without time to consider
- Situations where you feel your interests aren't being properly balanced
9. Does the Buyer Pay the Real Estate Agent?
In traditional real estate transactions, buyers typically don't pay their agent's commission directly. The seller pays the total commission, which is then split between the listing agent and the buyer's agent. This means buyers receive representation without direct payment.
In dual agency, the seller still typically pays the commission, but the dual agent receives the entire amount rather than splitting it. This means that a dual agent can earn significantly more money on a transaction.
New regulations and industry practices are evolving around buyer agent compensation, but in North Carolina, the traditional model where sellers pay both sides remains standard.
While buyers don't typically pay commissions directly, they should understand that commission costs are often factored into the home's listing price. In dual agency, any commission savings should ideally benefit both parties.
10. How To Protect Yourself in a Dual Agency
If you decide to proceed with dual agency, taking proactive steps to protect your interests becomes essential. Here are key strategies to ensure you're adequately protected:
Get Everything in Writing: Ensure all agreements, disclosures, and commission arrangements are documented in writing before proceeding. North Carolina law requires written dual agency agreements, but you should also document any verbal promises or understandings.
Understand Your Limited Rights: Clearly understand what your dual agent can and cannot do for you. They cannot provide strategic advice that would disadvantage the other party, keep your confidential information secret, or negotiate aggressively on your behalf.
Set Clear Expectations: Before agreeing to dual agency, have an honest conversation about how your agent will handle conflicts of interest, what information they can share, and how they'll ensure fair treatment for both parties.
Know Your Exit Options: Understand that you can typically withdraw from dual agency arrangements before closing, though this may complicate your transaction. Make sure you know your options if you become uncomfortable with the arrangement.
Methodology
Data was sourced from the National Association of Realtors and World Population Review to determine what dual agency is in real estate.
FAQs
Do realtors like being dual agents?
While it depends on the independent agent, many find that being a dual agent comes with certain advantages, including a streamlined process and easier communication between the buyer and seller.
Does a dual agent get double commission?
Yes, a dual agent gets to take home double commission after helping both the buyer and seller save time and money.
Making the Right Decision - Dual Agency
Dual agency is not inherently good or bad and can be a tool that works well in some situations and badly in others. The key is understanding what you are agreeing to and whether it aligns with your real estate needs.
Before making any decisions about representation, consider consulting with experienced real estate professionals who can assess your specific situation and provide personalized guidance based on your goals and the current Raleigh market conditions.
If you are considering buying or selling in Raleigh, contact the experts at Raleigh Realty. Our experienced team is here to guide you through every aspect of your real estate journey.
