Buying a Home

What is Dual Agency and How Does it Work?

In most real estate deals, there are two agents involved – one who represents the seller and another who represents the buyer. However, there is another less common scenario in which one agent represents both the buyer and the seller in the same real estate transaction. This is known as dual agency. A dual agent must walk a fine line to be neutral towards both the buyer and the seller, and they cannot disclose confidential information to either party. Before deciding to work with a dual agent, learn more about what dual agency is, the pros and cons, and how it factors into buying or selling a house.

How does dual agency work? 

There are a few scenarios where dual agency can occur. For example, buyers may find themselves in a dual agency situation if they want to buy a house wherein their real estate agent also represents the seller. This is most likely to occur in smaller cities or towns where the inventory is limited. 

Dual agency may also happen if an agent is hosting an open house and meets a buyer who is interested in purchasing the home. If the buyer does not already have a real estate agent, they may request that the seller’s agent also represent them in the transaction. In both of these situations, if the buyer and seller agree that the same real estate agent can represent both parties in the transaction and sign the necessary paperwork, the realtor becomes a dual agent. 

Lastly and most commonly, a type of dual agency can occur if the buyer and seller have separate agents who both work at the same brokerage or real estate company. This is commonly known as a designated agency and it’s thought to be more ethical than single-agent dual agency, as the buyers and sellers have separate agents with fiduciary responsibilities.

Dual agency is illegal in some states

Because of the potential issues surrounding dual agency, not every state allows a single agent to work on both sides of a real estate transaction. Here are the states where dual agency is illegal:

  • Alaska
  • Colorado
  • Florida
  • Kansas
  • Maryland 
  • Oklahoma
  • Texas 
  • Vermont

The states not listed above have different laws surrounding dual agency, so it’s important to look into your state’s regulations before signing a dual agency agreement. However, in all states the real estate agent must disclose to their clients that they’ll be representing both sides of the transaction – they cannot represent both the buyer and seller without them knowing. 

Pros and cons of dual agency 

If you are considering a dual agency agreement, it’s important that you consider the potential advantages and disadvantages before moving forward and signing any formal paperwork.

Pros of dual agency: 

Streamlined communication and transaction: Generally speaking, because one real estate agent or brokerage represents the buyer and the seller, there can be less of a delay in price negotiations or receiving an answer to a question. Many agents also feel that when a buyer and seller are working with the same agent, forms and documents can be prepared and signed more quickly – streamlining the whole transaction.

Access to a pool of potential sellers or buyers: As mentioned, dual agency can also refer to the same brokerage representing both sides. So if you’re a seller, the option of dual agency ensures that your agent’s co-workers can send buyers to your home – widening the pool of potential buyers. The flip side is true as well. If you’re buying, dual agency allows you to see properties listed by other realtors at your agent’s brokerage. 

A dual agent may agree to a reduced commission: In a traditional real estate transaction, a home seller pays a commission to their agent, who then splits that commission with the buyer’s agent. However, with dual agency, there is only one agent involved – so they will keep the full percentage of commission. Because of this, some agents may agree to a reduced fee if you decide to work with them.  

Cons of a dual agency:

Your agent won’t be 100% on your side: The primary issue with dual agency is that you lose one of the biggest perks of working with a real estate agent – their responsibility to only you. A real estate agent is required to act in their client’s best interest at all times – when making or accepting an offer, negotiating the price, asking for concessions, etc.

However, in a dual agency scenario, this is impossible. There’s no way that an agent can put the interests of one party over the other and simultaneously negotiate the best possible deal and terms for the buyer and the seller. Dual agents have to be completely neutral in a real estate transaction. This can be a huge drawback instead of having an agent who represents only you and looks out for your best interests. 

Lack of advice: Whether buying or selling a home, receiving good advice from a real estate agent is important. A major downside of dual agency is that the agent is limited to what they can share with each party. Because they have a duty of confidentiality and loyalty to both the buyer and seller, they cannot share things they normally would if they were representing just one party. For example, they cannot suggest buyers offer a lower or higher price for a home. 

Room for error: When there’s only one agent representing both parties, it’s possible that things may fall through the cracks. Having two separate agents involved in the transaction means that either party can check for mistakes, audit missing or incorrect information, and fix any issues.

Who pays the commission with dual agency?

Real estate agent commissions are negotiable and can be paid by the buyer or seller. Most frequently, the seller pays the commission, however, the costs may be passed onto the buyer within the listing price. Typically, the commission is 5%–6% of the home’s sale price. When the real estate agent is not acting as a dual agent, the commission is split with the buyer’s agent. In most areas, the buyer’s agent receives 2.5%–3% and the seller’s agent receives 2.5%-3%. However, with dual agency, the agent retains the full real estate commission. Earning double commission through dual agency is definitely ideal for the realtor, but it is not always in the best interest of the buyer and the seller.

Can I negotiate a lower commission by using dual agency?

A seller or buyer can often negotiate a lower commission with or without dual agency. Since the agent would be keeping double the commission with a dual agency, it may be in the seller’s and buyer’s interest to negotiate that rate down.

What’s the difference between a dual agency and a designated agency?

Designated agency, or appointed agency, can be a version of dual agency that means the buyer is represented by another agent in the same brokerage as the seller. In this scenario, the buyer and seller have their own representation. Both agents are able to solely advocate for their clients’ interests while remaining loyal to their clients. 

The benefit of designated agency in a dual agency situation is that the designated agent owes duties only to their assigned client. The managing broker for the agents may act as a neutral if either Ddesignated agent has questions on how to proceed.

When to use a dual agent 

If your state allows dual agency, there are some circumstances in which the arrangement may make sense. For example, dual agency can be ideal when a house is sold between people who know each other and they have already negotiated the terms, price, etc. In this case, both parties would just need someone to process the paperwork. Dual agency is also common when both sides of the transaction are real estate developers or investors. These types of clients generally do not need to be counseled about negotiating and are already extremely informed about housing market conditions. However, a dual agent may not be the best option if you’re a first-time homebuyer.

Is dual agency the right decision for you?

Dual agency may work for some real estate transactions, but it definitely isn’t for everyone. In any home sale, the most important aspect of an agent and client relationship is trust. Consider the advantages and disadvantages of dual agency and weigh them carefully against your personal and financial priorities so you can make the right decision when buying or selling a home. 

Source
What is Dual Agency and How Does it Work? is written by Emily Huddleston for www.redfin.com

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