How Does Dual Agency Work?
Dual agency occurs when one real estate agent or brokerage represents both the buyer and seller of a home. This arrangement is beneficial to the agency, because it receives a fee from both sides of the transaction, depending on state laws and practices. Dual agency is legal in most states, but it is heavily regulated to protect buyers and sellers from predatory practices. For example, Alabama requires both buyer and seller consent to be represented by one agent or agency. As an example of dual agency, suppose Betty Smith, an agent for the Smith Brokerage firm, lists a home for sale on Main Street. If another agent for Smith Brokerage, John Doe, presents an offer on behalf of a buyer, then Smith Brokerage is acting as a dual agent. The company stands to benefit from both ends of the deal. More complicated forms of dual agency can occur as well. For example, Betty Smith represents one client (the seller) as the listing agent and finds them a buyer for their home. The only problem is that the buyer needs to sell their current home in order to buy the seller’s house. Betty Smith then signs a listing agreement with the buyer to help them sell their home so they can buy the seller’s home. Smith and the firm stand to benefit from two home sales as a dual agent.
Fiduciary Responsibilities
Dual agency can cause legal issues, because fiduciary duties bind real estate agents. These duties require undivided loyalty to their clients. A buyer’s agent must act in the buyer’s best interests, and a seller’s agent must act in the best interests of the seller. A single person acting as a dual agent would require loyalty to both sides of the negotiating table—a tricky, if not impossible, task. Real estate professionals’ fiduciary duties are written into a state’s contract, tort, and licensing laws. Therefore, real estate agents must fully disclose dual agency relationships. All parties must understand the terms and give full and express consent if a dual agency is to proceed.
Dual Agency Benefits
Although dual agency presents some unique concerns and problems, they can be balanced somewhat by a few advantages. If you’re in a dual agency relationship, it might speed up some response times. Your agent can answer your questions without waiting for the other party’s agent to get an answer from their clients. Dual agency can also streamline the transaction process, whether you’re the buyer or the seller. You could also potentially save some money, particularly if you’re the seller. Typically, you would have to pay a commission to your agent—often 6%—which would then be split with the other agent. If you’re dealing with just one agency, agent, or entity, you may be able to negotiate that percentage down a little.
Dual Agency Disadvantages
A dual agent can’t negotiate to get the seller’s highest price while getting the lowest price for the buyer. What’s more, a dual agent might be tempted to work toward a higher selling price to put more money in their pocket via the commission. There are no fresh eyes in a dual-agency situation. Having two separate agents, brokers, or entities involved can mean that one party might—or at least should—notice if the other takes a misstep, so the issue can be corrected. An agent who is acting on behalf of only one party is called a “single agent,” and their loyalty is much more apparent. Single-agent negotiation can make for a smoother transaction and can ensure a more level playing field for both parties.
