What is Dual Agency?

Posted July 30th, 2018

In our last article, we went over the different types of agency relationships and specifically focused on the differences between seller and buyer agency and the benefits of working with either a seller’s agent or a buyer’s agent. Today, we’ll delve into the concept of dual agency and go over the pros and cons of working with a dual agent.

In a dual agency relationship, the two roles of being a seller’s agent and a buyer’s agent are combined and one agent, the dual agent, represents both parties. Due to this, dual agents do not owe all of the traditional fiduciary duties. Instead, he/she owes only limited fiduciary duties to both the seller and the buyer that they are representing. As one can rightfully assume, this can easily lead to potential conflicts of interest and therefore most states will only allow dual agency once all the parties involved have given their informed consent in writing.

Normally speaking, dual agency relationships don’t happen quite as often in cities like New York because of its huge real estate market. However, a dual agency situation can happen more frequently in smaller markets where there aren’t as many available properties. If the state applies agency duties at the broker level and not the agent level, then there is also the concept of designated agency, which occurs when the buyer and seller are represented by two different designated agents (also known as appointed agents) who work for the same brokerage firm. Using designated agency relationships allow brokerage firms to avoid problems that may arise from a dual agency relationship with a singular agent. In fact, if the firm is big enough, the two designated agents may not even know each other, meaning there could be less potential conflict. Designated agency relationships are usually more common when there is a one major brokerage firm with many listings in the local market.  

So what are some of the pros and cons of working with a dual agent? We’ve listed some of the more common ones below:

Pros:

  • Working with a dual agent can help streamline your overall home-selling/buying process. The fewer people there are involved, the fewer schedules you have to worry about coordinating with.
  • Similarly, working with only one agent for both parties can help streamline communication as having only one person in charge of everything means that there is less to communicate with another person.
  • You may save on the overall commission. Generally speaking, commissions are usually 5% – 6% of a sales price of a home. The commission is then split equally between the buyer and seller’s agents. However, in a dual agency situation, the agent can keep the whole commission, so they may be willing to lower their commission, resulting in saved costs for you!
  • Buyers who work with a dual agent might have an easier time crafting an offer that will be attractive to the seller. While the dual agent can’t disclose confidential matters, they can still be knowledgeable about what the seller is looking for.

Cons:

  • Staying truly neutral can be difficult.
  • While the agent can still coach you and assist you in the process of selling and buying a house, they become more of a referee when it comes to negotiations between the two parties since they need to stay neutral. A dual agent is only allowed to tell you material facts such as property related issues and defects. For example, the agent would not be able to tell the buyer that the seller is desperate to sell. The agent would also not be able to disclose to the seller that the buyer is willing to bid higher if need be. Therefore, causing both parties to miss out on opportunities to sell for more or buy for less.
  • Given that there is only one agent checking over all the documents needed in the closing of the home, there are fewer checks and balances which increases the chances of possible errors if the agent is not detail-oriented.

Due to the complexities, the best time to work with a dual agent is, first and foremost, when the agent is required by law to represent both sides fairly and has received consent from both parties. Both the buyer and seller should be informed and aware about the possible benefits and conflicts that may arise and should also be relatively knowledgeable about the local market so they aren’t solely reliant on the dual agent. Another possible time to use dual agency is when both parties have already negotiated a price/terms and the only thing left to do is to have an agent facilitate the documents necessary for a sale (for situations like this, the buyer and seller should definitely negotiate for a lower commission). As always, laws regarding dual agency are different in each state. So before you make a decision, make sure to look into the regulations in your own state.