What is dual agency, and is it risky?

In the realm of real estate, the conventional approach involves separate agents representing the buyer and seller, safeguarding their respective interests. However, there exists an alternative arrangement known as dual agency, where a single agent represents both parties in the transaction. While this can streamline the process, it comes with potential risks, and in some states, it is outright illegal. Let’s delve deeper into what dual agency entails and what you should consider when engaging in it, whether you’re a buyer or seller.

What is Dual Agency?

Ordinarily, a buyer engages a dedicated agent to assist them in finding and purchasing a property, while the seller works with their own agent focused on marketing and selling their home. Each agent operates under the principle of fiduciary duty, ensuring they act in the best interests of their respective clients. In contrast, dual agency occurs when the same agent represents both the buyer and seller.

How Does Dual Agency Work?

Dual agency commonly arises when both parties use the same brokerage or when a buyer directly approaches the listing agent. For instance, if a buyer attends an open house and decides to work directly with the hosting agent, who also represents the seller, a dual agency situation arises. It’s crucial for both parties to consent to this arrangement, and any party can opt out if they’re not comfortable with it.

Risks of Dual Agency

Dual agency poses potential conflicts of interest. The agent’s commission is contingent on the sale price of the home, incentivizing them to aim for a higher sale price, primarily benefiting the seller. While not inherently unethical, dual agency can lead to suspicions of bias or favoritism from both the buyer and seller.

In a dual agency transaction, buyers and sellers can expect fair but not full representation. For instance, an agent in a dual agency arrangement cannot provide suggestions to a buyer on how much to offer, as it wouldn’t be in the seller’s best interest.

Is Dual Agency Illegal?

Several U.S. states prohibit dual agency due to these inherent risks. The states where real estate dual agency is illegal are:

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

Advantages of Dual Agency

Despite its potential pitfalls, dual agency offers certain advantages, particularly in streamlining the transaction process. With a single agent overseeing the transaction, document preparation and signing can occur more swiftly, reducing back-and-forth communication.

Additionally, the seller may have more leverage to negotiate a reduced commission fee, as there’s only one agent involved. This can lead to potential cost savings for both parties.

Dual Agent Commissions

In a dual agency scenario, the agent receives the entire real estate commission, typically paid by the seller. Unlike a traditional two-agent transaction where the commission is split, a dual agent commands the full commission, which can potentially be negotiated due to the absence of a second agent.

In Conclusion

While dual agency is legally permissible in most states and can facilitate a more convenient transaction, it’s not always recommended. Establishing your own representation through a trusted agent is often advised for both buyers and sellers. Building a relationship with a Realtor you trust can lead to a more satisfactory outcome in the long run.