Real estate dual agency has been a point of debate for many years, so much so that some states have banned the act. This is because fiduciary duties are owed to all clients under agency law. The debate is whether or not an agent acting in a dual-agent capacity is able to actually uphold that oath. So what is dual agency in real estate, and how does it really impact everyone involved? Let’s dig into the details, including what role you, as the agent, can play in helping your clients decide if a dual agency is the best representation for their home purchase.
Dual Agency in Real Estate Defined
Dual agency occurs when a real estate agent or broker represents both the buyer and the seller in a single transaction. This differs from a traditional real estate transaction, where the buyer and the seller are each represented by their own agent (the buyer’s agent and the seller’s agent).
When defining what dual agency is in real estate, it’s important to note that in some dual agency situations, one agent from a brokerage may represent both parties. In other cases, two agents from the same firm may each represent the buyer and the seller. This is also a form of dual agency known as designated dual agency.
Dual Agency vs Designated Dual Agent
There are two types of dual agency, although one is more of a subcategory of the other. In either scenario, the representation is dual agency anytime the brokerage itself represents both the buyer and the seller in a transaction. How that agency relationship takes place determines whether or not it is a true dual agency or designated dual agency.
- Dual agency: A single agent or brokerage represents both the buyer and the seller in the same transaction.
- Designated dual agency: Two different agents within the same brokerage represent the buyer and the seller.
Dual Agency
In a true dual agency scenario, the agent owes a fiduciary duty to both the buyer and the seller. This means they must act in the best interests of both parties, maintain confidentiality, and exercise fairness in their dealings with each party. This can present challenges, as the agent must handle potential conflicts of interest while remaining impartial.
Example: A buyer enters an open house and expresses interest in writing an offer on the property. Since it is listed by the listing agent (representing the seller) and their brokerage, the agent must explain the buyer agency to the potential client and provide them with all available options. If the buyer decides to have the listing agent represent them (as the buyers) and the seller simultaneously, this would be considered a true dual agency.
Designated Dual Agency
This type of agency allows each party to be represented by different agents within the same brokerage. The word designated differentiates this type of agency because the brokerage’s managing broker will typically designate an agent to work on either side of the transaction. Although they work for the same brokerage, these agents operate independently and owe a fiduciary duty only to their respective clients.
Example: Let’s say the same buyer from above wants individual representation but does not care if it is an agent from the same office. The listing agent would then contact their managing broker and advise them of the situation. The broker would then assign or designate another agent in the office to represent the buyer.
Tip: Consider only practicing in a designated agency capacity. Some brokerages’ policies prohibit dual agency and only allow designated agency. Practicing a designated agency eliminates most conflicts of interest that may arise and allows agents to continue providing fiduciary responsibility to their clients.
Role of the Agent in Agency Relationships
In any type of agency relationship, the real estate agent owes fiduciary duties to their client. These are legal obligations that require the agent to act in the client’s best interests. This is commonly known in the real estate industry by the acronym OLDCAR, learned in prelicensing education when you become a real estate agent.
These duties form the foundation of the agent-client relationship and are designed to ensure that clients receive the highest standard of representation throughout the real estate transaction. What makes dual agency complex is the agent’s ability to legally uphold these duties and act in their client’s best interests at all times, especially if they represent both parties’ interests.
Let’s review the key duties owed to our clients.
Acronym | Fiduciary Duty | Duty Defined |
---|---|---|
O | Obedience | The agent must obey all lawful instructions given by their client as long as those instructions are within the scope of the agency relationship. |
L | Loyalty | The agent should always act in the client's best interests and avoid conflicts of interest. |
D | Disclosure | The agent must disclose all relevant information to their client, including any conflicts of interest and material facts. |
C | Confidentiality | The agent must keep the client's information confidential, including any personal or financial details shared. |
A | Accounting | The agent is obligated to safeguard all money or property entrusted to them by their clients, including deeds and documents related to transactions. |
R | Reasonable Care | The agent must exercise reasonable care and skill in carrying out their duties, which includes using their knowledge and expertise to represent their client effectively. |
The Legalities of Dual Agency
The legalities of dual agency vary depending on the area in which it is being practiced. In some states, dual agency is permitted, provided all parties consent to the arrangement. However, there are often strict rules and guidelines that agents must follow to ensure transparency and fairness. These may include requirements for disclosure and consent of dual agency status to both the buyer and the seller.
In other states, it may be prohibited altogether due to concerns about conflicts of interest and consumer protection. In such cases, agents are required to represent either the buyer or the seller exclusively, with no possibility of dual representation in the real estate transaction. Check with your state’s regulatory agency for the most up-to-date information, as state laws are updated frequently.
States Prohibited
- Alaska (AK)
- Colorado (CO)
- Florida (FL)
- Kansas (KS)
- Maryland (MD)
- Texas (TX)
- Vermont (VT)
- Wyoming (WY)
There may be legal repercussions for agents who fail to adhere to the regulations surrounding real estate dual representation. Practicing an undisclosed dual agency (where clients are unaware that the agent is representing both sides and did not mutually agree) or failing to uphold their fiduciary duties could put the agent’s license at risk. These situations could result in fines, suspension, or revocation of the agent’s license. Legal action from disgruntled clients who feel they were victims of negligence is also common.
Best Practice: Given the complex nature of dual agency, it is important for agents and their clients to be well-informed about the laws and regulations applicable in their area. Seeking legal counsel, reviewing office policies, and ensuring compliance with all relevant guidelines can help mitigate risks and ensure a smooth transaction for all parties involved.
Dual Agency Pros & Cons
As we look at what dual agency in real estate means, it’s important to look at the upsides of dual agency as well as the potential downsides. Note that the pros and cons of dual agency may look different to each individual agent based on their level of comfort and understanding of state agency laws.
PROS | CONS |
---|---|
Streamlined communication: With a single agent overseeing the transaction, communication can be simplified, potentially expediting the process. | Conflicts of interest: Dual agents must navigate conflicting interests, potentially compromising their ability to negotiate the best terms for both parties. |
Double the knowledge: A dual agent may have a comprehensive understanding of both the property and the buyer's requirements, facilitating smoother negotiations. | Limited advocacy: Each party may feel they do not have dedicated representation advocating solely for their interests, leading to concerns about how the agent remains impartial. |
Two-for-one transaction: The person who benefits the most from this type of agreement is the dual agent themself. Typically, the agent will receive both commissions for the buyer and the seller, unless otherwise agreed upon. | Increased workload: While the agent will be compensated for their work on both sides of the transaction at an agreed-upon amount, dual agents will do twice the work than that of a traditional sale. This may not be ideal for newer agents. |
Best Practice: Consider limiting dual agency at your firm and implement a policy to only participate in designated dual agency. Outline how agents should conduct themselves and limit agent access to any confidential client information.
Frequently Asked Questions (FAQs)
Whether dual agency is a good idea depends on several factors. It can streamline communication and negotiations, enabling the agent to understand the needs of both the seller and the buyer. Concerns arise due to the fiduciary duties that the agent owes to both parties. It’s difficult to remain impartial in this situation, so some clients may prefer dedicated representation. It’s important to listen to your client’s needs and offer an agency solution in their best interest.
When explaining dual agency to a client, describe it as a situation where a single real estate agent or brokerage represents both the buyer and the seller in a transaction. Provide details about true dual agency, and don’t forget to explain designated dual agency.
- Provide details on how acting in this capacity often allows the agent to be dedicated to the client.
- Be honest about the pros and cons of dual agency and emphasize the importance of transparency and communication throughout the homebuying process, ensuring that the client understands the potential benefits and risks involved.
- Offer to discuss any concerns or questions they may have and provide guidance on alternative representation options, such as exclusive representation.
The goal is to ensure the client feels informed and empowered to make the best decision for their unique circumstances.
The main difference between exclusive agency and dual agency in real estate lies in how representation is structured and how potential conflicts of interest are managed. Exclusive agency agreements involve clients working exclusively with one real estate agent or brokerage to sell or purchase property. In this setup, the agent’s fiduciary duties are solely to the client.
On the other hand, dual agency occurs when a single agent or brokerage represents both the buyer and the seller in the same transaction. This means the agent owes fiduciary duties to both parties.
Bottom Line
Now that you know what dual agency is in real estate, you can answer these questions: Can a real estate agent represent both a buyer and a seller? Yes. Is it in the client’s best interest? That’s for you and your clients to decide. Dual agency is one area of real estate that can offer benefits in certain situations but also poses potential challenges. Seek the advice of your broker and speak to legal counsel to navigate the complexities of dual agency and ensure a successful and compliant closing.