Most real estate deals involve two brokers – one to represent the seller and another to represent the buyer. However, there is another, less common, scenario where a broker represents both the buyer and seller in the same real estate transaction. This is known as a dual agency. A double agent must walk a fine line to be neutral with both the buyer and the seller, and must not disclose confidential information to either party. Before you decide to work with a dual broker, find out more about what dual representation is, its advantages and disadvantages, and how it works when buying or selling a home.
How does the dual agency work?
There are a few scenarios in which dual representation can occur. For example, buyers can find themselves in a double agency situation if they so choose buy a house where your real estate agent also represents the seller. This is most likely in smaller towns or cities where inventory is limited.
Dual representation can also occur when a realtor holds an open house and meets a buyer who is interested in buying the home. If the buyer doesn’t already have one Real estate agent, you can request that the agent of the seller also represent you in the transaction. In either situation, when the buyer and seller agree that the same real estate agent can represent both parties in the transaction and sign the required documents, the agent becomes a dual agent.
Finally, and most commonly, some sort of double agency can occur when the buyer and seller have separate agents who both work for the same brokerage or real estate firm. This is commonly referred to as a Designated Agency and is considered more ethical than a dual agency with a single agent as the buyer and seller have separate agents with fiduciary responsibility.
Dual representation is illegal in some states
Because of the potential problems associated with dual representation, not every state allows a single broker to work on both sides of a real estate transaction. Here are the states where dual representation is illegal:
The states not listed above have different laws regarding dual representation, so it is important to review your state’s regulations before signing a dual representation agreement. In all states, however, the real estate agent must disclose to their clients that they are representing both sides of the transaction – they cannot represent both the buyer and the seller without their knowledge.
Advantages and disadvantages of the dual agency
When considering a contract with two agencies, it is important that you weigh the potential pros and cons before you go ahead and sign any formal paperwork.
Advantages of the dual agency:
Optimized communication and transaction: Generally speaking, because a broker or broker represents the buyer and seller, negotiating a price or answering a question can be less delayed. Many agents also believe that forms and documents can be created and signed faster when the buyer and seller work with the same agent, which streamlines the entire transaction.
Access to a pool of potential sellers or buyers: As mentioned earlier, Dual Agency can also refer to the same brokerage firm representing both sides. So if you’re a seller, the dual representation option ensures that your agent’s staff can send buyers to your home – thus expanding the circle of potential buyers. The downside is also true. When you buy, the dual agency allows you to see properties that are offered by other real estate agents at your brokerage agency.
A double agent can agree to a reduced commission: In a traditional real estate transaction, a home seller pays a commission to their broker, who then shares that commission with the buyer’s broker. With the dual agency, however, only one agent is involved – so this agent retains the full percentage of the commission. Because of this, some agents may agree to a reduced fee if you choose to work with them.
Disadvantages of a dual agency:
Your agent won’t be 100% on your side: The main problem with the dual agency is that you lose one of the greatest benefits of working with a real estate agent – your responsibility only to you. A real estate agent is obliged to act in the best interests of his client at all times – when preparing or accepting offers, negotiating prices, asking for concessions, etc.
However, this is impossible in a two-agency scenario. There is no way that a broker can put the interests of one party above the other while negotiating the best possible deal and terms for buyer and seller. Double agents must be absolutely neutral in a real estate transaction. This can be a huge disadvantage instead of having an agent who only represents you and looks after your interests.
Missing advice: Whether buying or selling a property, good advice from a real estate agent is important. A major disadvantage of dual representation is that the agent is limited to what he can share with either party. Because they have a duty of confidentiality and loyalty to both the buyer and the seller, they cannot share things that they would normally do if only represented one party. For example, you cannot suggest to buyers to offer a lower or higher price for a home.
Room for mistakes: If there is only one agent to represent both parties, things are likely to fall through the cracks. The fact that two separate agents are involved in the transaction means that either party can check for errors, review missing or incorrect information, and fix any problems.
Who pays the commission at the dual agency?
Real estate agent commissions are negotiable and can be paid for by the buyer or seller. Most often the seller pays the commission, but the costs can be passed on to the buyer within the list price. Usually the commission is 5–6% of the sales price of the house. If the real estate agent does not act as a dual agent, the commission is split between the buyer’s agent. In most areas, the buyer’s agent gets 2.5% -3% and the seller’s agent 2.5% -3%. With the dual agency, however, the broker retains the full real estate commission. Earning the double commission through the dual agency is definitely ideal for the broker, but not always in the best interests of the buyer and seller.
Can I negotiate a lower commission with the dual agency?
A seller or buyer can often negotiate a lower commission with or without a double agency. Since the broker would keep double the commission with a dual agency, it may be in the interest of the seller and buyer to negotiate this rate downwards.
What is the difference between a dual agency and a designated agency?
Named agency, or appointed agency, can be a version of the dual agency, ie the buyer is represented by a different agent in the same brokerage as the seller. In this scenario, buyers and sellers have their own representation. Both brokers are able to exclusively represent the interests of their clients while remaining loyal to their clients.
The advantage of having a named agency in a two-agency situation is that the named agency only owes obligations to its assigned client. The agent’s managing broker can act as a neutral representative if one of the agents named has questions about how to proceed.
When to use a dual agent
If your federal state allows dual representation, the agreement can be useful under certain circumstances. For example, a dual agency can be ideal when a house is being sold between people who know each other and have already negotiated terms, prices, etc. In this case, both parties just need someone to handle the paperwork. Dual agency is also common when both sides of the transaction are real estate developers or investors. These types of customers usually do not have to be advised in negotiations and are already well informed about Real estate market Conditions. However, a double agent may not be the best option if you have one First time home buyers.
Is dual agency the right decision for you?
A dual agency can work on some real estate transactions, but it’s definitely not for everyone. In any home sale, trust is the most important aspect of a realtor and customer relationship. Consider the pros and cons of dual representation and carefully weigh them against your personal and financial priorities so that you can make the right decision when buying or selling a property.