Dual Agency Is When A Real Estate Agent Represents Both Buyer And Seller. Here���s Why It���s Illegal In Some States

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Buying or selling a home is a pretty big deal. There’s a lot of money involved, and you’ll go through several complicated steps before signing on the dotted line. A real estate agent can lead you through the process — but would you be OK if they took a hands-off approach?

That’s what often happens in a dual agency arrangement, where one real estate agent works for both the seller and buyer. The agent typically offers less guidance throughout the homebuying process and has limits on what they can disclose to each side. While it can work for some sellers and buyers, dual agency may present a conflict of interest, says Catherine Okoroh, vice president of mortgage lending at Guaranteed Rate.

“It’s difficult to fairly represent both sides and have both interests at heart,” Okoroh says. “On one end, I want to get the seller the highest price. On the other end, I want to get the buyer the best deal. How is that possible, especially when I have information about what they both want?”

Before deciding if you want to enter into a dual agency agreement, it’s a good idea to learn how it works, where it’s allowed, and the benefits and drawbacks. 

What Is Dual Agency in Real Estate?

Dual agency is a situation where one real estate agent represents both the seller and buyer or both the tenant and landlord in a real estate transaction. In both cases, the agent collects full commission for representing both sides. Dual agency can also happen when two agents from the same real estate brokerage represent both parties in a rental deal or a home purchase.

You might encounter this situation if you hire a real estate agent to list your home in a state that allows dual agency. The agent may ask if you agree to dual agency and will explain the pros and cons of the process. If you consent, you’ll likely need to sign an official disclosure — and the agent will need to inform each potential buyer. 

Pro Tip

If you’re a seller with a lot of real estate knowledge, dual agency could potentially streamline the process and save you on commission. But be aware that working with a dual agent isn’t without its risks and downsides.

Dual agency may also happen when “a buyer doesn’t have an agent and asks the seller’s agent to represent them,” says Andrina Valdes, chief operating officer of Cornerstone Home Lending Inc. “Or, a buyer with an agent may find a home they love that happens to be listed by that agent, creating a dual agency scenario.” 

To limit miscommunication, ask your agent upfront whether they’re representing you as a single agent or whether they’re working as a dual agent who also represents the other party. Whether you’re the buyer or seller, you can decline dual agency and hire another agent to represent you. 

Why Is It Illegal in Some States?  

Some states outlaw or regulate dual agency because “it is likely to create a conflict of interest,” Valdes says. “So, a seller or buyer may not receive the fairest representation. This is why dual agency can be controversial,” she explains.

Single agents (as opposed to dual agents) typically have to maintain a “fiduciary relationship” with their clients. The agent can’t, for instance, disclose a client’s confidential information to the other party and must work in their client’s best interest at all times. That pretty much goes out the window with dual agency because the agent is representing both the buyer and the seller. 

Where Is Dual Agency Illegal? 

Dual agency is illegal in some states, while others allow it with some regulations or caveats. These laws can change, so you’ll need to check with your state’s governing agency for the most recent updates.

As of August 2021, the following states either regulate dual agency or recognize it as illegal:

  1. Colorado doesn’t allow dual agency at all.
  2. Maryland only allows dual agency if the licensed real estate broker gets written informed consent from all parties. 
  3. Alaska only allows dual agency if the broker gets written consent from the seller and buyer. 
  4. Kansas doesn’t allow dual agency.
  5. Texas doesn’t permit dual agency but allows agents to act as an intermediary between the buyer and seller.
  6. Florida doesn’t allow dual agency in residential real estate, but agents can act as transaction brokers.
  7. Vermont real estate agents can’t act as dual agents, transaction brokers, or intermediaries.
  8. Wyoming allows agents to act as an intermediary with written permission only.

It’s important to know how your state treats the relationship between a real estate agent and their client because it affects what your agent can do for you. 

According to a 2019 report by the Consumer Federation of America, 66% of surveyed consumers said they believed real estate agents must always or almost always represent their client’s best interests. However, real estate agents aren’t always required by law to do this. 

For instance, Florida outlaws dual agents in residential real estate deals but allows “transaction brokers.” The transaction broker provides limited representation to both sides, but the broker does not “have a fiduciary responsibility for one side, which is the key difference,” says Tina-Gaye Bernard, a licensed broker-associate in the Miami area who goes by the name Bernie. 

To find out how your state treats the agent-client relationship, do a quick Google search on “dual agency + [your state]”. You might find different  terms — such as “agent,” “subagent,” “transactional agent,” “designated agent,” and “dual agent” — and they may be treated differently in each state. Ask your agent to explain the relevant terminology to you.

What Is NAR’s Stance on Dual Agency?

The National Association of Realtors (NAR), a trade association representing professionals in the residential and commercial real estate industries, “does not have an official position on dual agency,” says Mantill Williams, an association spokesman. “Rather, we advise our members to abide by the laws in the states where they practice real estate, the majority of which allow dual agency with a client’s consent,” he says.

Additionally, NAR’s Code of Ethics “requires Realtors to act in their client’s best interests,” Mantill adds. “As such, the Code of Ethics Standards of Practice 1-12 and 1-13 require Realtors to disclose any potential for dual agency in their client relationships.”

Pros and Cons of Dual Agency 

When you’re listing a home for sale or you’re in the market to buy one, consider these pros and cons before agreeing to dual agency:

Pros 

  • Faster communication: When one agent represents both sides of the transaction, “you have one less touch person,” Bernie says. This may streamline the process of getting answers to your questions, negotiating the home price, and scheduling the inspection and appraisal

  • Sellers may save money: Home sellers are typically responsible for paying a commission that’s split between the listing agent and buyer’s agent. But if you allow one agent to handle both sides of the transaction, there may be less work involved and you may be able to negotiate that percentage down a little. 

  • More knowledge of the property: As a buyer, you may have access to more information about the home when you’re working with someone who also represents the seller. Just keep in mind, the agent may have limits on what they can disclose.

Cons

  • Conflict of interest: It may be difficult for an agent to remain neutral when representing both sides. Sellers and buyers — or landlords and tenants — often have conflicting goals, and it’s difficult for one agent to advocate for both. “It’s like an attorney representing both sides in a divorce case,” Okoroh says.

  • Less guidance: Dual agents may have limits on what they can disclose to each party and how they facilitate the transaction. For instance, the agent may simply give the buyer a list of comparables and let them come up with an offer price on their own. “With a $2,000 rental, sure, you don’t need that much representation,” says Bernie. “With more nuanced transactions, you would want to seek representation for your own side.” 

  • Potential for mistrust: Even if you agree to dual agency, you may start doubting the advice you receive. “You need your real estate agent to be honest, you need them to go to bat for you,” Okoroh says. “When you know they’re on the other team as well, it’s hard to know whether what they told you is really to your benefit or if it’s subtly to benefit the other side,” she explains.

Is Dual Agency a Good or Bad Idea? 

Whether dual agency is a good or bad choice for you depends on your level of experience, your expectations, and your needs. 

Dual agency may streamline the home sale process, so it could be a good option for sellers looking to save money, for homebuyers who know the process well, or in situations where the seller and buyer know each other. But you’ll have to understand the inherent conflict of interest involved and manage some of the process on your own.  

Start here: Ask your agent upfront whether they’re representing only you or both sides. Make sure you understand what your agent can do for you and any limitations involved. Then, decide whether you’ll move forward with dual agency (if available) or you want your own representation.

Source : https://time.com/nextadvisor/mortgages/what-is-dual-agency/

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