What is dual agency and where is it illegal?
Buying a house isn’t a solo effort. You need a whole team of professionals in your corner to make sure every step in the process goes smoothly. We’re talking real estate agents, attorneys and loan officers. Of that group, real estate agents arguably serve the most important role at the outset of your journey to find a new home. We say arguably because you could make the case that getting preapproved for a mortgage is the No. 1 priority to purchasing a new home, and that’s squarely within the purview of your friendly neighborhood loan officer.
But we digress.
Real estate agents play a key part in finding your dream home, negotiating the terms of purchase and getting you a good deal on a new house. The assumption, of course, is that they’re always looking out for your best interest. But what happens if the buyer and seller have the same agent?
It happens and it’s called dual agency. This relationship isn’t always as suspect as it may appear — in some cases, you may actually benefit from it — but you should approach with caution. Here’s everything you need to know about dual agency and its implications on the homebuying process.
What is dual agency in real estate?
The vast majority of residential real estate transactions involve a buyer agent and a listing agent — that is, a dedicated agent to represent the buyer and seller individually. Dual agency completely upends the natural order of this relationship.
Dual agency definition
Dual agency is a real estate scenario where a real estate agent represents both the buyer and seller on the same transaction. Rather than split the commission between buyer agent and listing agent — as a transaction normally would — dual agency gives the entire sum to one agent.
You can see why real estate professionals may find this situation appealing, but it raises some pretty glaring concerns about conflict of interest:
- Will they try to get you the lowest possible price on a property or move you closer to the seller’s ideal sale price?
- When it comes time to negotiate repairs after the home inspection, whose side will the agent take?
- Do you need to worry that your agent will use info against you — for instance, letting the seller know what your max budget looks like?
It may come as no surprise that dual agency is illegal in some parts of the country because of those concerns.
Disclosed vs. undisclosed dual agency
Just about any state that allows agents to operate in this capacity requires full, up-front disclosure. Any type of legal dual agency is going to be disclosed dual agency. You’re very unlikely to come across an instance of undisclosed dual agency — and if you do, the agent could very well be violating any number of fiduciary guidelines.
You won’t ruffle any feathers by checking that any agent you’re considering working with is representing you and only you, so ask away.
When do dual agency situations occur?
Given how tightly regulated the real estate industry is, it may seem inconceivable that one agent could back both sides in a transaction. But with the rise of online listings and virtual house hunting, dual agency happens more frequently than you may think.
You’re most likely to encounter a dual agency situation under these conditions:
When can dual agency happen?
- Buying rural property
- Scheduling a viewing online
- Attending an open house
- Purchasing a new build
Buying rural property
Imagine you live in a rural community where real estate professionals are hard to come by. Due to sheer lack of availability, it’s not out of the question to have one agent working with both the buyer and seller.
Scheduling a viewing online
There’s nothing wrong with using one of the massively popular online listing sites in your search for a new home. When you schedule a viewing through one of these sites, though, you may be automatically assigned a real estate agent. Now, you don’t necessarily need to use that person if you decide to make an offer. If you do, you should be aware that they could be providing dual representation.
Attending an open house
Listing agents — or, more likely, one of their cohorts — will always be present during an open house. It’s not unheard of for prospective buyers to take the path of least resistance and simply contract that agent for the purchase rather than seek out dedicated assistance. The simplest approach is not always the best one when it comes to real estate, so be sure you’re well aware of the ramifications of working with a dual agent.
Purchasing a new build
Buying a home that’s part of a new development could also lead to dual-agent representation. Like some other scenarios listed above, you may not even realize you’re entering into this kind of relationship when you work with a real estate agent you found through a developer. It’s worth reiterating that agents don’t always need to disclose up-front that they represent the seller. At the very least, you should clarify their status if you have any doubts or concerns.
Is dual agency legal?
In many parts of the country, disclosed dual agency is perfectly legal. As long as the paperwork is in order and a contract is signed, agents can represent both buyer and seller in most states. There are several exceptions, however. Dual agency is illegal in some states:
Where is dual agency illegal?
A few of those states — Alaska, Maryland, Vermont and Wyoming — do allow designated agency, which is a bit different. With designated agency, two real estate professionals working for the same broker or a single agency represent both parties in a transaction. Keep in mind that this relationship must be disclosed to be on the up and up.
Even states that allow dual agency do so with the same caveat. Undisclosed dual agency is incredibly rare — at least when it’s done legally.
Are there any benefits to dual agency?
Dual agency may seem like a raw deal for both buyers and sellers, but there are some advantages to taking this unconventional route:
- Lower commission fees
- Better communication
- More transparency
- Quicker purchase process
Lower commission fees
A dual agent commission may be lower than a traditional transaction because there’s only one real estate professional coordinating the deal. Real estate agent fees vary somewhat across each state, but the average rate usually runs between 5% and 6% of the purchase price.
Who pays commission in dual agency
Keep in mind that’s per agent, so both the buyer agent and listing agent could receive that fee. By going with dual agency representation, you may be able to effectively cut your agent fees in half. Of course, seeing as the seller normally pays real estate commissions, this benefit may not be terribly enticing for homebuyers.
Every question or request you have for the seller needs to go through intermediaries. You tell your real estate agent, who contacts the listing agent, who then connects with the seller. And then the whole process is reversed to get a response. It’s almost like a game of telephone, although the likelihood of something getting lost in communication is relatively low.
Even so, passing messages through real estate agents adds extra time to the homebuying process. And if you’re looking to negotiate on the sale price or repair costs, waiting for a response can be agonizing. Working with a dual agent removes some of the communication barriers between you and the seller.
While seller disclosures are required with any purchase agreement, listing agents don’t need to tell you everything. For instance, seller agents are under no obligation to disclose if there are other competing offers on the table. There are plenty of reasons for why they might hold back certain details, but they may be less likely to do so in a dual agency scenario.
Because dual agents have just as much stake in the buyer’s interest, they could be more up-front about sharing information about the property and other interested parties. Keep in mind that fiduciary duties limit how many details dual agents can share with either side, but we’ll touch on that in just a bit.
Quicker purchase process
On average, it takes about 30-45 days to close on a new home. When you add in all the time spent house hunting and preparing your finances, though, your homebuying timeline could wind up looking like a couple of months. For the most part, buyers will spend most of that waiting for real estate agents, attorneys and mortgage specialists to send updates or reach out for required documents and information.
Dual agency can cut down on some of that tedium and streamline everything for both parties. There’s one less intermediary to slow things down and add extra steps to the process. You’ll still need those 30-45 days to go through the mortgage process, but you may be able to shorten some of the up-front work that leads into it.
What concerns does dual agency present?
Many homebuyers are wary of dual agency situations — and for good reason. A single real estate agent trying to satisfy both buyer and seller at the same time opens the door to a lot of potential headaches:
- Conflicts of interest
- Potential mistrust
- Complicated negotiations
Conflicts of interest
Conflicts of interest are one of the main reasons dual agency is illegal in some states. You want to get the house at the lowest price possible, while the seller wants you to pay as much as you’re willing. Whose wishes does the agent support in that situation?
More likely, they’ll try to work out a compromise and meet in the middle. But that means the odds of getting the best deal on a new home could sharply decline if you work with a dual agent. The same holds true during the attorney review process. If issues come up during the home inspection — and they almost always do — will your agent push for more money to pay the full cost of repairs?
Why is dual agency illegal in some states? When you get right down to the crux of the issue, it’s a matter of trust. Homebuyers — and sellers for that matter — rely on real estate experts to navigate the often confusing process of buying a house. Real estate agents do a lot of the heavy lifting at the outset of that journey: finding homes for you to consider, consulting on the best offer to put forward and negotiating the specific terms of a deal.
That relationship relies on trust, especially for first-time homebuyers who are new to this whole experience. But if you feel like their loyalties are divided, then you may wonder if you’re receiving the best possible guidance. And that mistrust can create friction between you and your agent. You should never have to doubt your real estate agent, but that can happen with this type of relationship.
We’ve talked at length about the seemingly inherent conflict of interest that dual agency presents, but it’s worth looking at the situation through the eyes of the agent. These are very tricky scenarios to navigate as a real estate agent, and it may not always be clear what the best course of action is. Facilitating negotiations, in particular, is a huge undertaking for dual agents who want to do right by the buyer and the seller.
If the agent isn’t entirely sure how to deal with certain requests or situations, they could wind up giving poor advice or dragging out the process in search of an option that will make everyone happy.
What legal specification does a dual agent need to follow?
Despite the many potential concerns that come with dual agency, it’s worth noting that the real estate industry does regulate this kind of transaction. Many states have their own fiduciary guidelines and rules that dual agents must follow, but the basic duties of a dual agent — or any real estate agent acting in a fiduciary capacity — can be summed up by the acronym OLDCAR:
OLDCAR real estate duties
- Obedience: Agents must follow whatever instructions you give them.
- Loyalty: Agents must act in your best interests at all times.
- Disclosure: Agents must reveal any pertinent information that may sway your purchase decision.
- Confidentiality: Agents must not disclose any information about you — personal, financial or business — unless it directly pertains to the transaction.
- Accounting: Agents must responsibly manage and report on all funds that are transferred during the transaction.
- Reasonable care (and due diligence): Agents must provide knowledgeable guidance on all phases of the real estate transaction, including offers, inspections and negotiations.
Beyond those general guidelines, state laws and regulations may further dictate fiduciary real estate duties. For instance, Chicago Agent Magazine noted that while dual agency is legal in Illinois, dual agents are barred from suggesting prices or offer terms that they think a seller will accept. Conversely, they are also not allowed to recommend counter offers they believe the buyer will consider.
Dual agency is a pretty contested topic in the real estate industry. The idea of one agent representing the buyer and seller in the same transaction doesn’t sit well for a lot of people. There’s no denying that this setup carries real potential for conflicts of interest to arise.
Still, dual agency isn’t necessarily bad. In some cases, you could actually come out ahead working with a dual agent. But there are so many glaring concerns with a real estate agent supporting dueling parties that many people would probably be better served contracting a dedicated agent.
Perhaps the biggest takeaway here is the importance of trust. Whether you’re talking about your real estate agent, attorney or loan officer, you should have total faith in their expertise, abilities and interests. Putting together a reliable homebuying team is key if you want a smooth purchase and mortgage process.
The information provided on this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this article are for general informational purposes only.
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