What is Dual Agency: Why Buyers and Sellers Should Avoid it

Carolee Locklear
Published on May 23, 2017

What is Dual Agency: Why Buyers and Sellers Should Avoid it

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 One of my duties as a real estate agent is to explain how agency law works in Massachusetts. In fact, I am required by law to explain agency law at my first meeting with a prospective buyer or seller client. Real Estate agents can essentially do one of three things; represent a seller, a buyer or both.

When a real estate agent represents both parties in a real estate transaction, it is what’s known as dual agency. Over the years many buyers and sellers have asked me how dual agency works. They are asking for a good reason – it can be extremely confusing to laymen. Unfortunately, many real estate agents don’t explain it properly either which makes things even more difficult.

Unfortunately, it is possible to wind up with an agent that is legally prohibited from looking out for you and representing your interests as a fiduciary. With dual agency – when the agent represents both buyer and seller – the agent can’t push for what is best for you or the other client.

The agent collects twice the commission but does almost none of the specific work of a seller’s agent or buyer’s agent. Dual agency only benefits the agent and should be avoided at all costs if you want a positive buying or selling experience. Who wouldn’t want to get paid a double commission? There are a lot of hands going up in the room. The problem is dual agency benefits nobody but the real estate agent!

Dual Agency – A Departure From The Duties Of A Realtor

In a standard relationship with a Realtor, you can expect many benefits for agreeing to pay a fee for professional help. You know that your agent will be beholden to you in all aspects of the transaction. He or she will listen to what you have to say, giving you the final word on the decisions that are made. Your Realtor will keep your information confidential, and be accountable to you as the buying or selling process progresses. He or she will also disclose all the information that is relevant to you as a client. Ultimately, your agent will be loyal to you – seeking to find the best path to what you want as an outcome.

 Dual agent – A real estate agent may act as a dual agent representing both the buyer and the seller in a real estate transaction but only with the express consent of both parties. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.

Consequently, a dual agent CANNOT satisfy fully the duties of loyalty, full disclosure, obedience to lawful instruction. A dual agent does, however, still owe a duty of confidentiality of material information and accounting of funds. Written consent for dual agency should come from both the buyer and the seller.

Does dual agency sound like anything you would be interested in? If I haven’t made it perfectly clear that dual agency is the DUMBEST thing ever invented for the real estate industry keep reading.

  Representing Both The Buyer And The Seller

In a standard relationship with a Realtor, you can expect many benefits for agreeing to pay a fee for professional help. You know that your agent will be beholden to you in all aspects of the transaction. He or she will listen to what you have to say, giving you the final word on the decisions that are made. Your Realtor will keep your information confidential, and be accountable to you as the buying or selling process progresses. He or she will also disclose all the information that is relevant to you as a client. Ultimately, your agent will be loyal to you – seeking to find the best path to what you want as an outcome.

Dual agent – A real estate agent may act as a dual agent representing both the buyer and the seller in a real estate transaction but only with the express consent of both parties. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.

Consequently, a dual agent CANNOT satisfy fully the duties of loyalty, full disclosure, obedience to lawful instruction. A dual agent does, however, still owe a duty of confidentiality of material information and accounting of funds. Written consent for dual agency should come from both the buyer and the seller.

Does dual agency sound like anything you would be interested in? If I haven’t made it perfectly clear that dual agency is the DUMBEST thing ever invented for the real estate industry keep reading.

 

Representing Both The Buyer And The Seller

With dual agency, the Realtor takes on the role of buyer’s agent and seller’s agent at the same time in a specific transaction. A home is for sale. The Realtor offers to sell the home for the seller, while also offering to represent a buyer who is interested in the home. If the situation seems confusing, that’s because it is. How can a Realtor effectively represent either side while also serving the needs of the other?

You can’t. It is impossible to serve two masters in a real estate transaction who are sitting on the opposite sides of the table.

What makes it even more strange is that there are often laws and regulations that prohibit dual agents from doing their duty for either client. The Massachusetts Board of Registration of Real Estate Brokers and Salespeople dictates that “a dual agent shall be neutral with regard to any conflicting interest of the seller or buyer.”

So, not only does the basic arrangement of dual agency make it quite difficult to serve the interests of either buyer or seller, regulations state that the agent can’t even make the attempt to represent the interests of one or the other.

Participating in dual agency as an agent would be very comparable to an attorney trying to represent both a plaintiff and a defendant in a lawsuit. That would work out well wouldn’t it? Being a dual agent is the same dam thing! During the transaction there are going to be times where one party feels like the other is getting preferential treatment. This however, isn’t even the worst of dual agency.

Here is a good example of how dual agency does not work for either a buyer or a seller:

List a home on Main Street for $500,000. I go about marketing the property. Someone calls me from seeing it online and asks me to show it to them. I show the buyer the property the home and they absolutely love it. The buyer says “Bill I want to make an offer”. I say that’s great. The buyer says “so what should I offer?” I say sorry I can’t help you with that, remember I am a dual agent.

The buyer is on their own. After a few blank stares the buyer says I want to offer $490,000. I then take the offer to the seller and they say to me “Bill what do you think?” “Should I give them a counter offer and if so what should it be?” My legal response should be “I can’t help you with that as I am a dual agent.”

Legally no party has any proper representation when practicing dual agency. It is a LOSE-LOSE situation for both buyer and seller. At $490,000 the buyer could be significantly overpaying for the property. They might also be underpaying as well. Nobody has any guidance. One of these parties could be making a big mistake. In this situation, the only person making out is the real estate agent.

This is just one example of how dual agency sucks for both the buyer and the seller. And just think the transaction is just getting started.

Want more examples of how dual agency is a horrible arrangement is a real estate transaction? Take a look at some of the questions below a dual agent cannot answer.

 How much is the property worth?

  • Is the Zillow Zestimate accurate on the home?
  • What should I offer for the home?
  • What should my counter offer to the buyer be?
  • Is there anything in close proximity to the property that could impact the market value?
  • What repairs or concessions should I ask for from the home inspection?
  • Are the buyer’s repair requests reasonable? What should I agree to fix?
  • What happens if I need to dispute a low home appraisal? Who will help me?

 Improper Handling of Dual Agency

Now that you have a firm grasp of why dual agency is so bad for consumers, let me tell you what happens ILLEGALLY everyday in the world or real estate. There are thousands upon thousands of real estate agents who don’t follow the law.

Many agents will do as they please and give advice to one party or the other throughout the transaction. One day they could be acting as a sellers’ agent and the next day the buyer’s agent.

For example, do you know how many times agents illegally give both the buyer and seller advice on an offer? A ton! From the agents perspective, all they care about is consummating the deal in order to get paid DOUBLE. Realtors are supposed to follow a strict code of ethics but many choose not to.  If you are lucky and the agent likes you, they might even show you some favoritism. Kind of a horrible arrangement to be wondering whether today is the day you will be favored or not!

Folks this happens every day and all for the ability for the agent to make double the money in a transaction.

 Dual Agency Can Happen Under The Radar

One of the big risks with dual agency is that it can’t control what is being said by the dual agent throughout the transaction. Some Realtors may not even consider the damage done to their clients – they may only see the doubled paycheck. The chance for dual agency can pop up at pretty much any time in the home buying or selling process.

Are There Any Pros to Dual Agency

If you look online for the pros and cons of dual agency you’re bound to see someone a Realtor trying to sell you on dual agency. The title will be “the pros of dual agency.” I am going to flat out tell you they are grasping at straws. Here are some of the pros of dual agency from the mouth of babes:

  1. You will get better communication because there is only one agent – Yahoo! With a big grin. Really?
  2. The listing agent will have more information than a buyer’s agent would. Ya phone calls or emails are hard to make asking questions.
  3. A dual agent may agree to a lower fee because they have both sides of the transaction. OKAY –  that may be true but who is getting the discount buyer or seller? Is saving a few dollars worth it for what you give up. I don’t think so!

There are far more cons to dual agency than any of these potential advantages.

 Insist On A Dedicated Real Estate Agent

The best way to avoid dual agency is to hire a Realtor from a trusted company in your area and to discuss the issue of dual agency before you move forward with any agent.

You can demand that the agent that you choose not engage in dual agency with you. As long as the agent is reputable and honorable, he or she is unlikely to promote dual agency.

If you are selling a home, you should outright reject dual agency. You should insist that the agent you hire is a seller’s agent and that’s it. If the agent has a problem with that then you know you’re dealing with someone who cares more about their pocketbook than your best interests.

You’ve probably guessed already one of my biggest pet peeves as a real estate agent are other agents who put their interests ahead of the client. This happens all the time in real estate when Realtors push open houses without explaining the drawbacks to homeowners.

Final Thoughts

Agency law differs from state to state. It is important to understand how agency law works in your state and specifically dual agency. The bottom line is that dual agency offers far more disadvantages than advantages to consumers. Make sure you understand any document you are signing when it comes to agency. Frankly, dual agency should be outlawed in every state. Dual agency = conflict of interest. Real Estate agents who practice dual agency dramatically increase their chances of being sued.

Hopefully, you now understand how dual agency works and why you should avoid it.

Author by Bill Gassett, a Nationally recognized leader in his field. 

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What is Dual Agency: Why Buyers and Sellers Should Avoid it
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