What is dual agency, and is it risky?
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In most real estate transactions, the buyer and seller are each represented by their own separate agents — one buyer’s agent and one seller’s agent. Each agent protects their individual client’s interests. It’s also possible, however, for both the buyer and seller to work with the same real estate agent. This arrangement is called dual agency.
Having only one agent or broker involved in a transaction can simplify the process. But it also presents the risk that the agent may favor one party over the other. In fact, in several states, dual agency is actually illegal. Still, that doesn’t mean it’s never worth considering. Here’s what you should know about working with a dual agent, whether you’re a buyer or seller.
How does dual agency work?
When homebuyers search for and purchase a home, they typically do so with the help of a buyer’s agent. The seller of that home, meanwhile, relies on a listing agent or seller’s agent, who may or may not be affiliated with another brokerage. Each agent works on behalf of their respective party under a principle known as “fiduciary duty.”
In a dual agency situation, the buyer and seller work with a single agent representing them both, instead of separate agents.
Dual agency commonly occurs when the buyer and seller use the same brokerage. It can also happen when a buyer calls the listing agent directly, such as through a for-sale sign or online listing, without being represented by their own buyer’s agent.
“In my area, our rule of thumb is that whoever shows you the property is the one who will represent you in the transaction,” says Deb Tomaro of the Bloomington, Indiana, brokerage Deb Tomaro Real Estate. “If that same agent or brokerage also represents the seller, this is dual agency.”
Whether you’re the buyer or the seller, it’s important to understand how you’re being represented in the transaction. Both parties must agree to a dual agency arrangement, notes Than Merrill, founder of FortuneBuilders, a real estate educational firm.
“For an agent to represent both sides in a real estate transaction, they must receive informed consent from the buyer and the seller,” Merrill says. “If either the buyer or seller isn’t comfortable with the idea of using a dual agent, they reserve the right to opt out of the deal.”
Risks of dual agency
By its nature, dual agency can present very real conflicts of interest.
As is the case for all agents, a dual agent’s commission is based on how much the home sells for. So they “are incentivized to bid up the sales price,” Merrill says. “That’s not to say that all dual agents don’t have their customers’ best interests in mind, but rather that the incentives inherently work in favor of sellers.”
It also raises potential ethical questions. “Dual agency in and of itself is not unethical, but there are actions and tactics that could be sneaky,” says Farid Yaghoubtil, an attorney with Downtown LA Law Group in Los Angeles. He notes that “both the buyer and seller may be under the impression that the agent is biased toward or favoring the other party, which can result in suspicion, mistrust and anger.”
Overall though, buyers and sellers can usually count on getting fair, but not full, representation in a dual agency transaction, says Tomaro. “For example, if I am the agent in a dual agency arrangement, I cannot make suggestions to a buyer about how much to offer because that’s not fairly representing the seller,” she says. “If a buyer tells me he wants to see a list of all homes with 2,000 square feet that sold in the past year in the same neighborhood, I can run that report. But I can’t help him interpret it or point out differences. I can only provide the facts.”
Is dual agency illegal?
For these and other reasons, some U.S. states actually prohibit the practice of dual agency. “The fact that it is illegal in several states should be enough to give some parties pause and elicit further consideration,” says Yaghoubtil. Real estate dual agency is illegal in these eight states:
Advantages of dual agency
While dual agency can be inherently problematic, it can also offer advantages — namely, a smoother transaction.
“Since both the seller and buyer are working with the same agent, documents can be prepared and signed more quickly,” notes Raj Dosanjh, founder of Rentround, a U.K.-based rental agent-matching platform. “There will be one person who knows everything about the property. This can eliminate excessive back-and-forth questions the buyer or seller may have.”
Another plus? The seller may have more leverage to request a reduced commission fee, since there’s no buyer’s agent. “You can use the single point of payment to your advantage,” Merrill suggests. “You may be able to negotiate lower commission fees when the dual agent doesn’t have to split profits with anyone else.” (Read more on this below.)
How a dual agent’s commission is paid
If you use a dual agent, they receive the entire real estate commission, most often paid by the seller. In contrast, in a traditional two-agent transaction, the commission is split between the two, sometimes to varying degrees depending on the brokerage.
A dual agent typically commands the same commission rate — approximately 5 to 6 percent of the home’s selling price — as is charged in a two-agent arrangement, according to Yaghoubtil. But because there’s no second agent to split it with, it can sometimes be open to negotiation.
Dual agency may make for a more convenient transaction, provided you understand the risks and how it works. But it isn’t often recommended.
“I believe buyers should have their own representation and enlist their own agent before they start looking for homes,” Tomaro says. “Having representation with a Realtor you trust and develop a relationship with will always end better than just calling a random name on a sign and having them represent you.”