In most real estate transactions, the buyer and seller are each represented by a separate party who protects their client’s interests. It’s also possible, however, for both the buyer and seller to work with the same real estate agent or brokerage in an arrangement called dual agency.
Having only one agent or broker involved can simplify the process, but there’s the risk that the agent may favor one party over the other. Additionally, in several states, dual agency isn’t permitted. Here’s what you should know 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 or single brokerage representing them both, instead of separate agents or brokers.
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, a Realtor with Encore Sotheby’s International Realty, based in Bloomington, Indiana. “If that same agent or brokerage also represents the seller, this is dual agency.”
Whether you’re the buyer or 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 and CEO of FortuneBuilders.
“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.”
How commission is paid
In a dual agency transaction, one agent or broker receives the entire real estate commission, most often paid by the seller. In contrast, in a two-agent or two-broker transaction, the commission is split, sometimes to varying degrees depending on the brokerage.
A dual agent typically commands the same commission rate — approximately 5 percent to 6 percent of the home’s selling price — as is charged in a two-agent arrangement, according to Farid Yaghoubtil, a real estate attorney with Downtown LA Law Group in Los Angeles.
Dual agency risks
By its nature, dual agency can present serious conflicts of interest.
“Dual agency in and of itself is not unethical, but there are actions and tactics that could be subversive and sneaky,” says Yaghoubtil, noting 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, buyers and sellers can usually count on getting fair, but not full, representation in a dual agency transaction, Tomaro says.
“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,” Tomaro 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.”
In addition, 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 notes.
“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,” Merrill says.
For these and other reasons, eight states 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,” Yaghoubtil says.
Advantages of dual agency
While dual agency is inherently problematic for most, it can offer some 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 UK-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.
“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.”
Using a dual agent or the same brokerage 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.”