Can one real estate agent represent both the seller and buyer in the same transaction? Dual agency is illegal in nine states. Here’s what you need to know. —-
You just listed your house, and your agent tells you she has the perfect buyer. Later, you review the offer and realize that there’s no buyer’s agent. Your agent is representing you and the buyer as a dual agent. Is that even legal?
In most states, it is.
Dual agency is a legal relationship between a real estate agent, a buyer, and a seller. It exists when one real estate agent represents both the buyer and seller in the same transaction. According to the Consumer Federation of America (CFA), “around ten to twenty percent of all home sales involve only one agent who works both with seller and buyer.”
Despite its lawfulness in most states, the practice is controversial among the real estate community. How can one agent keep both the buyer’s and seller’s interests at heart when their goals are at odds?
Opponents of dual agency don’t believe an agent can represent both the seller and the buyer without compromising the best interests of one, or both parties. Among those opponents are the eight states that have made dual agency illegal: Alaska, Colorado, Florida, Kansas, Maryland, Texas, Wyoming, and Vermont.
Proponents do not believe that dual agency inherently compromises consumers’ interests. They even argue that dual agency can make a transaction more efficient.
Then there’s the group in between: those who see dual agency as a sometimes necessary, though not optimal, part of doing businesses. For instance, The National Association of Realtors (NAR), the real estate industry’s largest agent association, has opted for a neutral stance, neither promoting nor disagreeing with the dual agency relationship.
“I don’t think it’s really a beneficial or negative situation. It’s just a byproduct of agency relationship,” notes Kurt Thompson, past president of the Massachusetts Association of Realtors.
To understand how dual agency works and why it’s controversial, we dug into research and asked Thompson, who has 24 years of industry experience, for additional insight. We’ll walk you through how this type of relationship can affect a real estate agent’s duties and, ultimately, home sellers.
Why dual agency is illegal in some states
How does dual agency differ from other agency relationships? Instead of representing either the buyer or seller, an agent represents both at the same time. “[Dual agency] just indicates that we have two clients that we have a fiduciary responsibility to,” explains Thompson. And as a fiduciary, the agent must put their client’s (or clients’ in this case) interests first, even above their own interests.
The potential problem with dual agency is that sellers and buyers inherently have opposing interests. Sellers want the highest price and best terms, while buyers want the lowest price and best terms for themselves. Can a single agent fully represent both a seller’s and a buyer’s interests simultaneously?
Opponents of dual agency say it benefits agents, not consumers
Detractors believe that sellers won’t get the same advice or counsel during the negotiation process if the listing agent also represents the buyer.
For example, say Candice lists her home for $500,000. As Candice’s listing agent, Anya knows that Candice is willing to accept an offer as low as $475,000. Anya also represents Joey, who wants to bid on Candice’s home. Joey wants to get the best price, so he asks Anya for her advice. What would be a good offer?
As a dual agent, Anya’s required to maintain confidentiality for both parties. She can’t tell Joey that Candice will accept $475,000, which would be in Joey’s interest. Doing so would break her fiduciary duty to Candice.
On the flip side, Anya can’t disclose to Candice that Joey loves the house. He’s willing to pay up to $515,000. Doing so would go against her fiduciary duty to Joey.
Instead, Anya walks a tightrope between her two clients, maintaining a certain amount of neutrality. If Anya represented only Candice, while another agent represented Joey, the outcome could be different. Anya could aggressively negotiate with the other agent on Candice’s behalf, potentially locking in a higher asking price than if she were simultaneously trying to deliver a lower asking price for Joey.
Another potential pitfall in a dual agency transaction results from an agent’s commission. Real estate agent commission is typically around 6% of the sale price, divided equally between the listing agent and the buyer’s agent. But if your agent represents both you and the buyer, your agent would be entitled to the entire commission.
According to the CFA, “agents also have a strong financial incentive – retaining the entire commission – to promote the sale to those buyers who will work directly with them. These buyers are not necessarily those who are willing and able to make a timely purchase at the highest price.”
Proponents of dual agency say it makes the transaction more efficient
Proponents of dual agency disagree: they believe that one agent managing a transaction means there’s less back-and-forth, leading to faster communication and potentially faster closings. Also, some brokers who recognize that they’re not splitting their commission may agree to reduce their fee, saving you money.
Some states allow dual agency — if it’s disclosed
Despite dual agency controversy, the practice is legal in many states. Of those that allow dual agency, most require licensees to disclose the relationship — or risk losing their license.
“Real estate license laws in most states prohibit licensees from acting as undisclosed dual agents,” notes a NAR agent guide on agency. And NAR requires its Realtor® members, per the NAR Code of Ethics and Standards of Practice, to disclose dual agency relationships to buyers and sellers.
Thompson also highlights the importance of disclosing a dual agency relationship. “The most important thing, in my opinion, is for all parties to know very early what dual agency is … and to understand how the relationship will be impacted,” he says. “We get consent for designated or dual agency upfront in our contracts,” he adds.
If an agent doesn’t disclose dual agency in advance, the seller could feel tricked upon discovering their agent’s relationship with the buyer after the deal is done. The seller might wonder if they would have landed on a better price if their agent hadn’t been representing the buyer at the same time.
States where dual agency is illegal
While most states allow dual agency, eight states have made it illegal for a single agent to represent both the seller and buyer as a fiduciary. However, some states that ban dual agency allow a similar agency relationship called designated agency. Under a designated agency, two agents who work for the same firm or broker may represent the seller and buyer, respectively.
Each state and territory establishes its own agency laws and disclosure requirements, says NAR. Since laws often change, check with your state’s regulatory agency for the most up-to-date details.
As of 2021, dual agency is illegal in the following states:
Alaska: Alaska statute (the state allows designated agency when disclosed)
Florida: Florida statute
Maryland: Maryland statute (the state allows designated agency when disclosed)
Texas: Real Estate License Act (the state allows agents to act as an intermediary)
Vermont: Administrative Rules of the Vermont Real Estate Commission (the state permits designated agency when disclosed)
Wyoming: Real Estate License Act (the state allows designated agency when disclosed)
Even if dual agency is legal in your state, it doesn’t mean it’s a good idea for your home sale
No matter which state you live in, it’s important to understand your agency relationship to avoid confusion. If dual agency is illegal in your state, you don’t have to worry about the potential conflict of interest. But if you’re in a state that allows dual agency, check in with your agent to confirm whether or not they’re representing any buyers who have made offers. Dual agency transparency is the only way to ensure dual agency is fair for both parties involved in the sale.
Header Image Source: (Jacob Lund / Shutterstock)
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