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Most real estate transactions involve a web of relationships. The primary players are the home seller and the homebuyer, each of whom may be represented by an agent. Seller’s agents and buyer’s agents represent their client exclusively. They owe the buyer or the seller a duty of loyalty, confidentiality and accountability, and are obligated to protect their client’s interests.
Depending on which state you live in, it’s possible for the same real estate agent or broker to represent both the buyer and the seller in the same transaction. This scenario is known as dual agency, and it comes with benefits and problems for all parties.
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What is a dual agency?
Dual agency occurs when the listing (seller’s) broker represents both the seller and the buyer in the same transaction. In theory, this should speed up transaction since there is only one agent handling all the communication. However, there’s also a downside. Because the agent is acting for both parties, they can’t give their undivided loyalty to either principal in the transaction. For example, a dual agent cannot negotiate the highest, best price for a seller and the lowest and most competitive price for a buyer — it is impossible.
Dual agency is illegal in some states since it is regarded as a conflict of interest. In other states, the relationship is governed by a strict code of conduct. Dual agents must treat both parties equally and attempt to balance the interests of the buyer and the seller without compromising the position of either one. The agent must clearly explain that they are acting for both the seller and the buyer in the transaction, and explain the possible consequences of dual representation.
How do I know if my agent is a dual agent?
The relationship is only permitted if both the buyer and the seller give their written consent. This sounds simple enough, but sellers and buyers often find themselves in a dual-agency relationship without realizing what is happening.
The difficulty arises when two agents are licensed by the same broker. Each agent is appointed to represent one specific party to the transaction, either the seller or the buyer. The situation looks like separate representation; in many cases, the agents work out of different offices and may not know each other. But because the agents work under the same broker, dual agency rules still apply.
The only way to know for sure whether your agent is, or could become, a dual agent is to ask.
What are the advantages of dual agency?
Dual agency would have died out a long time ago if did not offer certain advantages over the traditional one agent-one client relationship. Here are some of benefits you can expect when you sign a dual agency agreement:
Quicker, more efficient transaction
Most agents will tell you that dual agency leads to a more efficient and effective transaction. Having one agent handling the transaction naturally unblocks any jams and can expedite a sale. One study published in the Journal of Real Estate Research found that dual agency sales were 55 percent quicker than traditional agency-represented sales.
All the cards on the table
Real estate agents have a duty to disclose the material facts they have about a transaction, regardless of whether they are representing a buyer or a seller. One advantage of dual agency is that all the information passes through a single channel, the dual agent. Because there’s only one joined-up line of communication, there’s a far greater chance that all the material information will be revealed and nothing will slip through the cracks. Buyers are reassured that they are learning all the right information, and sellers are reassured that their disclosures are being passed on.
Greater commitment to the deal
Home sellers typically pay 5 percent or 6 percent of the sale price as commission, which is split between the selling broker and the buying broker. Dual agents receive the whole amount. With so much skin in the game, it is suggested that a dual agent will be more motivated to do the best deal, and quickly, so they can receive their greater fee.
Potential costs savings
Since a dual agent is receiving all the commission, there may be scope for a seller to negotiate a reduced fee. The dual agent will still make money from the transaction, since he or she does not have to share the fee with another agent.
The buyer can potentially save costs too. Reducing the brokerage fee means the seller gets to keep more of the sale price after expenses. The seller may be willing to reduce the sale price and pass on some of the savings to the buyer.
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What are the drawbacks of dual agency?
Dual agency creates a conflict of interest. Even in a straightforward transaction, there is a risk that the parties will disagree about something. That puts the dual agent in a tricky situation. Here are some of pitfalls you might encounter when you sign a dual agency agreement:
Lack of advice
The biggest drawback is that a dual agent is extremely limited in the services they can offer you. For example, a dual agent cannot recommend a fair market value for a home, tell you whether a list price is reasonable, tell you how much to offer or counteroffer, or advise you whether to accept or reject an offer. When it comes to negotiating the deal, you’re on your own.
Whether selling or buying a home, it is important to receive sound guidance from a competent real estate agent; help with negotiations is one of the main reasons that consumers hire real estate agents. In other words, the services that add value to a real estate transaction are the very services that a dual agent cannot offer. Before you appoint a dual agent, it’s worth asking, precisely what are you paying them for?
A dual agent may be incentivized to close the transaction between the seller and the buyer he is representing, no matter what it takes. For example, a dual agent may restrict the number of showings in order to reduce the competition for his buyer’s offer. This prejudices the seller, since the pool of potential buyers is restricted, and he may not receive the best price for his home. This pitfall would be avoided if each party were receiving their own, independent advice.
Reduced or increased sale price
Dual agency can increase or reduce a property’s sale price, according to research from Longwood University in Virginia. The 2013 study reported in the Journal of Real Estate Research found that dual-agency sales agreed in the first 30 days of a listing sold for 18 percent higher than “regular” home sales, benefiting the seller. But homes sold under dual agency near the end of the listing contract sold for about 5 percent less than those sold by outside agents, benefiting the buyer.
Neither outcome can be regarded as a win-win for both parties to the transaction.
Dual agency is a contentious issue, and it definitely isn’t for everyone. Working with a single agent may streamline the real estate transaction and produce faster, more efficient outcomes, but it also opens the door to some knotty ethical issues. The bottom line is, if you’re not comfortable with your agent serving two masters, don’t hire a dual agent.
One of the most confusing processes for the uninitiated to go through can be buying a home. At times it may seem that people are speaking a different language than they have ever heard before. This situation to often leaves a home buyer having to take on blind faith that the brokers, attorneys, escrow agents, inspectors and mortgage agents know what they are doing and acting in the buyers best interest.