Dual agency is when a single real estate agent represents both the buyer and the seller in the same transaction. Dual agency can also refer to a situation where the same real estate team or brokerage simultaneously represents both the buyer and seller. But generally, the term refers to one Realtor acting on behalf of both parties in a transaction.
This article will explore what dual agency is and where it’s legal (since some states have banned the practice). We’ll also examine some of the most significant benefits and drawbacks of dual agency and why it’s on the rise.
If you’re an experienced agent already familiar with dual agency and you’re looking for a dual agency disclosure template, we’ve developed one for you to customize for your clients and use in your business. Always remember to review it with your broker to ensure it meets your state’s specific disclosure requirements.
Where Is Dual Agency Illegal?
Not every state allows a single agent to work on both sides of a real estate transaction. Here is a list of states where dual agency is illegal:
Dual agency is legal in every other state, all U.S. territories, and in Washington, D.C. However, both buyers and sellers must sign a dual agency disclosure form before proceeding in any transaction.
Why Have Some States Banned Dual Agency?
Article 1 of the National Association of Realtors’ Code of Ethics states, in part, “Realtors pledge themselves to protect and promote the interests of their clients.”
Though the exact language in the state-specific ban differs, the states of Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont have found that representing both parties in a transaction runs counter to NAR’s standard describing fiduciary responsibility.
Simply put, if your job as a Realtor is to protect the best interest of your clients, how can you do that when the best interest of one client is counter to that of another?
Many Realtors across the country would argue that it’s possible to promote the best interests of both parties simultaneously, and dual agency produces some benefits (something we’ll get into shortly). However, for the eight states listed above, these benefits don’t outweigh the potential pitfalls.
Dual Agency: What Are the Benefits?
There are definitely some potential benefits to be gained from having a single Realtor represent both sides in a real estate transaction. However, the question remains whether the benefits outweigh the drawbacks. If you’re in a state where dual agency is legal, that is up to you and your clients to decide. Here are some examples of dual agency upside.
Possible Cost Savings for Sellers
In states where dual agency is legal, many Realtors use it as an opportunity to entice sellers with a potentially lower commission. It isn’t uncommon to see listing agreements in dual agency states with language like “… commission for this sale will be 6% of the final sale price unless the listing agent also brings the buyer, in which case, the total commission would drop to 4.5%.”
This sort of discount can translate into tens of thousands of dollars for some sellers—money that could significantly enhance the seller’s choices in their next home purchase.
Possible Increase in Commission for Agents
A dual agency transaction is highly desirable to real estate agents because they’ll be capturing both sides of the commission rather than splitting it with another agent. For an agent who closes 12 sales a year (about the national average), adding an additional commission’s worth of income to your balance sheet is like getting an 8.3% raise.
Even if you reduce the overall commission by 25%, like we just mentioned, that is still a significant addition to your bottom line. You’ll have more to spend on property marketing, invest in tools like transaction management software or a customer relationship manager (CRM), or simply improve your quality of life with a slightly higher income.
Faster, More Efficient Communication
Miscommunication is one of the biggest complaints buyers and sellers have when it comes to getting a transaction across the finish line.
Remember playing the game “telephone” when you were a kid? A message would start as one thing, and by the time it reached the final player, the message had morphed into something completely different.
Miscommunications happen more often than I think most agents would care to admit in the real estate world. A seller will mention something to their agent; that agent will interpret it and maybe add their own spin or emphasis when communicating it to the buyer’s agent. By the time it reaches the buyer, the context or emphasis may have shifted, even if the words remain the same.
When a single agent manages all communications, they act more as an intermediary, so messages are delivered faster and, hopefully more objectively.
Easier Organization of Paperwork, Showings & Closings
If you haven’t picked up a frantic text from an agent at 10:00 p.m. asking for a listing agreement or another copy of the seller’s disclosure statement, you probably haven’t been in real estate very long. When two parties have to manage paperwork, deadlines, and the scheduling of important events, it’s often twice as difficult to get it right and do it efficiently.
Say you’ve got a property under contract, and the inspection needs scheduling. First, the buyer needs to let the inspector know when they’d like to have the inspection done. Next, the inspector has to communicate with the buyer’s agent, who then communicates with the seller’s agent, who then communicates with the seller.
There are plenty of cars in that communication train and plenty of opportunities for the locomotive to slow down or jump the rails completely if someone can’t answer their phone.
With a single agent in the mix, one person can streamline the entire process, making it more efficient and easier to get everyone on the same page.
Dual Agency: What Are the Drawbacks?
There are also some downsides to dual agency, which is why some states have outlawed it altogether. If you work in a state that allows dual agency, make sure you’ve got an answer to these concerns before entering into a transaction where you’re representing both parties. They’ll almost certainly come up.
Inherent Conflict of Interest
As a Realtor working as a seller’s agent, the NAR Code of Ethics compels you to present all offers received on a property to your seller, regardless of their origin. If a real estate agent has a financial stake in what offer their client ultimately chooses, they are more likely to present an offer that would benefit them (from a buyer they represent) first and in a better light. Is this legal? No. Is it ethical? Nope. Is this a scenario that is difficult to regulate in states where dual agency is legal? Absolutely.
Even with the conscious intention of presenting all offers in a fair and unbiased way, a real estate agent who can potentially double their commission will have a hard time not using subtle cues to encourage their clients to choose a particular offer. Only when a seller’s agent doesn’t benefit any more or less depending on which offer their client chooses can they say they’re genuinely neutral.
Less Ability to Advise Sellers or Buyers
You can think about real estate agents as coaches for either buyers or sellers. We are constantly trying to give advice, provide strategy, and put our players in the best possible position to succeed. When a Realtor enters into a dual agency agreement, they become less of a coach and more of a referee.
Since an agent is privy to confidential information from the buyer and seller—information that could affect the strategy the other party uses to get the best deal—most dual agents become more of a transaction coordinator, facilitating conversation and paperwork.
Negotiations Become More Difficult
As a dual agent, it’s difficult to advise either of your clients when it comes time to negotiation—eliminating some of the key value offered by just about any real estate professional.
Say you’re a seller’s agent for a homeowner who has to move in 60 days due to a job transfer. You know this seller is very motivated and would likely accept a lower-than-asking-price offer on their home. But, this is confidential information that you aren’t allowed to share—either explicitly or implicitly—with the buyer, who you also represent.
If you were representing the buyer exclusively, you could do your own (legal and ethical) investigation into the seller to find out any details that might provide you with insight into making the best offer.
But since you’re representing both sides, your actions are limited to soliciting offers, presenting them, and leaving it to the clients to ultimately decide for themselves without more than procedural guidance from you.
Why Is Dual Agency on the Rise in 2021?
In a word: coronavirus. OK, perhaps the rise in dual agency isn’t a direct result of the virus itself. Still, the global pandemic laid the groundwork for it, creating conditions that are pushing more and more buyers and sellers into dual agency transactions. Here’s how:
COVID-19 Has Changed the Way Buyers Shop for Homes
While a quarter-century might seem like (or literally be) a lifetime ago for some of you—if a buyer wanted to know which properties were available for purchase 25 years ago, they had to visit their real estate agent’s office and flip through a book or binder. Brokerages updated these books daily with the latest properties for sale.
With the speed of today’s digital communication, that practice seems straight out of the dark ages. But it highlights just how dependent clients were on their Realtor for information. The rise of third-party platforms like Zillow unleashed a wave of information for buyers and sellers—information that had previously been held captive by Realtors.
The COVID-19 lockdowns and quarantine only accelerated that trend. The events of the past year also illuminated just how easy it has become for interested home shoppers to research properties from the comfort of their homes without the need for a buyer’s agent.
These days, when buyers have questions about a home listing, many are skipping the middleman and calling the listing agent directly. This practice gives rise to more unrepresented buyers speaking directly to seller’s agents, getting exactly the information they were looking for, and having an easy path to making an offer without ever consulting a buyer’s agent.
Shrinking Inventory Is Creating More Homebuyer Urgency
Before the coronavirus completely disrupted the economy (and just about everything else worldwide), housing inventory in the U.S. was very tight. With the continued pull of interest rates ever lower, housing inventory rates have since reached historic lows. Competition for property is extremely fierce and buyer urgency even higher.
As a result, buyers are working to reduce the distance their offer must travel before it gets in the seller’s hands. Top-producing listing agents have shared stories of buyers who have reached out to them directly with sight-unseen offers—a tactic designed to speed the process and avoid missing an opportunity on a property that meets their needs (at least on paper).
Obviously, direct outreach doesn’t work for buyers who are contractually obligated to an agent. However, a measurable percentage of buyers have never contacted a buyer’s agent in their home search process. Instead, they are seeking mortgage pre-approval and watching Zillow like a hawk. When a property that meets their needs hits the market, they’re primed to call the listing agent and jump immediately.
Open Houses Are Now Offer Clearing Houses
Piggybacking on the urgency created by low inventory, open houses have become a significant source of offers on the most in-demand properties. They’re often attended by unrepresented buyers. Listing agents in the Detroit suburbs tell us that properties in good shape for under $300,000 are getting half a dozen offers at every open house.
Unrepresented buyers trying to make an offer as quickly and as cleanly as possible are driving these multiple offer scenarios.
Bringing It All Together: Our Final Thoughts on Dual Agency
So is dual agency a bad thing? On paper, no. There are just as many reasons to support dual agency as a good, viable good strategy in certain situations as there are reasons why it should be banned.
In practice, however, we can’t seem to square the practice of dual agency with the primary responsibilities of a Realtor. As a listing agent, it’s your first responsibility to protect your seller’s fiduciary best interests, which means getting them the highest price possible for their property.
If you are also working as a buyer’s agent, the converse is true. It’s your responsibility to secure the lowest price possible for the property they’re purchasing. Playing chess against yourself is an interesting mental exercise, but it doesn’t work in real life.
Another potentially negative aspect of dual agency is that it removes checks and balances from the sale and purchase process, thereby speeding it up and allowing impropriety to happen more often—even if unconscious or intentional. The longstanding two-agent system is set up so we can hold each other accountable, catch mistakes, and ultimately challenge each other to be better. When only one agent is involved in a transaction, we miss that opportunity.
Does that mean you need to completely abandon buyers who are interested in purchasing properties you have listed for sale? Certainly not! Instead, you could refer them to another agent, thereby capturing part of the commission via referral fee. You’ll still be ensuring that your buyer gets the sole representation they deserve.
Is dual agency legal in your state? Do you represent buyers and sellers in the same transaction? Share your thoughts about dual agency in the comments below.