Dual agency explained: risks, benefits, and tips

Dual agency is probably one of the most discussed topics in real estate. It brings up questions of ethics, efficiency, and conflicting interests. Buyers and sellers should, therefore, understand the concept clearly to make well-informed decisions while undertaking a real estate transaction.

In this post, we’ll break down the essentials of dual agency, its benefits and risks, tips for real estate agents navigating this arrangement, and study tips to help real estate exam takers master the topic.

What is dual agency in real estate?

Dual agency occurs when one real estate agent, or agents from the same company, represent both the buyer and the seller in one transaction. The implication here is that the dual agent assists both parties with equal merit and does not support either one to the fullest.

This setup often arises when a buyer contacts the listing agent directly or when two clients of the same brokerage end up negotiating on the same property.

How does dual agency work?

In a traditional real estate transaction:

• There is a buyer’s agent, this agent represents the buyer and works to secure the best price and terms for his client.
• The seller’s agent, this real estate agent represents the seller in a real estate transaction and aims to sell the property at the highest possible price.

In dual agency, one real estate agent represents both parties, blurring these distinct roles. This means the agent cannot advise or strongly negotiate for either party but rather aids in the transaction and makes sure both parties understand the process.

How brokers play a role in dual agency

As we mentioned before, dual agency isn’t always about one agent representing both sides. It can occur when the buyer’s and seller’s agents work under the same broker. Contracts are signed with the broker, not the agents, as the broker holds ultimate responsibility for the transaction.

Even though clients interact primarily with their agent, the agent is legally acting on behalf of the broker. When the deal closes, the broker receives the commission and shares it with the agent. This setup means that if both agents report to the same broker, the broker is technically representing both parties, creating a dual agency.

Is dual agency legal?

Dual agency laws vary across states. While it’s permitted in most states, the states of Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont and Wyoming, have banned dual agency due to potential conflicts of interest.

In states where dual agency is allowed, agents must disclose this arrangement and obtain written consent from both parties. If you’re considering dual agency, ensure you understand your rights and how this arrangement might affect your transaction.

How does real estate commissions work in dual agency?

In a dual agency, the seller typically pays the commission of a small percentage of the purchase price.

In traditional deals, the buyer’s and seller’s agents split the commission, earning 2.5% to 3% each. But in dual agency, there’s only one agent or brokerage, so they receive the full amount.

This financial incentive can create potential conflicts of interest. Buyers and sellers should ensure the agent remains neutral and focused on facilitating a fair transaction.

Dual agent vs. designated agent

A dual agent is a single individual that represents both the buyer and the seller in a transaction. They’re supposed to be a neutral facilitator. Designated agents, by contrast, are two individuals with each representing one side but they work out of the same brokerage.

This is why clients benefit from having agents who are dedicated to their needs. This explains why many purchasers and sellers go with these agents for good support and assistance that suits their circumstances.

Pros of dual agency

While controversial, dual agency can offer benefits in some situations:

1. Streamlined communication

When one agent does both sides, communication can be easier and quicker. There’s less back and forth, which may move the deal along quicker.

2. Reduced commission fees

Commissions may be negotiated since only one agent is involved, saving both parties money.

3. Simplified process

Having one person to talk to about paperwork and deadlines can make things easier, especially for straightforward transactions.

Cons of dual agency

Despite its advantages, dual agency poses significant risks:

1. Conflicts of interest

A dual agent has to be neutral, and that can make it difficult to represent the best interests of both parties. For instance, the seller wants the highest price, and the buyer wants the lowest—two goals that are opposed to each other.

2. Limited advocacy

The agent cannot provide personalized advice, such as suggesting how much to offer or counteroffer, leaving clients to navigate critical decisions independently.

3. Trust issues

Buyers and sellers may feel the agent is favoring the other party, leading to mistrust and potential disputes.

4. Legal and ethical concerns

These inherent conflicts cause dual agency to be illegal in some states. Where it is permitted, it must be very carefully managed to avoid a breach of fiduciary duties.

Tips for real estate agents

If you’re acting as a dual agent, these tips can help you navigate the challenges while maintaining professionalism and trust:

1. Disclose early and transparently

Inform both parties about the dual agency arrangement at the outset, explaining what it means and its limitations.

2. Obtain written consent

Ensure both the buyer and seller formally agree to the arrangement through signed disclosures, meeting legal requirements.

3. Remain neutral

Avoid offering advice that could favor one side over the other. Your role is to facilitate, not advocate.

4. Be transparent with information

Share relevant facts about the property with both parties but avoid disclosing confidential information that either side shares.

5. Stay organized

Dual agency requires handling twice the paperwork and communication. Use digital tools or systems to stay on top of deadlines.

6. Clarify roles regularly

Remind both parties that you’re acting as a facilitator, not an advisor, to manage expectations.

7. Focus on education

Help your clients understand the transaction process to empower them to make their own decisions confidently.

Practical example

Imagine Sarah and James are involved in a real estate transaction.

• Sarah, the seller, lists her property with Rebecca, a real estate agent working for a brokerage called Sunny Realty.
• James, the buyer, attends an open house and decides to make an offer. He hasn’t hired a buyer’s agent, so he approaches Rebecca directly for assistance.

Rebecca explains that representing both parties means acting as a dual agent. She discloses the arrangement to Sarah and James, who both agree in writing to proceed.

Here’s what happens:

• Rebecca cannot advise Sarah on how much to counteroffer or James on how much to bid. Instead, she provides both parties with factual information, like comparable home sales.
• When James asks Rebecca if the seller would accept less than the asking price, she cannot disclose Sarah’s bottom line. Similarly, she cannot tell Sarah whether James is willing to pay more.
• At closing, Rebecca collects the full commission of 5%, instead of splitting it with a second agent. This commission is paid by Sarah, the seller.

Now, let’s add a twist: Sarah finds out that James asked for advice on his offer and feels Rebecca gave him too much information. Sarah accuses Rebecca of favoring James, creating mistrust. This example highlights the ethical tightrope dual agents walk and why clear communication and neutrality are critical.

When is dual agency appropriate?

Dual agency may be suitable in specific scenarios, such as:

• Pre-existing relationships: When the buyer and seller already know and trust each other, reducing the need for negotiation.
• Small markets: In rural areas with limited agents, dual agency may be more practical.
• Cost-sensitive transactions: If saving on commission fees is a top priority, dual agency can help cut costs.

Alternatives to dual agency

If dual agency feels too risky, here are other representation models:

1. Single agency

Each party has their own dedicated agent, ensuring strong advocacy on both sides.

2. Intermediary representation

In some states, brokers can act as intermediaries, facilitating transactions without taking sides.

3. Transaction brokerage

The agent handles administrative tasks without representing either party.

Final thoughts

Dual agency is an important concept for real estate exam students to understand. This arises when an agent or agents from the same broker assists both the buyer and seller in a transaction. This, of course, can make the situation easier and less expensive, but it’s also a problem with issues of conflict of interest because the agent has to remain neutral and therefore cannot fully advocate for either party.

The other important parts include disclosure and consent. Agents must disclose the arrangement to both parties and obtain written consent to make things clear. Also, students should note that in dual agency, brokers receive the full commission, which could be expected to have some bias.

Finally, understanding the distinctions between dual agents, designated agents, and single agents is essential. This knowledge not only prepares students for exam questions but also lays the groundwork for ethical and professional practice in real estate.