In real estate, it is standard practice for different brokerages to represent the parties involved in a transaction to ensure the full protection of everyone’s interests. However, it is also possible for both the buyer and seller to be represented by the same real estate agent.
This article will help you understand what dual agency is, how it works, and give you insight into the controversies associated with it.
Dual Agency Definition
A dual agency is an arrangement where the buyer and the seller are represented by the same agent during a real estate transaction.
How Does Dual Agency Work?
A real estate transaction will consist of a buyer’s agent and a listing agent. However, this is not the case with a dual agency, as both the buyer and seller work with the same agent.
For this to work, it is very important for real estate agents to fully disclose that they are working with one of the parties involved in the transaction before agreeing to work with the other party. If either of the parties rejects the idea of using a dual agent, they have the right to opt-out of the deal.
Before a dual agency can move forward, both the buyer and the seller must consent to the agent representing both parties. Even after consent has been given by both parties, the agent is legally required to remain neutral and keep all information about each party confidential.
The Controversy Behind Dual Agency
Although dual agency agreements may appear as an easy and convenient option to carry out real estate transactions, there are still some disputes surrounding it, which has led to the banning of this practice in some states in the U.S.
One of the major issues with a dual agency is that most agents do not properly represent both parties to their fullest extent. In other words, they may prefer one party over the other. For example, the buyer could worry that the realtor intentionally keeps the listing price high because they want a bigger commission check.
Another problem is that some agents will give confidential information to the other party, hence breaking the ethical code of neutrality to both parties. Some of these questions include the value of the property for sale, how to come up with counter offers for the property, and how to dispute the result of an appraisal carried out on the property.
Designated Agency vs. Dual Agency?
Investors often mistake the use of the terms designated agency and dual agency. While these terms might be similar in certain aspects, they describe different situations in real estate negotiations.
In a designated agency, different agents within the same brokerage are delegated to work exclusively with the different parties of a transaction.
Who Pays Commission in a Dual Agency?
In a dual agency, the seller pays the commission. In fact, this is the standard for all types of agencies because the commission is split between the listing agent and the buyer’s agent.
Although there is no standard commission rate, typically agents will make between 5-6% of the home’s listing price.
In the case where the buyer and seller each have different agents representing them, the agents will have to divide the commission in half. This means that each agent receives about 2.5% – 3% of the purchase price.
This is relatively similar to the standard practice in a regular representation structure where the seller pays the commission.
Is Dual Agency Illegal in Some States?
Realtors maintain a fiduciary duty to their clients, that is, they are expected to be loyal and work toward the best interests of their clients.
However, the following states have made it illegal to practice dual agency:
- Alaska
- Florida
- Wyoming
- Colorado
- Maryland
- Kansas
- Texas
- Vermont
Final Thoughts on Dual Agency in Real Estate
To this day, single agency is still the most common form of agency in real estate. But, when you do find yourself in a dual agency, it is important that the realtor maintains the integrity of their career by serving the best interest of both parties.
