Pros and Cons of Dual Agency in Real Estate

When you’re looking for the right home to buy, an important consideration is whether dual agency will occur for the home that you’re interested in. Dual agency takes place when the real estate agent who represents you also represents the seller of the home that you’re interested in. This situation can also occur when two real estate agents from the same brokerage agency represent the seller and the buyer. Keep in mind that these agents are unable to directly disclose confidential information to the buyer or seller.

Every party can benefit somewhat from a dual-agency situation. The seller may be able to save a small sum of money by only needing to pay commission to a single agent. The entire transaction may be streamlined as well, which means that the purchase of a home could be completed on a shorter timetable. The main benefit for the agent involved with the transaction is that they will receive the entire commission, which usually amounts to six percent of the total sale price.

While dual agency is legal in nearly every state, it’s important to understand that the practice is regulated heavily to ensure that sellers and buyers are protected from predatory practices. In a state like Alabama, both the seller and buyer will need to agree to being represented by the same agency or agent before the transaction can proceed. The same is true in California. Before an offer is made on the home that you’re interested in, you should be presented with a form that’s titled as “Disclosure Regarding Real Estate Agency Relationships”. The form will identify all of the agents and brokers who are set to be directly involved in the transaction.

Every real estate agent in California has a fiduciary responsibility to act in the best interests of the clients they are working for. If an agent is representing a buyer, they must act in their best interests when making an offer on a home or during the negotiation process. As such, it can be nearly impossible to properly manage both parties while the transaction is being completed. The fiduciary duties that a real estate agent has are written into licensing laws. Because of this responsibility, you will need to give the go ahead before the transaction can proceed. This article takes a closer look at some of the advantages and disadvantages that come with dual agency.

Benefits of Dual Agency for the Buyer

Even though dual agency can be risky, there are numerous benefits for the buyer if they decide to pursue this option. These benefits include:

• Dual agents may agree to a commission that’s slightly lower than what two agents would typically receive
• Having a dual agent by your side can streamline the process
• Dual agents usually have more information than agents who work solely for one party
• You may have greater negotiating power as the buyer

The primary benefit of sharing your real estate agent with the seller is that the transaction can be streamlined. In most situations, having one agent represent both the seller and buyer will allow documents to be prepared and signed more efficiently. When offers are made by the buyer or counteroffers are made by the seller, communication between both parties can occur at a more rapid pace than usual.

In a standard real estate transaction with two separate agents, an offer will be made with the assistance of your agent. Your agent will then send the necessary documents over to the seller’s agent, after which the seller will be able to make a counteroffer or accept the original offer. By removing one of the parties, the entire process becomes more streamlined and efficient.

There’s also a chance that the dual agent would agree to a commission that’s slightly lower than usual. In a standard real estate transaction with two agents, each agent would receive around three percent of the total price of the home, which would equate to six percent overall. When an agent represents both parties, they may be willing to receive a commission of 5.0-5.5 percent. You’ll also have some negotiating power as the buyer when using a dual agent. If multiple offers are made to the seller, your agent may help you create an offer that’s highly appealing to the seller.

There are times when dual agents will have more information when compared to agents who work solely for the buyer or seller. For instance, the dual agent may obtain information from the seller that they would otherwise not be privy to. If the seller agrees, the agent can provide this information to the buyer, which can make for a smoother transaction. Without having a dual agent in place, any questions that you have about the condition of the property would need to be passed along from your agent to the seller’s agent, which only serves to prolong the transaction. With these benefits in mind, having a dual agent when purchasing a home may be the right option for you.

Disadvantages of Dual Agency for the Buyer

While dual agency can be highly beneficial to the buyer, there are also some legitimate concerns that you should be aware of before making your decision. The primary disadvantages that come with dual agency include:

• You won’t be able to receive confidential information from the agent
• An agent has a fiduciary duty to both parties, which can be tricky to navigate
• A dual agent has more incentive to close a deal as quickly as possible
• The dual agent may not tell you if the listing price is too much
• Dual agency takes away some of your legal options in the event that issues arise
• The seller may have a long-standing relationship with the agent

While a dual agent can tell you about the condition of a property or any other information that you request from the seller, they are legally forbidden from providing you with confidential information that the seller wouldn’t want you to know about. For instance, the dual agent can’t tell you if the seller would accept an offer that’s lower than the listing price. If you’ve been considering dual agency because you believe that it would provide you with inside information, this won’t be the case.

Another issue with dual agency is that dual agents are incentivized to close a deal as quickly as possible because of the double commission that they earn. As such, they may not disclose something about the home that could ruin the deal. Even though this goes against the ethical code that real estate agents are supposed to adhere to, there’s always a risk that the dual agent will make the wrong decision.

Because the agent has a fiduciary responsibility to both the buyer and seller, they may find it difficult to perform their role as a dual agent. When working in the best interests of a seller, the goal of an agent is typically to find the highest offer. On the other hand, the role of a buyer’s agent is to get a seller to accept an offer that may be lower than the asking price. It’s very difficult for a single agent to manage both roles properly. In fact, the agent may have a longstanding relationship with the seller as a result of working with them on numerous transactions in the past. In this case, they may be more inclined to provide the seller with the better deal.

It’s also important to understand that only a buyer’s agent has a duty to tell you if they believe the asking price to be too high. In the event that a problem occurs during the transaction, your legal options could be reduced as well. When filing a lawsuit, you would only have a single firm to sue, which means that just one insurance agency would be able to assist in paying damages and covering legal fees. It’s important that you take all of these disadvantages into consideration during your decision-making process.

Dual Agency Vs. Single Agency

Single agency means that an agent represents either the seller or buyer during a real estate transaction. Even though there are some notable advantages that come with dual agency, single agency may be the better option for you if you want to be confident that your agent will act in your best interests. When the agent is only working to make sure that you can buy a home at the right price, you shouldn’t need to worry about the possibility that you won’t get a fair deal because of a conflict of interest. The main downside to single agency is that the real estate transaction won’t be streamlined, which means that communication between both parties could take some time.

As for dual agency, there are pros and cons to considering this option. If you decide to use a dual agent, you may be able to negotiate a lower commission, which would reduce your costs. It’s also possible that the transaction will be more efficient since the agent can handle communication between the seller and buyer without needing to include another party. On the other hand, dual agents can have a conflict of interest that may prevent them from being completely honest with one party. It’s also possible that they will attempt to close a deal quickly, which heightens the likelihood that the process will be rushed.

Questions To Ask Yourself Before Making a Decision

In the beginning stages of this process, some questions that you should ask include:

• Is dual agency illegal in the state I want to purchase a home in?
• Who will be required to pay the commission in dual agency?
• Is dual agency ethical?
• Can commission be negotiated?
• Do I pay the dual agent when acting as a buyer?

Once you have asked these questions and have looked at the pros and cons of dual agency, it should be easier for you to determine if this option is right for you.