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Most home sales have two brokers representing the buyer and the seller, but some home sales use one broker to represent both sides of the real estate transaction.
Although legal in most states, dual agency is also considered controversial: buyers and sellers have opposing goals. So how can a single broker handle the interests of its customers?
What is dual agency and how does it work?
A dual agency occurs when the buyer and seller work with the same agent in a real estate transaction. Buyers and sellers are typically represented by different real estate agents, so the dual agency is considered outside the norm.
“A dual agency is when the buyer and the seller of a property use or are represented by the same real estate agent,” says Deni Supplee, licensed Realtor, and co-founder of Spark Rental, a property management software company.
“For instance, an agent lists a home for a seller client and meets a buyer client. (The agent) shows the property and that buyer client puts in an offer on the home also listed by that agent.”
While dual agency laws vary by state, most states require the real estate agent to disclose this arrangement to all parties.
“In Minnesota, dual agency occurs when one agent contractually represents both buyers and sellers in the same transaction,” says Jessica Fisher, a licensed Realtor with Re/Max Professionals in Minnesota and Wisconsin.
“A transaction is also considered double agent if the buyer and the seller’s agents belong to the same broker.”
Pros and Cons of Dual Agent Real Estate
The advantages of using a double agent in real estate transactions include
- Spend less time negotiating. “Because the agent has registered the property, we can communicate more information about the property to the buyer,” says Supley.
- Additional information about real estate. The hybrid agent may have more information about the property being sold, allowing the buyer to make an informed decision.
- Smooth transaction process. One agent handling both sides of the transaction means that documents can be prepared and signed much more rapidly.
- Dual agents might agree to a lower commission. While this can happen, it’s not a guarantee. “Consumers should not expect a discount if their agent is conducting both sides of the transaction,” Fisher says. “Although some agents offer a discounted commission in a dual agency situation, the dual agent is still doing the work of two agents at once.”
Before trying to close a deal with a dual agency, consider the cons
There can be a conflict of interest. “The goal of the sales agent is to get the best and lowest price for his property. The buyer’s goal is to get the best and lowest price for the property,” says Supley.
This makes it difficult for the double agent to remain neutral when representing the buyer and seller.
- The complexity of negotiations. The double agent is limited in his ability to fully negotiate for both sides. “When agents represent both buyers and sellers, they lose the ability to negotiate aggressively. Dual agents cannot protect one side over the other,” says Fisher.
- It is difficult to pursue the best interests of both parties. It is almost impossible to represent the best interests of both parties opposing a transaction. In other words, all the dual agent can do is facilitate the transaction.
- Increased workload for the broker. The double agent does the work of two agents in one transaction and must divide his time between the buyer and seller. It can be difficult to get the agent’s full attention.
Because a dual agency is illegal in some states
Some states have made dual agency illegal. One of the biggest potential problems with a dual agency is that buyer and seller have opposing interests.
Sellers want to sell their property at the best price, while buyers want to pay the lowest price on the best terms.
Therefore, it is difficult for mixed agents to represent the best interests of their clients.
Dual representation is illegal in the following states
- Alaska.
- Colorado.
- Florida.
- KS.
- Maryland.
- Oklahoma.
- Texas.
- Vermont.
- Wyoming.
In states where dual agency is legal, the agent must disclose this information to all parties involved.
If the agent does not disclose this agreement, he risks losing his real estate license. According to the National Association of Realtors, disclosure is critical and the disclosure agent has a fiduciary duty.
How does the dual agency commission work?
Real estate commissions typically range from 5% to 6% of the home purchase price.
When there are two agents in the same transaction, the agents split the commission and each agent will receive a brokerage commission of 2.5% to 3% of the purchase price.
“Typically, for most ads, the commission is split 50-50 per side,” Supley says. “In the case of a dual agency, the real estate agent will receive the full commission.”
In dual agency situations, the commission can sometimes be open to negotiation. It is generally recommended that the seller negotiate a double agency fee before putting the house up for sale.
Reference Source: US News
