Are you wondering what dual agency is and how it works? One of my duties as a real estate agent is to explain how agency law works in Massachusetts. I must present agency law at my first meeting with a prospective buyer or seller client.
State laws require agents to do this. It is something I take seriously.
Real Estate agents can essentially do one of three things: represent a seller, a buyer, or both.
There are two types of dual-agency transactions. One is acceptable, and the other is not. We will cover both.
From being a Realtor for the past three decades, single agent dual agency is something buyers and sellers should avoid. Real Estate agents cannot serve two masters with conflicting goals and objectives.
The primary purpose of hiring a Realtor is to get guidance and expertise. When you get involved with dual agency, you give up that right. By law dual agents cannot provide advice.
What you will learn today about dual agency:
- What dual agency is in a real estate transaction?
- Two types of dual agency exist: One form is acceptable, and the other is not.
- Why single agent dual agency is wrong for buyers and sellers.
- Why a real estate agent cannot serve two masters. (The picture above says it all.)
- Why are there no benefits for anyone but the real estate agent?
- Why a commission saving isn’t worth accepting a dual agent.
- How you can avoid dual agency.
Understanding a Dual Agency Brokerage
Buyers and sellers must understand that dual agency starts at a brokerage level. When real estate brokers work with buyers and sellers, the possibility of dual agency occurring exists.
It’s a fact that most brokerages around the country work with buyers and sellers.
This isn’t necessarily bad, as dual agency has two forms.
Two Types of Dual Agency in Real Estate
When a single real estate agent works with both parties in a real estate transaction, it is known as dual agency. In this scenario, you have a single agent working with a buyer and a seller.
The parties do not have their own agent – they have a dual agent. This dual-agency situation is terrible. There are conflicts of interest.
Some real estate agents understand this situation is awful for buyers and sellers. Consequently, they choose not to practice it.
Key Takeaway: In this scenario, a dual agent does NOT represent you!
The second form of a dual-agency relationship is when two agents from the same real estate brokerage represent a buyer and seller. This is an acceptable form of dual agency that happens daily in many real estate transactions with no problems.
Each consumer has different agents fighting hard for the best deal possible.
There are separate agents. The buyer’s agent is looking for home buyers to get a lower price and other more favorable terms. The selling agent fights for the highest price and other terms to benefit the home seller.
Key Takeaway: This scenario happens daily across the U.S. It’s a perfectly acceptable practice.
Many Agents Neglect to Explain Agency Relationships
Over the years, many buyers and sellers have asked me how dual agency works. They ask for a good reason – it can be highly confusing to laypeople. Unfortunately, many real estate agents don’t explain it adequately, making things even more difficult.
Most people recognize the benefits of working with an exceptional real estate agent. You get a representative who fights for your best interests, helping you seek your real estate goals while protecting you from situations that would be detrimental.
From finding the perfect house to negotiating the price, negotiating the home inspection, and closing the deal, your agent is there for you.
Fiduciary Duties For Real Estate Agents Do Not Exist
Unfortunately, it is possible to wind up with an agent legally prohibited from looking out for you and representing your interests as a fiduciary.
With dual agency – when a single agent represents both buyer and seller – the agent can’t push for what is best for you or the other client. There is no fiduciary duty. Fiduciary duties don’t exist.
The agent collects twice the commission but does almost none of the specific work of a seller’s agent or buyer’s agent. Dual agency only benefits the agent. It should be avoided if you want a positive buying or selling experience.
Disclosure Isn’t Asking to Sign a Form
Many real estate agents fail to carry out proper dual-agency disclosure. These agents don’t want you to know how bad it sucks. They will put an agency disclosure form before you and ask for a signature.
Do you think an agent who practices dual agency and would love to become a dual agent will explain why it’s an awful arrangement? Fat chance!
The person who would love to become a dual agent will tell you it’s legal and there is nothing wrong with it. A real estate broker who does this is looking out for numero uno.
Sometimes, the forms aren’t signed before a contractual relationship is established. According to the American Economic Association, many agents are lax in their duties following disclosure laws. I could not agree with them more.
Greed Induces The Desire to Be a Dual Agent
If you do an online search for “what is dual agency,” “how does dual agency work,” or “what is a dual agent,” you are bound to see some articles from real estate agents saying dual agency is terrific.
Do you know why a real estate agent would tell anyone that dual agency can be done without a problem? In a word, GREED!
Getting both sides of a transaction is super attractive.
Who wouldn’t want to get paid a double real estate commission? There are a lot of hands going up in the room. The problem is that single-agent dual agency benefits nobody but the real estate agent! In this scenario, the agent gets the entire commission.
Unfortunately, for many agents, the dual agency arrangement is the opportunity for a larger commission that is too great to pass up. According to the Consumer Federation of America, “doubt dipping” is one of the chief reasons agents continue to practice it.
This is like the real estate agent who says an open house is needed to sell a home. Wrong! Open houses are an archaic form of marketing that benefits the agent far more than the client.
It puts the owner’s home in danger of theft, allowing the agent to score clients for other properties or double-side a deal. But agents continue to do it for their double-dipping opportunities.
A Departure From The Duties Of A Realtor
In a traditional relationship with a Realtor, you can expect many benefits for agreeing to pay a fee for professional help.
You know that your agent will be accountable to you in all aspects of the transaction. The agent will listen to what you say, giving you the final word on the decisions.
Your Realtor will keep your information confidential and be accountable to you as the buying or selling process progresses.
Agents will also disclose all the information relevant to you as a client.
Ultimately, your agent will be loyal to you – seeking to find the best path to your desired outcome. They have a fiduciary responsibility ONLY to you.
Most importantly, they provide you with sound advice!
With a single-agent dual agency, all the standard rules and expectations go out the window.
To explain this better, let me give you the definition of each type of agency.
What is a Seller’s Agent?
Seller’s Agent – A seller can engage a real estate agent’s services to act as a seller’s agent to sell the owner’s property. The agent represents the seller as a client.
An agent owes the seller client undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality, and accountability.
The agent must put the seller’s interest first and attempt to negotiate terms acceptable to the client. Here is what sellers should expect from their listing agent.
What is a Buyers’ Agent?
Buyer’s agent – A buyer can engage the services of a real estate agent to act as a buyer’s agent in purchasing a property. The agent represents the buyer as a client.
An agent owes the buyer client undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality, and accountability.
The agent must put the buyer’s interest first and attempt to negotiate terms acceptable to their buyer client.
Here are some things you should expect from a buyer’s agent. Buyer representation is worth having.
What is a Dual Agent?
Dual agent – A real estate agent may act as a double agent representing the buyer and the seller in a real estate transaction but only with both parties’ express consent.
A dual agent shall be neutral concerning any conflicting interests of the seller and buyer. A dual agent is similar to a transaction broker in that you become neutral.
There should be no favoritism of a buyer’s or seller’s interest.
Consequently, a dual agent cannot fully satisfy the duties of loyalty, full disclosure, and obedience to lawful instruction. A double agent does, however, still owe a duty of confidentiality of material information and accounting of funds. Confidential information cannot be exchanged.
Written consent for the dual agency should come from the buyer and the seller.
Does dual agency sound like anything that would interest you? If I haven’t clarified that dual agency is the DUMBEST thing ever invented for the real estate industry, keep reading.
The definition of a dual agent should be changed to someone who won’t perform typical real estate services but will make a double commission.
What is a Designated Agency?
A designated agency within a real estate firm is allowed in Massachusetts. A designated agency is when one agent within the firm represents the seller, and another represents a buyer.
A real estate licensee, typically the broker of record, is the one who designates the agents to represent different parties in the transaction.
Only your designated agent represents your interests. Remember what I said about two forms of agency? This is the acceptable form. With this arrangement, each of the parties has representation.
In this arrangement, the broker of record becomes a dual agent. Consequently, a double agent cannot fully satisfy the duties of loyalty, full disclosure, and obedience to lawful instruction, which is required of a seller’s or buyer’s agent.
Written confirmation and agreement are mandatory by both a buyer and seller in a designated agency relationship. You can see the differences between dual and designated agency here.
The Situation is Working With, NOT Representing, The Buyer And The Seller
With dual agency, the Realtor simultaneously takes on the role of buyer’s agent and seller’s agent in a specific transaction. A home is for sale. The Realtor offers to sell the owner’s house while representing a buyer interested in the property.
If the situation seems confusing, that’s because it is. How can a Realtor effectively represent either side while also serving the needs of the other?
You can’t. It is impossible to serve two masters sitting on opposite sides of the table in a real estate transaction.
It is even more strange that laws and regulations often prohibit dual agents from doing their duty for either client.
The Massachusetts Board of Registration of Real Estate Brokers and Salespeople dictates that “a dual agent shall be neutral concerning any conflicting interest of the seller or buyer.”
So, not only does the basic arrangement of dual agency make it quite challenging to serve the interests of either buyer or seller, but regulations state that the agent can’t even attempt to represent the interests of one or the other.
Participating in a dual agency arrangement as an agent would be comparable to an attorney trying to represent both a plaintiff and a defendant in a lawsuit.
That would work out well, wouldn’t it? Being a dual agent is the same dam thing!
During the transaction, there will be times when one party feels like the other is getting preferential treatment. Unfairness, however, isn’t even the worst of dual agency.
Real-World Example of Why The Arrangement Is Bad
I list a home on Main Street for $500,000. I go about marketing the property. Someone calls me from seeing it online and asks me to show it to them. I show the buyer the home, and they love it.
The buyer says, “Bill, I want to make an offer.” I say that’s great. The buyer says, “So what should I offer?” I am sorry I can’t help you with that. Remember, I am a dual agent.
The buyer is on their own. After a few blank stares, the buyer says I want to offer $490,000. I then take the offer to the seller, and they tell me, “Bill, what do you think?” “Should I give them a counteroffer, and if so, what should it be?”
My legal response should be, “I can’t help you with that as I am a dual agent.”
Legally, no party has any proper representation when practicing dual agency. It is a LOSE-LOSE situation for both buyer and seller.
At $490,000, the potential buyer could be significantly overpaying for the property. They might also be underpaying as well. Nobody has any guidance.
One of these parties could be making a big mistake. In this situation, the only person making out is the real estate agent.
This is just one example of how a dual agency situation is terrible for both the buyer and the seller. And the transaction is just getting started.
Questions Dual Agents Cannot Answer
Want more examples of how a dual agency agreement is a horrible arrangement in a real estate transaction? Look at some of the questions below that a dual agent cannot answer.
- How much is the property worth?
- Is the Zillow Zestimate accurate on the home?
- What should I offer for the home?
- What should my counteroffer to the buyer be?
- Is there anything near the property that could impact the market value?
- Are there any reasons I should not go through with the home-buying process?
- Is there a sex offender living near the home?
- What repairs or concessions should I ask for from the home inspection?
- Are the buyer’s repair requests reasonable? What should I agree to fix?
- What happens if I need to dispute a low home appraisal? Who will help me?
Not having a buyer’s agent is foolish when purchasing a home and could cost you lots of money. The same can be said of not having representation as a seller.
One of the significant reasons a buyer or seller hires a real estate agent is to get solid counseling and advice from an expert. When you agree to dual agency, you can kiss that luxury goodbye.
A dual agent cannot give you counseling and advice – it is illegal.
It is Illegal in Some States
Some people ask whether practicing dual agency is illegal in some states. The answer is yes; practicing dual agency is prohibited in some states. Dual agency is forbidden in these states: Alaska, Colorado, Florida, Kansas, Oklahoma, Texas, Vermont, and Wyoming.
The answer to why a dual agency arrangement is illegal in some states is simple – it doesn’t benefit consumers. These states have concluded that it should not be allowed. It should not be legal anywhere, so I applaud these states for taking bold action.
The Consumer Federation of America reports on how poorly real estate agents make proper dual agency disclosures.
Illegal Practices Happen All The Time
Now that you know why dual agency arrangements are so bad for consumers, let me tell you what happens ILLEGALLY every day in real estate.
There are thousands upon thousands of real estate agents who don’t follow the law.
Many agents will do as they please and advise one party or the other throughout the transaction. One day, they could act as a seller’s agent, and the next, the buyer’s agent.
Close The Sale at All Costs
For example, do you know how often agents illegally give both the buyer and seller advice on an offer? A ton! From the agent’s perspective, they only care about consummating the deal to get paid DOUBLE.
Realtors are supposed to follow a strict code of ethics, but many choose not to.
If you are lucky and the agent likes you, they might even show you some favoritism. It’s a horrible arrangement to wonder whether today is the day the relationship will favor you!
Folks, this happens daily for the agent’s ability to make double the money in a transaction.
A Harmful Arrangement
If you are wondering why dual agency exists, you are not alone. As previously mentioned, some states have made the practice illegal, but many other states – like Massachusetts – still allow the procedure to occur.
As a buyer or seller, you will gain no benefit from dual agency. The chances are excellent that you will be harmed by it.
All the benefits you would get from hiring a real estate agent while you agree to pay their fee are lost when you work with an agent representing you and the other side. You, as a client, are harmed by the practice.
Considering that buying or selling a home is probably one of your life’s most significant financial transactions, it becomes even more baffling why dual agency is allowed.
Part of why you are hiring a professional real estate agent is because you know that buying or selling a home is a big deal, a decision that will affect you for years or even decades.
It only makes sense to want reassurance that your representative has your best interests in mind.
Calls of Frustration
Last spring, I got a call from a woman who was upset. She sounded like she could cry at any moment. The caller explained how she was reading one of my articles and needed advice.
Dual agency had snagged her in its evil web. Her frustration was that the agent wasn’t representing her interests. Instead, she felt strongly that what she thought was “her agent” wanted to close the sale and nothing more.
She wondered why the agent favored the buyer on everything, including home inspection requests. She did not realize that she was in a dual-agency relationship. The agent never explained it to her.
She only looked at her listing paperwork after wondering why things were going so poorly in a market heavily favoring sellers. At every turn, the agent was, in her words, trying to “close the sale” without her interests in mind.
I have experiences like this all the time. Dissatisfactionn is common. The conversation ended with her asking me how to report the agent to the real estate board.
Are There Any Pros?
If you look online for the pros and cons of dual agency, you’re bound to see a Realtor trying to sell you on dual agency. The title will be “The Pros of Dual Agency.”
I am going to tell you flat-out they are grasping at straws.
Here are some of the pros of dual agency from the mouth of Babes:
- You will get better communication because there is only one agent – Yahoo! With a big grin. Really?
- The listing agent will have more information than a buyer’s agent would. Ya, phone calls or emails are hard to make asking questions.
- A dual agent may agree to a reduced commission because they have both sides of the transaction. OKAY – that may be true, but who is getting the discount, the buyer or seller? Is saving a few thousand dollars worth it for what you give up? I don’t think so! A lower commission should never be the basis for working with a dual agent.
A dual agency situation has far more cons than any potential advantages.
Designated Agency Doesn’t Harm Consumers
As mentioned, a designated agency is when two agents from the same firm are involved in a real estate transaction. One agent represents the buyer as a buyer’s agent, and the other represents the seller as a seller’s agent.
I have no problem with this arrangement, as each party has representation. Some people have issues with designated agencies because the company’s owner becomes a dual agent representing neither party. I say so what!
How often does the owner of a real estate company get involved with negotiations in a sale? Try rarely! Even if they do, you would want them to be a neutral party, not someone who favors one party over another.
The folks with a problem with a designated agency usually advocate for firms representing only buyers. These real estate companies only offer buyer’s agency brokerage relationships.
It’s essential to remember that designated and dual agencies are very different things!
Single Agent Dual Agency Starts With The Listing Agent
When you sell your house, you’ll likely meet with a few potential real estate agents before choosing one and signing a listing agreement. One of the most significant aspects of your home sale will be to find out where the agents stand with dual representation.
As you’ve probably realized, it will be a good idea to reject the practice of dual agency.
It would help if you clarified that you have no interest in the dual agency scenario where they become a dual agent. When you list your home, your desire to have an agent acting on your behalf should be emphasized.
A written agreement should say there will be no dual agency. Most listing agreements will contain a section discussing dual agency. Read it over carefully. State laws require agency disclosure.
When selling a house, you will pay the real estate commission. Why would you ever want your selling agent not to represent you? Get a different real estate agent if they will not comply.
Sellers need to understand that their agent can still work with a buyer to show their home. The agent remains a seller’s agent when they don’t practice dual agency. If the buyer doesn’t like this arrangement, they are free to get their own agent.
Home Buyers Should Avoid It Too
Conversely, it makes sense for a buyer to have a buyer’s agent—someone who will be looking out for the buyer’s interest.
An agent who will work hard to get the best possible deal or the lowest price. Entering into a single-agent dual-agency transaction will likely not allow that to happen.
Insist On A Dedicated Realtor
The best way to avoid dual agency is to hire a Realtor from a trusted company in your area and discuss the issue before moving forward with an agent.
You can demand that the agent you choose not engage in dual agency with you. As long as the agent is reputable and honorable, they are unlikely to promote dual agency.
If you are selling a house, you should outright reject dual agency. It would be best if you insisted that the agent you hire is a seller’s agent, and that’s it.
If the agent has a problem, you know you’re dealing with someone who cares more about their pocketbook than your best interests.
You’ve probably guessed already one of my biggest pet peeves as a real estate agent is other agents who put their interests ahead of the client.
Being selfish repeatedly happens in real estate when Realtors push open houses without explaining the drawbacks to homeowners.
Final Thoughts
Agency law differs from state to state. It is crucial to understand how agency law works in your state. The bottom line is that dual agency offers consumers far more disadvantages than advantages.
Make sure you understand any document you are signing regarding agency relationships.
Frankly, a dual agency relationship should be outlawed in every state. Dual agency in real estate = conflict of interest. Real Estate agents who practice dual agency dramatically increase their chances of being sued.
Hopefully, you now understand what a dual agent is, how dual agency works, and why you should avoid it.
Additional Helpful Information
- Difference between buyer’s agent and seller’s agent – learn the critical differences between a buyer’s agent and a seller’s agent via Maximum Real Estate Exposure.
- Should I Allow Dual Agency – see any explanation on why you should not allow dual agency via Kyle Hiscock at Slideshare.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on what dual agency is in real estate. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
