Most home sales have two real estate agents representing the buyer and the seller, but some home sales use one agent to represent both sides of the real estate transaction. While it’s legal in most states, dual agency is also considered controversial. Buyers and sellers have opposing goals, so how can a single real estate agent look out for the best interests of their clients?
Here’s how a dual agency works in real estate and how it affects both the buyer and the seller.
- What is dual agency and how does it work?
- The pros and cons of a dual agency in real estate.
- Why dual agency is illegal in some states.
- How commission works in a dual agency.
What Is Dual Agency and How Does it Work?
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 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 dual agency when both the buyers’ and sellers’ agents are from the same brokerage.”
The Pros and Cons of a Dual Agency in Real Estate
The pros for using dual agency representation in a real estate deal include:
- Less time spent on negotiations. “Because the agent listed the property, he or she may be able to pass on more knowledge of the property to the buyer,” Supplee says.
- More information on the property. A dual agent may have more information on the property being sold, which could allow the buyer to make a better-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 dual agency, consider the cons:
- There can be a conflict of interest. “The goal of the selling agent is to get the best and highest price for his property. The goal of a buyer agent is to get the best and lowest price for a property,” Supplee says. This makes it difficult for the dual agent to remain neutral when representing the buyer and the seller.
- Complications with negotiations. A dual agent is limited in their ability to fully negotiate for either side. “If one agent is representing both buyers and sellers, the ability to aggressively negotiate is lost. A dual agent cannot advocate for one party over the other,” Fisher says.
- Difficulty looking out for the best interests of both parties. It’s almost impossible to represent the best interests of two opposite sides of the transaction. This means that all a dual agent is capable of doing is facilitating the transaction.
- Increased workload for the real estate agent. The dual agent is doing the work of two agents in a single transaction and must split his or her time between the buyer and the seller. It could be difficult to have the full attention of the agent.
Why Dual Agency is Illegal in Some States
Some states have made dual agencies illegal. One of the biggest potential issues with dual agency is that the buyer and the seller have opposing interests. Sellers want to sell their property for the highest price while buyers want to pay the lowest price with the best terms. This makes it difficult for dual agents to represent the best interests of their clients.
Dual agency representation is illegal in the following states:
In states where dual agency is legal, the agent must disclose this information to all involved parties. If the agent does not disclose this arrangement, they risk losing their real estate license. According to the National Association of Realtors, disclosure is of the utmost importance and disclosure is a fiduciary duty of the agent.
How Commission Works in a Dual Agency
Real estate commission is usually between 5% and 6% of the home’s purchase price. When there are two agents in a single transaction, the agents split the commission and each agent would receive 2.5%–3% of the purchase price, minus brokerage fees.
“Typically, for most listings, the commission is split 50-50 for each side,” Supplee explains. “In the case of dual agency, the real estate agent would get the entire commission.”
In a dual agency situation, the commission can sometimes be open to negotiation. It’s typically recommended that the seller negotiates the dual agency commission before listing the home for sale.