There are strong feelings within the real estate industry on the subject of dual agency. It is such a controversial topic that a number of states have made it illegal to allow one agent to represent both the buyer and the seller in a transaction. If you are planning to sell or buy a piece of property and it’s legal in your state, be sure you understand how dual agency works so that you can make an informed decision if it factors into your transaction.
Other types of representation
Designated agency representation, such as buyer’s agent or listing agent can help avoid potential conflicts of interest that sometimes occur with dual agencies. With this option, different agents within the same brokerage represent the buyer and the seller, thus ensuring fair representation for both parties in the transaction.
A transactional brokerage involves legally neutral third-party representation that provides equal service to both the buyer and the seller. This facilitator only assists with paperwork, offers no advice and is paid a flat fee which can be less than a traditional agent’s commission. Both parties must agree to a transactional brokerage and it is not legal in all states.
Who benefits from dual agency representation?
The real estate agent who represents both the buyer and the seller benefits from keeping the full commission, of course, although some agents are willing to reduce their commission. And all parties can benefit from a streamlined transaction with less downtime for offers, counteroffers and signed forms/documents in order to close the deal more quickly.
So what are the downsides?
There are multiple reasons why dual agency is illegal in some states, mainly because there are too many ways that it can be abused. Even for agents with the best intentions, there’s always risk of a conflict of interest, which is why almost every state that allows dual agencies requires both the buyer and the seller to sign documents acknowledging that they are aware of the agent’s role representing both parties.
Because both the buyer and the seller have different goals in the transaction, there can be opportunities for the agent (either intentionally or unintentionally) to rig sales, thus impacting offers and negotiations. Some agents won’t agree to dual agency arrangements for fear of failed transactions, bad reviews or lawsuits claiming the agent negatively influenced negotiations. Some brokers won’t even allow their agents the dual agency option, considering it not worth the risk.
The National Association of Realtors does not have a stance on dual agency transactions, but encourages its members (in those states where it’s legal) to be professional and transparent with clients who are considering that type of representation. The Consumer Federation of America, however, released a report in January 2019 recommending that all states prohibit real estate dual agency transactions.
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