Dual Agency: A Slippery Slope

Dual Agency: A Slippery SlopeDual agency is a controversial topic with some real estate professionals, and even among brokers. Single agency requires loyalty, preserving the client’s confidential information, and working in the best interests of the client. Dual agents, representing the buyer and the seller, find it difficult to be loyal or work in the best interests of both competing parties. In addition, certain situations create conflicts concerning disclosing either or both parties’ confidential information. Keep reading to learn about the ethical challenges of representing both parties in a real estate transaction.

Is dual agency legal?

NAR allows dual agency in its Code of Ethics. Standard of Practice 1-5 explains that Realtors® can represent buyers and sellers in the same transaction after providing full disclosure and obtaining informed consent from both parties. Most states allow dual agency for real estate transactions.

When faced with a dual agency situation, there are a few steps to follow. First, the listing agent must determine if state laws and company brokerage rules allow for dual agency. Second, the listing agent must explain to both parties about the limitations dual agency places on the ability to fully assist both of them. Finally, the seller must be informed and agree in writing (along with the buyer) to allow the double representation. If dual agency is legal in your state, NAR also recommends that you consult with a real estate attorney to understand what disclosures and procedures you must follow.

Criticisms of dual agency

A Zillow real estate forum asks: “Can you trust a dual agent realtor to work on behalf of the buyer?” Of the 31 answers, 28 said “no.” One commenter stated, “Look at the base of it, how can you expect to have your best interests represented if the seller is your negotiator?” Another added, “Dual agency is still allowed here in California and it’s such a slippery slope. As a buyer I can’t think of any situation where I would want the same agent representing the seller and myself. Where do they draw the line on doing what is best for you?” A third one argued, “Conflict regarding disclosures: For instance, an agent representing both cannot tell a seller what the buyer is willing to spend. Conversely, the agent cannot tell the buyer what the seller is willing to take. Within the rules of agency representation, it’s required that when an agent knows a material fact, they must share that fact with their client.”

The New York State General Counsel’s “Be Wary of Dual Agency” memorandum warns real estate sellers that dual agency gives up their right to the agent’s loyalty because the agent also represents “your adversary.” Further, giving up the duty of loyalty means the agent “can advance interests adverse to yours.” The Consumer Advocates in American Real Estate (CAARE) organization opposes dual agency, claiming brokers unfairly get paid double commissions and become a “secret double agent.” Fox Business argues that when a real estate broker represents both parties, neither party will know whose best interests the agent represents.

Undisclosed dual agency problem

NAR’s Case Interpretations: Case #7-1 involved a broker hired by a buyer to find a commercial property. The buyer agreed to pay the broker a finder’s fee. Later, a seller listed the type of property the buyer sought with the broker’s company. After closing, the broker collected his commission from the seller and his fee from the buyer. When the seller found out about the buyer’s fee, he complained to the local Board of Realtors®, which found that the broker violated Article 7 of the Code of Ethics. The broker represented both parties and collected fees from them without disclosing and obtaining their agreements, which resulted in an undisclosed dual agency.

Dual agency is controversial but legal with NAR and in most states. It’s important to know when a dual agency situation arises and how to behave toward both parties. NAR’s Dual Agency Dos and Don’ts tool kit provides long lists of what to do and what not to do as a dual agent. Basically, do provide full disclosure of the relationship and be honest with both parties. Don’t disclose the price either party will accept. Don’t hinder either party’s bargaining position. Follow these guidelines to be a successful dual real estate agent.

What do you think? Have you ever represented both parties in a transaction? What are your dos and don’ts of the situation? Share in the comments below.

Want to explore more topics in real estate ethics? Check out our continuing education course, Know the Code: Your Guide to the Code of Ethics, specifically designed for real estate professionals like you.

About the author

Steven Rich, MBA has over three years of experience as a successful real estate agent. He was awarded the Top Condo Salesperson for two of those years by his real estate company. Steven has served as Associate Editor for a real estate magazine and is the author of a 104-page e-book on How to Buy, Develop, Lease, and Sell Real Estate.

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