Dual Agency Is Illegal In Some States: Explained
You want your real estate agent representing your best interests, fighting to get the lowest sales price if you are buying a home or the highest if you are selling one. But what if you’re selling your home and your real estate agent is also representing the buyer of the property? Or what if you are buying a home and your agent is also the listing agent for the seller?
This is known as dual agency, when one real estate agent represents both the buyer and seller in a house sale. In some states, this isn’t allowed because a real estate agent can’t effectively represent the best interests of both sides of a real estate sale. If an agent is fighting for the highest sales price for a seller, this same agent can’t also be working to get the buyer the lowest possible price.
Here's a look at why this arrangement is not good for either homebuyers or sellers.
What Is Dual Agency In Real Estate?
This is different than what happens in most real estate sales: Typically, buyers will work with an agent who represents them, trying to get them a home for the fairest possible price. The sellers work with a listing agent, who helps them list their home on the Multiple Listing Service, schedules showings and negotiates with buyers to get the highest possible sales price.
How Does Dual Agency Work?
In dual agency, one real estate agent represents both the buyers and sellers in a transaction. Because an agent can’t fight for both the interests of these two competing parties at the same time, most buyers and sellers prefer to work with their own individual agents.
There are times, though, when both sides in a transaction might choose dual agency:
- Working with a dual agent might mean a faster closing process because there is only one real estate agent involved in the transaction. There are fewer chances for a breakdown in communication among the parties involved in the sale. If both the buyers and sellers in a deal want to close the home sale as quickly as possible, both parties might agree to dual agency.
- Dual agency might be the only option for buyers and sellers living in an area with few real estate agents. In a smaller community, one served by fewer real estate agents, the odds are higher that buyers will want to purchase a home that their agent is marketing.
In most cases, though, it’s better for both buyers and sellers to avoid dual agency. Sellers want the highest possible sales price for their homes while buyers want to purchase these same homes at the lowest price. One agent can’t strive for both goals.
Say buyers find a home that is listed for $250,000 and would like to make an offer of no more than $225,000 to get it. The sellers, though, want to sell their home for no less than $240,000. If the same agent represents both the buyers and sellers, that agent must focus on getting either the buyers or sellers what they want. The agent can’t achieve both the goals of the sellers and the buyers.
Is Dual Agency Illegal In Some States?
Yes, it is. Because agents can’t represent the best interests of both sides of a transaction at once, dual agency is illegal in some states.
Why Is Dual Agency Illegal?
Why do some states forbid dual agency? Mainly because real estate agents have a fiduciary duty to the clients they represent, meaning they should always act in these clients’ best financial interests.
When agents represent both the buyer and seller in a transaction, they can’t represent the best interests of both parties. Dual agency, then, violates the fiduciary duties of real estate agents. A buyer working with a dual agent might spend more on a home because the agent fought harder to get a higher sales price for the seller. Or the seller might accept a lower sales price because the agent instead worked harder to get a better deal for the buyer client.
Some real estate agents might hope to land a dual agency deal. That’s because when they do, they receive the entire real estate commission from a home sale. In most home sales, the agent representing the buyers and the one representing the sellers each split the commission, usually 6% of the home’s final sales price. The buyers’ agent will get a commission of 3% of the home’s final sales price while the sellers’ agent will receive the other 3%.
In dual agency, though, the agent representing both the buyers and sellers receives the entire 6% commission. This might encourage the agent to fight more aggressively for the sellers. After all, a higher sales price means a higher commission.
States Where Dual Agency Is Illegal
There are eight states in which dual agency is illegal.
In most states where dual agency is legal, agents must disclose to their clients that they are representing both the buyer and seller in a home sale. If agents don’t disclose this, they risk losing their real estate license.
Alternatives To Working With Dual Agents
There are better options for buyers and sellers than dual agency. If you are a buyer, it makes more sense to work with a buyer’s agent. These agents represent only you in a home sale. They’ll negotiate on your behalf to get the fairest price when you purchase a home.
As a buyer, you won’t have to pay the commission for this agent. The agent instead splits a commission with the seller’s agent after the real estate sale closes, taking his or her cut from the proceeds of the sale. In essence, then, the seller pays for the buyer’s agent.
If you are selling a home, you should work with a listing agent. This agent represents only you and works to make sure that you sell your home for the best possible price. This agent, also known as a seller’s agent, will list your home on the Multiple Listing Service, help you prepare your home for sale and will schedule the showings of your home to potential buyers. You’ll pay for this agent from the proceeds of your home’s sale.
You should also check that your agent, whether you are selling or buying, is a REALTOR®. A REALTOR® is a member of the National Association of REALTORS® and must adhere to this organization’s rules and regulations.
Dual Agency FAQs
What is designated agency?
In designated agency, the agent representing the buyer in a transaction and the one representing the seller work with the same real estate company. You might worry that because both agents work for the same company, that they won’t be as willing to compete against each other to get you the best deal. If the real estate firm is reputable, though, it will allow both agents to represent their respective clients fairly.
How do I know if dual agency is illegal in my state?
Each state enacts its own laws regarding dual agency. To determine if this is legal in your state, check with the local regulatory body that governs real estate transactions in your area. Laws can change quickly, so ask your real estate agent whether he or she is only representing you.
Are there benefits of dual agency?
Proponents of dual agency say that this arrangement can boost the efficiency of real estate sales because one agent is handling all the details and paperwork. Still, the potential negatives of this arrangement outweigh the benefits.
How do I avoid dual agency?
Insist on working with a real estate agent who will represent only your interests. Ask your agent whether he or she is representing only you. If not, work with a different agent.
The Bottom Line
Whether you’re buying or selling a home, your best move is to work with a real estate agent who is committed to getting you the best deal. This means working with an agent who represents only you. If you want to sell your home for the best price, or buy one at the lowest, avoid dual agency. If you’re ready to buy or sell, we can help you learn how to find the best real estate agent.