What Is Dual Agency?

Can the broker protect both the buyer's and seller's interests?

Each party should have their own real estate agent

If you're shopping for a home (especially as a first-time home buyer) without a home to sell first, you probably don't have a relationship with a real estate agent. You may find yourself checking the sales ads in the local paper or listings online, or drive around the neighborhoods that interest you. When you find a house that looks promising you jot down the number and call the listing agent, right? Nothing could be easier.

The agent is happy to show you the house. You agree to meet and walk through the property. As the agent shows you the property, she asks whether you are working with an agent. You reply that you don't have an agent.

Dual agency and conflict of interest

At this point, the agent may ask you if you are interested in the house and whether you want her to represent you in the transaction, too. Naturally, the real estate agent or broker is motivated by the commission to help you. If she represents the seller and the buyer then she doesn't have to share the commission with another agent or broker. It's a powerful and deceptive temptation to many agents.

This sets up a conflict of interest. When the broker wrote up the agreement with the seller, the broker agreed to represent the seller as their agent. The term "agency" is heavily freighted and carries many responsibilities toward the seller. The broker has a legal and ethical commitment to the seller to try to get the best possible price for their home among many other professionally mandated obligations. The primary rule of real estate is that the agent must be loyal to the principal—in this case, the seller.

Alternately, if a buyer agrees to pay a broker's fee for finding a house, and the broker finds the house and agrees to represent the seller too, then this is also an example of dual agency.

In a dual agency transaction, when the broker attempts to act as the agent for both the seller and the buyer, he or she is creating a deal in which there are two principals. The first casualty of this effort is to compromise the loyalty he has to both.

Agents must inform buyers and sellers

Because the primary responsibility toward the principal is compromised, the law requires that a broker or agent in this dual agency role must inform both parties that they can not expect the broker's full and undivided allegiance. In other words, both the seller and the buyer must be informed that they are responsible for looking after their own interest.

According to state real estate laws, failure to notify both parties and obtain their informed consent means that the broker cannot legally claim a commission. Principals in these circumstances are legally entitled to consider themselves defrauded and could take action to rescind the transaction. In extreme cases, a broker could lose his or her license.

More often though, sellers and buyers may not know or understand what they should expect from their real estate agent. Because the seller has committed to an agreement with the agent to sell their house, they may still consider their claim on the agent exclusive. Buyers may naively assume that the agent will be discreet with their personal information. However, human nature being what it is, the broker may inadvertently pass on information between the parties that damages one or both party's positions. Even being "informed" may not protect both principals if one doesn't understand the significance of the information.

Real estate agents, to protect themselves and offer better service to buyer and seller, should suggest that the buyer secure his or her own agent, especially in more complex transactions or in situations where the buyer has little experience. In the real world, however, most agents think they can bridge the gap between both parties successfully and justifiably claim the entire commission for their efforts.

Protecting yourself

It is important that each party take every opportunity to protect themselves in real estate transactions by finding their own agent, regardless of whether the seller's broker suggests it or not. (This excludes some transactions such as "for sale by owner" where both parties negotiate directly.)

Though the law strives to protect buyers, sellers, and agents by regulating real estate transactions, and professional real estate associations promote high standards of ethical conduct, it is vital that all parties become knowledgeable about their rights and responsibilities in the housing market so they can make wise, informed choices that result in optimum results for everyone.

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