Dual agency occurs when a real estate broker (or agent) represents both the buyer and the seller in the same transaction. It is legal in some states, including Washington state, but with the condition that proper disclosure is made in written to both parties. Both seller and buyer must give consent for a single broker to represent them.
It is not unusual for buyers to be interested in their own broker's listing. In this situation, the broker represents both buyer and seller, and a dual agency has been created. Proper disclosure must be made to the parties, and the broker must remain neutral and careful not to divulge confidential information about either party, which is very difficult.
Duties of a dual agents to watch for are:
The broker must deal with the buyer and the seller impartially.
The broker will have the duty of disclosure to both the buyer and the seller.
The broker will not disclose personal information about the buyer or the seller unless authorized to do so in writing by the parties.
The broker will not disclose what the buyer is willing to pay or the terms that they will agree to, and will not disclose what the seller is willing to accept or the terms that they will agree to.
The broker will not disclose the motivation of the buyer or the seller unless authorized to do so in writing.
Let’s look at some examples of the establishment of dual agency:
Example: Fred, with ABC Realty, has advertised one of his listings very extensively over the Internet. A potential buyer contacts him to view the property. After viewing the property, the potential buyer would like Fred to represent her in the sale. Fred will need to receive written consent from both the buyer and the seller to be a dual agent.
Example: Sherry, with ABC Real Estate, is holding an open house on one of her listings. A potential buyer visits the property and asks if Sherry will represent him. Again, Sherry will need permission from the seller and the buyer to do this.
Example: John, a listing broker with Mac Investment Properties, has a commercial listing and just posted a “For Sale” sign on the property. A potential buyer calls John after viewing the sign and would like John to represent him. A dual agency would be established as soon as John gets permission from both parties.
Dual Agency Conflict:
Example: Jane is a listing broker for the Andersons. Through Jane’s advertising of the Andersons’ property, Jane finds a buyer for the home. She has obtained written permission from both parties to act as a dual agent. After writing the contract and before presenting it to the Andersons, Jane learns from another broker that there will be another offer coming in that may be very attractive. Jane hurries to the Anderson's’ home and advises them to sign the first offer, where Jane was a dual agent. Jane receives both sides of the commission, because she represented both parties. If she had waited to receive the other offer from another broker, she would only have received the listing office portion of the commission. This is a conflict of interest, and the sellers might have been able to receive a better offer.
Designated or Split Agency: Another example of dual agency is when brokers from the same office each represent buyer and seller. Example: Marry from QWE Realty represents sellers and John also from QWE Realty represents buyers. Here the company is in dual agency position, which is not a big deal if disclosed properly.
I hear a lot that buyers want to work directly with listing agent. Maybe because they think that in this scenario they don't have to pay for their agent's commission. Or maybe they think that listing agent knows the property the best and he or she will disclose every fact known.
While disclosing all material facts is required by law, listing agent owes duties of confidentiality to sellers, and even if they get approval from seller to be dual agents they must not disclose personal information about the seller (whether seller must sell quickly, or what is the minimum price sellers will likely accept, etc.).
A seller's broker (listing agent) is supposed to obtain the highest and best price for the seller. The buyer's broker (selling agent) is supposed to obtain the lowest and most competitive price for the buyer. When an agent owes a duty of loyalty to two parties who have opposite, competing interests, the agent may have difficulty advancing the interests of either party, or worse, end up choosing the interests of one party over another. In the event of dual agency, the listing agent is rather messenger to buyers, while still owe to the sellers all the duties established with the agency even before buyer appeared.
Buyers don't always know that they usually (in 95% of all transactions) are NOT paying their broker. Seller pays for both listing and the selling (buyer's) agent, so from the seller's perspective, why should the seller pay for their agent to represent the opposite side? It is usually conflict of interest, and that's how the term buyer's agent (also known as selling agent, or broker in Washington state) is formed. Selling broker is relatively new term formed by desire to protect buyer's interest in transaction, because earlier buyer was not represented like today.
As a buyer, you would like your agent to advise you whether the asking price is reasonable and how you can negotiate the lower price, but listing agent who becomes a dual agent, who worked before with the sellers to establish the listing price, will defend their price (by the way - on the greatest price, greater commission). If you choose to use the agent as a dual agent, you could be losing out on the opportunity to have a dedicated agent search for properties and represent you in the home-buying process.
There are some pros of the dual agency though:
Using a dual agent can streamline the process. Many agents feel that when a buyer and seller are both working with the same agent, forms and documents can be prepared and signed more quickly, and offers and counteroffers can be communicated more quickly.
A dual agent will usually have more information about the property than an agent acting solely for the buyer would. The dual agent, when working with the seller, acquires information about the property, which the agent can share with the buyer. In many instances, this will alleviate the need for the buyer’s agent to continually contact the seller’s agent to obtain responses to questions about the property’s condition, again expediting the transaction.
Buyers may have more negotiating power when using a dual agent. That's because the dual agent can help the buyer craft an offer that will be attractive to the seller. This is particularly advantageous in hot markets when multiple buyers place multiple offers on a property.
Dual agency within one brokerage office can ease communications. In a situation where both the seller’s agent and the buyer’s agent work for the same real estate brokerage firm but the buyer and the seller work with different agents, the two agents can efficiently negotiate, communicate, and leverage their preexisting relationship while separately advancing the interests of their separate clients.
A dual agent may agree to a reduced commission because the dual agent is getting paid for acting on behalf of each party.
Dual agency is not for everyone. Before you agree to work with an agent, you need to know whether or not they practice dual agency. If you’re not comfortable working with an agent who practices dual agency, don’t hire them.