Is Dual Agency Illegal? The Case For and Against Dual Agents
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Summary:
Dual agency occurs when a real estate agent acts as both the buyer’s and seller’s agent. Dual agents are illegal in some states and are generally frowned upon by regulators in the real estate community. However, in states where dual agency is allowed, clients may consider a dual agent for efficiency’s sake.
Most real estate transactions involve two agents: the seller’s agent (also known as the listing agent) and the buyer’s agent. A dual agent, on the other hand, is a real estate agent who assumes both of these roles in the same transaction.
The practice of dual agency is often side-eyed because it raises a number of ethical issues. In fact, dual agency is illegal in a few states due to these concerns. On the flip side, some buyers and sellers appreciate the efficiency of having one real estate agent handle the entire transaction, as they feel it streamlines the process.
Hiring a dual agent to handle the purchase or sale of your home isn’t a choice to take lightly. To help you with that decision, we’ll go over some of the advantages and drawbacks of working with a dual real estate agent.
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What is dual agency in real estate?
Dual agency is when the same real estate agent represents both the seller and the buyer during a home sale, as opposed to two real estate agents representing the buyer and the seller separately.
Real estate agents must uphold their fiduciary duty by keeping their client’s best interests in mind during the process. However, home buyers and home sellers have opposing interests, so dual agents may find it challenging to remain neutral.
To protect both buyers and sellers, the agent involved must disclose their dual agency to both parties. In addition, they must be transparent about any potential conflicts that may arise during the transaction. If the agent fails to do so, they risk losing their real estate license.
Where is dual agency illegal?
While dual agency is generally frowned upon, it is still legal in most of the United States. However, some states have banned the practice entirely. As of 2023, dual agency is illegal in the following states:
| Alaska | Colorado | Florida |
| Kansas | Maryland | Texas |
| Vermont | Wyoming |
Dual agency restrictions will also vary by state. Even if dual agency is legal in a given state, safeguards are still in place to protect the parties involved. For instance, in some cases, both the buyer and the seller must provide written consent to the dual agency relationship.
Why working with a dual agent may be a bad idea
Dual agency is heavily discouraged and even illegal in certain states because of the issues that may arise from conflicting interests between buyers and sellers. Moreover, a dual real estate agent may have financial incentives that would dissuade them from carrying out a fair transaction for the buyer or the seller.
Incentives
To protect their bottom line, a real estate agent may want to optimize the amount they can make for their time or in commissions.
A dual agent may align their interests with the seller to get a higher commission on the purchase price of the home. Conversely, the agent may choose to help the buyer by selling the home at a lower price to close the deal sooner, thus enabling the agent to earn commissions more quickly.
So if you’re not in a rush to buy or sell your home, it’s generally advised that you opt for your own real estate agent instead of a dual agent. Without a potential conflict of interest, your agent is free to aggressively negotiate on your behalf in order to secure you the best deal on the sale.
Lack of advice
A dual agent is also limited in what they can share with each of their clients, which also limits their ability to guide those clients’ decisions.
For instance, imagine that a buyer finds her dream home and begins negotiations with the seller through a dual agent. Her initial offer on the home is $400,000, but she’s willing to spend as much as $50,000 more to close the sale. Meanwhile, the seller is willing to accept the initial offer, but because he’s not in a rush to sell, he’s considering making a counteroffer to increase his profit on the sale.
Because the real estate agent represents both parties, they can’t tell the seller that the buyer is willing to increase her offer, and they also can’t tell the buyer that the seller is willing to accept the initial $400,000 for the house. In this scenario, the agent’s only ethical course of action is to streamline negotiations between the buyer and the seller without offering advice to either of them.
The advantage of separate representation is that your agent wouldn’t have to filter the information they disclose to you. As a result, they could offer you specific advice without breaching their fiduciary duty.
Increased workload and higher risk of mistakes
In a dual-agency situation, one agent must juggle the tasks of both a buyer’s agent and a seller’s agent. This increased workload may end up limiting access to the agent for both the buyer and the seller.
One agent managing both ends of a real estate transaction also increases the risk of errors during the process. When two agents are involved, each party can audit the other to prevent any mistakes.
Advantages of dual agency
Despite the drawbacks listed above, dual agency does have a few advantages. The following are a few reasons why buyers, sellers, and agents may opt for dual agency when carrying out a real estate transaction:
- Efficiency: If you need to buy or sell your home as quickly and efficiently as possible, a dual-agency situation may be an optimal solution.
- Streamlined communication: When a buyer and seller share the same agent, they can expect less back-and-forth during negotiations. Allowing one real estate agent to handle both sides of the transaction means streamlined communication that will ensure the process can proceed with minimal delays and setbacks.
- Higher commissions for the agent: Upon selling their home, a seller usually pays between 5% and 6% of the home sales price in commissions. In a typical real estate deal, the buyer’s agent and the seller’s agent will split this commission. However, because a dual agent represents both the buyer and the seller, they get to take the entire commission.
- Lower fees: In some cases, a real estate agent will offer a reduced fee to handle both roles, says Zachary Soccio-Marandola, a real estate lawyer. For instance, instead of the seller paying 6% in commissions to two real estate agents, they may only need to pay 5% to a dual agent. As Soccio-Marandola explains, with a reduced commission, a seller may be inclined to lower the purchase price for the buyer.
- More availability of agents: Many areas have a limited number of real estate agents. If some of these agents work as dual agents, that can increase the availability of real estate agents for buyers and sellers in a given area.
What to consider before working with a dual real estate agent
Working with a dual agent may cause some uneasiness, and it’s ultimately up to you to determine how comfortable you are with sharing your agent with the other party. Before you agree to a dual-agency situation, there are a few important points to consider.
Dual agency works best when a buyer and seller already have a rapport before starting negotiations. For instance, if a parent is selling a home to their child, that may minimize the risk of opposing interests, so both parties may only need one agent to facilitate the transaction.
However, if you’re a new home buyer or seller, you may prefer to work with your own real estate agent who will have your best interest in mind. Buying a home can be daunting and overwhelming, so it’s essential to feel as supported as possible throughout the process.
What do the experts say?
The National Association of Realtors (NAR) takes a neutral stance on dual agency but mentions that agents should facilitate transactions professionally and fairly. Notably, the most crucial element of any dual-agency relationship is transparency. According to Troy Green, Director of Media Communications at the NAR,
Disclosure is of utmost importance in cases of dual agency, as it is still the fiduciary duty of the agent to represent the interest of both clients. State laws and the NAR Code of Ethics guide business practices and protect consumers. -- Troy Green, Director of Media Communications at the NARClick to Tweet
As a real estate lawyer, I highly advise against dual agency. Even with the possibility of reduced commission fees, a good agent provides a lot of value to a transaction and is more than worth their fees when problems arise. Once you enter dual agency, neither party has a true representative working on their behalf. -- Soccio-Marandola, Real Estate Lawyer. Click to Tweet
Even though agents must disclose dual agency and discuss with their clients, consumers should demand the best service and representation from their agent and understand the relationships involved between the buyer and seller agent to determine if it is the best course of action for their sale or purchase. -- Troy Green, Director of Media Communications at the NARClick to Tweet
FAQ
Are dual agents illegal?
While allowed in most of the U.S., dual agency is illegal in Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont, and Wyoming.
Is dual agency unethical?
Dual agency increases the risk of unethical behavior, as the agent may be incentivized to put their own interests above the interests of the buyer and the seller.
Why is dual agency problematic?
Dual agency is considered problematic because the buyer and seller have competing interests, so it may be challenging for one agent to remain neutral when balancing the goals of both parties.
Why was dual agency made illegal in real estate transactions?
Dual agency creates a conflict of interest. As a fiduciary, a real estate agent’s responsibility is to keep their client’s best interests in mind, which is difficult when only one agent must manage two clients with opposing goals.
What is the difference between designated agency and dual agency?
Designated agency is when two agents from the same brokerage represent the buyer and seller separately. Dual agency is when one agent represents both parties.
Key Takeaways
- Dual agency is when the same real estate agent represents both the buyer and the seller in a real estate transaction, such as a home sale.
- The practice of dual agency is heavily frowned upon due to its potential conflicts of interest, and it is even illegal in eight states.
- In areas where dual agency is allowed, an agent must disclose their dual status to both parties and thoroughly explain to them the risks of a dual-agency relationship.
- There are a few advantages to dual agency, including efficiency, streamlined communication, and lower commission fees.
- Despite its potential upsides, most experts agree that it’s best for buyers and sellers to avoid dual agency and instead have separate agents who will work in their best interests.
Whether you opt for dual agency or choose to hire separate representation, the realtor is only one part of the homebuying process to consider. You also need to think about how you’re going to finance your new home.
If you’re a first-time home buyer, SuperMoney can help make the process easier. Start by reading our guide on how to finance a house, then check out our top picks for the best mortgage lenders to find the right home loan for your needs!
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