It’s common practice to be represented by your own real estate agent when you buy or sell a home.
But some real estate transactions will spark dual agency.
These scenarios allow the listing agent to also work as the buyer’s agent.
Essentially, the seller and buyer share the same real estate agent.
Sound like a disaster waiting to happen?
In most cases, it is.
I’ve seen dual-agency transactions be detrimental to sellers and buyers.
Which is why our no cost, listing agent matching service analyzes dual agency sales for sellers.
I’m going to use my experience in the real estate industry to share everything I know about dual agency — and why you should probably avoid it.
What is dual agency in real estate?
Dual agency occurs after a buyer and seller sign a purchase contract agreeing to work with the same real estate agent.
This means the dual agent is legally representing both parties by working as the seller’s agent and the buyer’s agent.
Most real estate transactions aren’t like this.
The typical home sale will have separate agents representing each party.
But a dual agency situation still happens more than it should.
In fact, 10-20% of all home sales involve one real estate agent who works with both the buyer and seller.
This number is high, especially when you consider that:
- Not all states allow dual agency.
- Many buyers and sellers feel uneasy about sharing one agent.
How does dual agency work?
Dual agency is usually initiated when a buyer approaches the listing agent to represent them — or when a seller’s agent has a buyer client write an offer on the property they’re selling.
But the buyer and seller must consent to dual agency before they sign the purchase contract.
The seller will usually do this on a standard disclosure form that comes attached to the listing agreement.
And the buyer will usually sign this same document when they put their offer in writing.
In most states, this form is called a “Disclosure Regarding Real Estate Agency Relationship.”
It’s a form provided by real estate agents that outlines their duties and responsibilities, including when they act as a dual agent.
A dual-agency transaction is officially in the works after the purchase contract is ratified and the buyer and seller acknowledge their consent in writing.
How commission works with dual agency
The seller pays the realtor fees in a dual-agency transaction.
Typically, the total commission ranges from 5% to 6% of the final sale price.
But the amount can vary depending on the agreed-upon percentage between the seller and their real estate agent.
This is similar to a traditional sale where a buyer and seller have their own agent.
It works like this…
In most real estate transactions, the total commission paid by the seller is usually split between the brokerages of the buyer’s agent and the seller’s agent.
Each real estate agent then receives a percentage cut from their brokerage.
In essence, the seller pays the real estate commission to two agents.
The difference in dual agency is that the seller pays this commission to one brokerage company (and only one agent).
The double commission is the reason why working with a dual agent can backfire.
Do all states allow dual agency?
Most states allow a seller and buyer to work with a dual agent.
But some of them don’t.
Dual agency is illegal in the following states:
- Alaska
- Colorado
- Florida
- Kansas
- Maryland
- Wyoming
- Texas
- Vermont
Some of these states still allow a real estate agent to work with a seller and buyer in the same transaction.
Here’s how…
Dual agent vs. transaction agent
A dual agent and a transactional agent are two types of agency relationships that allow a real estate agent to work with both the seller and the buyer in the same transaction.
The main difference between the two?
A dual agent represents the buyer and the seller, whereas a transactional agent does not.
Dual agents have a duty to ensure that each party is represented fairly and impartially.
This means there are limitations to what the dual agent can disclose to their clients and how they can negotiate on their behalf.
Transactional agents (or transaction brokers) are a neutral third party who help facilitate the sale.
They don’t have a fiduciary duty to the buyer or seller, meaning the real estate agent is not “representing” either party.
Their main role is to ensure all paperwork is completed accurately and thoroughly.
Transactional agents essentially replace dual agents in certain states where the practice is illegal (like Florida and Colorado).
But a real estate transaction that allows a buyer and seller to work with the same agent has always been a widely debated topic.
This is mainly due to the party that stands to gain the most from this type of agreement…
Who benefits from dual agency?
The person who typically benefits most from dual agency is the real estate agent.
That’s because they receive a larger commission for representing the seller and the buyer in the same sale.
Some buyers and sellers may view having this kind of “double agent” as advantageous.
For example, a buyer might think sharing a real estate agent will speed up communications or help them get a better deal.
Or a homeowner who’s eager to sell may see any buyer as a good buyer.
However, the consequences of dual agency far outweigh any perceived benefits to either party.
Why is dual agency problematic?
Dual agency can be problematic because it’s an open invitation for real estate agents to prioritize a higher commission above a seller’s and buyer’s best interests.
Think about it…
Can dual agents honestly serve the needs of two sides that have separate goals?
They can certainly referee the transaction — but it’s going to be near impossible to give advice and act with 100% integrity.
This is why inquiring about an agent’s history of dual agency is one of the most important questions you should ask a real estate agent.
In rare situations, it can make sense for a real estate agent to represent both the buyer and seller.
But it’s ideal to work with an agent who generally avoids dual-agency transactions.
Because these are the real estate agents who have good character.
They’re not willing to risk their integrity for a higher commission.
Many agents are.
And the end result for sellers and buyers who work with a dual agent can be disastrous.
Here’s why…
Why dual agency is bad for sellers
The outcome is almost never good for a seller when their listing agent becomes a dual agent.
Why?
Because the higher commission paid to the agent usually results in a lower selling price.
Here’s one example of many…
Before SoldNest, I had buyer clients who fell in love with a home after looking for several months.
So we put a great offer together that included:
- An offer price of $1,840,000 (listed at $1,799,000)
- No contingencies and a 25-day close
- Their pre-approval letter from Wells Fargo (with a 30% down payment)
It took one day and a follow-up by email, text, and a phone call to get confirmation from the agent that he received our offer (not normal).
He emailed the day after and said, “Thank you, but the sellers have decided to accept another offer.”
I already knew what happened.
Zero effort from the real estate agent representing the seller typically means they’re also representing the buyer.
My suspicion was confirmed when the house sold a month later.
The final sale price?
$1,810,000.
That’s $30,000 less than what my clients offered (and they would have gone a bit higher, too).
The seller most likely never knew about my client’s offer.
This is not unusual for a real estate agent who has a history of acting as a dual agent.
They’re very good at utilizing certain tactics so they can make more money by also representing the buyer.
The consequence of this usually means the homeowner walks away with less favorable terms.
This is the reason why sellers should avoid dual agency.
Why dual agency is bad for buyers
Many buyers assume working with a dual agent will get them a “better deal.”
In many cases, it can.
But dual agency can be bad for a buyer because they’re working with an agent who is representing the party with opposing interests.
And that agent is financially motivated.
It’s usually too late by the time a buyer realizes the repercussions.
This review left on a competitor’s website is a good example:
Buyers like this often discover issues with the property that should have been disclosed prior to the sale.
But they didn’t find out beforehand because they didn’t have their own agent to fight for them.
These issues can have a negative impact on the home’s value.
That might include situations like:
- Bad neighbors
- A noisy street
- Crime
- A death on the property
And problems with inspections are not uncommon for a buyer when they work with a dual agent.
Some will discourage buyers from conducting their own due diligence (particularly in a seller’s market) or avoid pressing the seller to cover repairs found on an inspection report.
Dual agency can make buyers believe they’re getting a better deal.
But it can end up costing a buyer more than the “deal” they thought they were getting.
This is why buyers should almost always have their own representation.
When should you work with a dual agent?
Most buyers and sellers should avoid working with the same agent.
But sometimes it can work.
Let’s take a look at two specific scenarios that could be favorable for both parties.
When the seller and buyer know each other
Working with a dual agent can be a good idea if the buyer and the seller already have an existing relationship.
Dealing with a family member or close friends?
A dual agent can help streamline these sorts of transactions.
That’s because the parties involved are likely to come to an agreement more easily — whether on price or terms.
In other words, there’s a good possibility that their real estate agent won’t need to negotiate.
When the listing agent is willing to reduce their commission
In most transactions, two different real estate agents split a total commission of around 5-6% of the final sales price.
Some agents might be willing to reduce this total in a dual-agency scenario.
Something like 6% to 5% or 5% to 4%.
The problem with this is that they’d still be making more money than they would if there were two separate agents.
And that increases the chances of the agent not acting in the best interests of either party.
But there is a scenario where a dual-agency arrangement can make sense for both the buyer and seller.
When the agent is willing to forfeit a higher commission.
Eliminating the amount that would have been paid to the buyer’s agent reduces the chances of the agent risking their integrity.
The bottom line
Dual agents represent the buyer and the seller in the same real estate transaction.
But clients can suffer in this situation — especially sellers.
The easiest way to avoid this?
Work with an agent whose dual agency transactions are a lower than average percentage of their listings sold compared to other agents in your area.
This means knowing how to find the right real estate agent who has a track record of looking out for their clients best interests.
