Dual Agency and Designated Agency

What is dual agency?

1 Answer

Dual agency describes a situation wherein a one real estate agent represents both the buyer and the seller in the same transaction. Since agency requires the agent to uphold duties of confidentiality, loyalty and full disclosure, dual agency requires consent of both parties to the limitation of those duties in the interest of the other party. For instance, if an agent promises a duty of loyalty to a seller he would have a duty to get the seller the highest price for the real estate. If an agent promises a duty of loyalty to a buyer, he would have a duty to get the property for the lowest price. If an agent represents both parties, the duties conflict and limit each other. Each party must consent to that in writing.

Obviously, then, the dual agency relationship is limited in that the agent must act impartially; the agent cannot preference the interest of the buyer over the seller or vice versa. As well, the duty of disclosure is quite limited in a dual agency situation. The agent may not reveal to the seller how much the buyer is willing to pay for the property; they may not reveal how much the seller would be willing to accept for the property; and they may not reveal to one party variant terms to which the other party will agree. Some disclosures, such as motivation and personal information, are prohibited unless authorized by the party effected. As always, however, the agent must disclose to the buyer defects about the physical condition of the property that are known to them.

Dual agency is not illegal, but many think it's a bad idea

  • particularly for the buyer. First, most dual agents are seller's agents when not acting under dual agency. Their normal practice is to act in favor sellers, and those usual behaviors can be hard to shake in a dual agency transaction. Second, the agent's interest is naturally more aligned with the seller than with the buyer because the agent works on commission
  • the higher the sales price, the greater the commission. Of course, this is true for all real estate agents, whether they are buyer's or seller's agents.

Some states offer an agency option called designated agency. In this situation, the buyer and the seller are represented by two different agents who work for the same broker (which may still be considered dual agency if the state applies agency duties at the broker level, not the agent level). As soon as the buyer signs an agreement with an agent that agent is desginated as the buyer's agent, so that it is clear who represents whom later in the transaction. Designated agency doesn't change anything about dual agency, it just clarifies the roles a bit.