How Does Dual Agency Work?
One of my duties as a real estate agent is to explain how agency law works in Massachusetts. In fact, I am required by law to explain agency law at my first meeting with a prospective buyer or seller client. Real Estate agents can essentially do one of three things; represent a seller, a buyer or both.
When a real estate agent represents both parties in a real estate transaction, it is what’s known as dual agency. Over the years many buyers and sellers have asked me how dual agency works. They are asking for a good reason – it can be extremely confusing to laymen. Unfortunately, many real estate agents don’t explain it properly either which makes things even more difficult.
Most people recognize the benefits of working with an exceptional real estate agent. You get a representative that fights for your best interests, helping you seek your real estate goals while protecting you from situations that would be detrimental. From finding the perfect house to negotiating the price, negotiating the home inspection and closing the deal, your agent is there for you.
Unfortunately, it is possible to wind up with an agent that is legally prohibited from looking out for you and representing your interests as a fiduciary. With dual agency – when the agent represents both buyer and seller – the agent can’t push for what is best for you or the other client.
The agent collects twice the commission but does almost none of the specific work of a seller’s agent or buyer’s agent. Dual agency only benefits the agent and should be avoided at all costs if you want a positive buying or selling experience.
If you do an online search for “what is dual agency” or “how does dual agency work” you are bound to see some articles from real estate agents saying dual agency is perfectly fine. Do you know why a real estate agent would ever tell anyone that dual agency can be done with no problem? In a word GREED!
Who wouldn’t want to get paid a double commission? There are a lot of hands going up in the room. The problem is dual agency benefits nobody but the real estate agent!
Dual Agency – A Departure From The Duties Of A Realtor
In a standard relationship with a Realtor, you can expect many benefits for agreeing to pay a fee for professional help. You know that your agent will be beholden to you in all aspects of the transaction. He or she will listen to what you have to say, giving you the final word on the decisions that are made.
Your Realtor will keep your information confidential, and be accountable to you as the buying or selling process progresses. He or she will also disclose all the information that is relevant to you as a client. Ultimately, your agent will be loyal to you – seeking to find the best path to what you want as an outcome.
With dual agency, all the standard rules and expectations go out the window. To explain this better let me give you the definition of each type of agency.
Seller’s agent – A seller can engage the services of a real estate agent to act as a seller’s agent in the sale of the owner’s property. The agent represents the seller as a client. The agent owes the seller client undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality, and accountability. The agent must put the seller’s interest first and attempt to negotiate terms acceptable to their seller client.
The agent must put the seller’s interest first and attempt to negotiate terms acceptable to their seller client.
Here are what sellers should expect from their listing agent.
Buyer’s agent – A buyer can engage the services of a real estate agent to act as a buyer’s agent in the purchase of a property. The agent represents the buyer as a client. The agent owes the buyer client undivided loyalty, reasonable care, disclosure, obedience to lawful instruction, confidentiality and accountability. The agent must put the buyer’s interest first and attempt to negotiate terms acceptable to their buyer client.
The agent must put the buyer’s interest first and attempt to negotiate terms acceptable to their buyer client.
Here are some things you should expect from a buyer’s agent.
Dual agent – A real estate agent may act as a dual agent representing both the buyer and the seller in a real estate transaction but only with the express consent of both parties. A dual agent shall be neutral with regard to any conflicting interest of the seller and buyer.
Consequently, a dual agent CANNOT satisfy fully the duties of loyalty, full disclosure, obedience to lawful instruction. A dual agent does, however, still owe a duty of confidentiality of material information and accounting of funds. Written consent for dual agency should come from both the buyer and the seller.
Does dual agency sound like anything you would be interested in? If I haven’t made it perfectly clear that dual agency is the DUMBEST thing ever invented for the real estate industry keep reading.
Designated Seller’s and Buyer’s agent – In Massachusetts, designated agency within a real estate firm is allowed. Designated agency is when one agent within the firm represents the seller and another represents a buyer. Only your designated agent represents your interests. A real estate licensee, typically the broker of record, is the one who designates the agents to represent separate parties in the transaction.
In this arrangement, the broker of record becomes a dual agent. Consequently, a dual agent cannot fully satisfy the duties of loyalty, full disclosure, and obedience to lawful instruction which is required of a seller’s or buyer’s agent. Written confirmation and agreement is mandatory by both a buyer and seller in a designated agency relationship.
With this arrangement each of the parties has representation.
Representing Both The Buyer And The Seller
With dual agency, the Realtor takes on the role of buyer’s agent and seller’s agent at the same time in a specific transaction. A home is for sale. The Realtor offers to sell the home for the seller, while also offering to represent a buyer who is interested in the home.
If the situation seems confusing, that’s because it is. How can a Realtor effectively represent either side while also serving the needs of the other?
You can’t. It is impossible to serve two masters in a real estate transaction who are sitting on the opposite sides of the table.
What makes it even more strange is that there are often laws and regulations that prohibit dual agents from doing their duty for either client. The Massachusetts Board of Registration of Real Estate Brokers and Salespeople dictates that “a dual agent shall be neutral with regard to any conflicting interest of the seller or buyer.”
So, not only does the basic arrangement of dual agency make it quite difficult to serve the interests of either buyer or seller, regulations state that the agent can’t even make the attempt to represent the interests of one or the other.
Participating in dual agency as an agent would be very comparable to an attorney trying to represent both a plaintiff and a defendant in a lawsuit. That would work out well wouldn’t it? Being a dual agent is the same dam thing!
During the transaction there are going to be times where one party feels like the other is getting preferential treatment. This however, isn’t even the worst of dual agency.
Here is a good example of how dual agency does not work for either a buyer or a seller:
I list a home on Main Street for $500,000. I go about marketing the property. Someone calls me from seeing it online and asks me to show it to them. I show the buyer the property the home and they absolutely love it. The buyer says “Bill I want to make an offer”. I say that’s great. The buyer says “so what should I offer?” I say sorry I can’t help you with that, remember I am a dual agent.
The buyer is on their own. After a few blank stares the buyer says I want to offer $490,000. I then take the offer to the seller and they say to me “Bill what do you think?” “Should I give them a counter offer and if so what should it be?” My legal response should be “I can’t help you with that as I am a dual agent.”
Legally no party has any proper representation when practicing dual agency. It is a LOSE-LOSE situation for both buyer and seller. At $490,000 the buyer could be significantly overpaying for the property. They might also be underpaying as well. Nobody has any guidance. One of these parties could be making a big mistake. In this situation, the only person making out is the real estate agent.
This is just one example of how dual agency sucks for both the buyer and the seller. And just think the transaction is just getting started.