Dual agency can cost you: Beware of “dual agents” when buying a home

This article:

“Dual Agents” occurs when one agent represents both the buyer and seller in a real estate transaction. It can lead to problems and increase the buyer’s overall costs.

1. Conflicts of interests are not avoidable. There will come a time when the interests of buyer and seller are at odds. Always diverge
2. Dual agents favor sellers, as higher sales prices equal more commissions.
3. In some states, dual agency is illegal

This form of representation may be preferred by some agents because they feel it’s more efficient when everyone works in the same office. However, dual agency can be detrimental to buyers according to studies.

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Is it possible to have a double agent? Maybe it’s your agent?

It sounds innocent enough. You walk into an open house and the agent asks if you have a buyer’s agent. She asks you if you have a buyer’s agent and you say no. It sounds good so far.

You then make an offer for the house. Now, the agent representing you may also be representing the seller. This could cause problems.

Do you want the same lawyer representing you if you file a lawsuit? The defendant? Most likely not. However, this is an everyday occurrence in the real estate business. Many home buyers and sellers allow one agent to represent them both — without knowing the risks.

Is a realty agent required to purchase a home?

Double-Agents: This happens when buyers and sellers let one real estate agent (or more agents from the same brokerage), represent them in a transaction.

In eight states, dual agency is illegal: Alaska, Colorado. Florida. Kansas. Maryland. Oklahoma. Texas.

Different laws govern disclosure of dual agency, and behavior of dual agents in other states.

Sometimes it works…

Dual agency is attractive to some buyers and sellers.

For example, because dual agents keep the entire commission — a.k.a., “double ending” — some will agree to reduce their commission.

But many experts believe that a dual agent can’t really serve as Your agent — not in the legal sense.

At best, they say, dual agents can’t fulfill their Fiduciary obligations. Each party. They can’t advance the best interests of both buyer and seller because those interests Always diverge.

Dual agency can lead to a dangerous conflict of interest.

Dual agency can lead to clients suffering.

If one person serves the buyer, The conflict of interests is evident for the seller. Dual agents have strong incentives to favor the seller. Higher sales prices equal higher commissions.

The theory is that this conflict of interests can be minimized if one agent from a brokerage represents a seller and another agent from same firm represents a buyer.

In practice, either one client or both are likely to suffer.

According to a study that was first published in The Journal of Real Estate Finance and Economics, “on very fast deals, list prices and sale prices are significantly higher on houses sold via dual agency.”

The study also found evidence that some dual agents practice “first-resort selling.” The agents prod the seller to set a higher price and then try to convince “in-house” buyers to accept it.

In some cases, dual agents may do the exact opposite. They convince sellers to offer a lower price than what the house could sell for. This is known as “strategic pricing.”

The study found “little difference between dual-agent (same agent) and within-agency (same agency, but different agent) deals.”

In both situations, the researchers discovered “evidence of distorted outcomes associated with dual agency.”

Why an “exclusive” agent is best

The easiest way to avoid dual agency is to hire a real estate agent who always works in a “single-agency capacity.”

If you’re a buyer, hire an agent who exclusively works as a buyer’s agent, never a seller’s agent.

If you’re selling, seek out an agent who exclusively represents sellers.

Similar: Millennials rely on agents more when buying a house; Gen-Xers are more self-reliant

Buyer’s agents will usually have you sign a buyer’s broker agreement, which spells out the agent’s legal duties and obligations.

Seller’s agents will ask you to sign a listing agreement, which lays out the same kinds of duties and obligations.

These fiduciary responsibilities may be summarized by the following acronym “OLDCAR”.

• Obedience: The agent is bound to follow your instructions
• Loyalty: The agent must put your interests ahead of any other party’s, including their own
• Disclosure: The agent must disclose any “material facts” to you – i.e., facts that might influence your decisions regarding the deal
• Confidentiality: Without your permission, the agent can’t disclose any information they have about you to anyone.
• Accounting: The agent must keep track of all documents and money pertaining to the transaction and make a report.
• Reasonable Care: The agent must do all that is possible to safeguard and promote your interests.

A dual agent can’t advance your best interests

The biggest problem with dual agency is this: a dual agent cannot — by definition and sometimes by state law — represent your best interests. The person is more like a referee than an agency.

For example: if you’re a buyer, you may want your agent to advise you on what price to offer for a home. But a dual agent can’t do that because it would violate their duty of loyalty to the seller.

You also can’t ask if nearby properties might negatively affect the value of the home, or how much the agent thinks the home is really worth.

Related: Average salary of Listing agents.

As the seller, you can’t expect a dual agent to provide advice on a counter offer, or whether the buyer’s repair requests are negotiable. This would be a violation of the duty to confidentiality.

In other words, one person represents the buyer. seller, you can’t expect the kind of advice and counsel you’d normally get. For many people, this lack of advice and “intel” defeats the whole purpose of hiring an agent.

To avoid dual agency, some agents work as “transaction agents.” Here, the agent’s official role is to facilitate the transaction without representing either party.

Make sure you read the fine print

Agents who represent two parties from the same company are called double agents giving them double duties with your transaction. You must hope that the agents are “Honest Johns” who won’t engage in strategic pricing or first-resort selling.

Before you sign a listing agreement or a buyer’s broker agreement, check the fine print.

If necessary, some agreements permit the agent to be a dual agent.

Dual agency must be agreed to by both parties. Make sure you’re not consenting, in advance, to something that could harm your interests.

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