Typically as you go through the process of selling your house, the agent you partner up with assists you and only you throughout the course of the transaction. This single agent has what’s called a “fiduciary responsibility” to uphold your best interests in good faith and trust. In the event that the seller’s agent (your agent) also represents the buyer—that’s called dual agency and it works differently.
The “dual” agent handles all of the communications, paperwork, and negotiations between both parties and is supposed to remain neutral as the facilitator of the deal with no fiduciary duty to either side. However, dual agency could be seen as creating an inherent conflict of interest, so it comes with special disclosure requirements.
Dual agency has drawn scrutiny and in Jan. 2019 a consumer watchdog group published a report pushing the states to prohibit the practice. However, to date dual agency is not uncommon, so let’s dig into the ins and outs of what you should know about it when you set out to sell the house.
Is it possible for an agent to represent both sides of a transaction?
“Agents can act as a dual agent. But you need to have the consent of both parties in writing beforehand, and the agent has to become a neutral party representing both clients,” says Mikel DeFrancesco, a top-ranked broker who’s sold over 74% more properties in Quincy, Massachusetts than the average agent.
But that commitment to stay neutral gets tricky: Say the appraisal comes in and the buyer asks for a $10,000 price reduction. Next, the home inspection notes your roof’s age and other minor repairs needed, so now the buyer’s demanding a roof credit and other concessions.
And just when you think the deal’s finally done, the buyer abruptly asks that you cover all closing costs.
Suddenly you’re left feeling like you’re getting a whole lot less money for your house than it’s worth, and you’re wondering if you would have been better off with an agent who you could trust would try to negotiate the terms of the deal in your favor.
When one person is trying to work out a “fair” deal for both the buyer and the seller, it’s possible for both parties to walk away feeling like they got the short end of the stick.
“I don’t think that’s a reasonable expectation, trying to represent both the buyer and the seller fairly,” says DeFrancesco. “That’s why there’s a movement building to prohibit it nationally. I know that my company in Massachusetts doesn’t allow it, I think for good reason.”
According to The Mortgage Reports, as of Jan. 2019 dual agency is illegal in 8 states, including:
“Dual agency requires agents who have a relationship with one client to remove themselves from that relationship and try to represent both people equally. I think that’s where some agents get themselves in trouble with lawsuits because one party feels that they weren’t properly represented, or that the agent favored the other party.
“If agents try to represent both parties, both parties are going to probably feel that the agent’s not really representing them.”
The case for why each party benefits from having an advocate
Nothing much is set in stone when it comes to selling (or buying) a house. The price of the property, terms of the contract, and potential credits or concessions are all subject to negotiation.
As your house is your most valuable asset, it only makes sense to hire a real estate agent who’ll be operating in your best interest when negotiating your home sale—that agent will also act as your confidante.
Your listing agent is privy to all the features and flaws your home has—and serves as a trusted ear who’ll know how low you’ll go on the price and what credits you’d be willing to give.
A home is also the most expensive purchase most buyers will make. That’s why they need someone working solely on their behalf to get them the best deal possible.
The buyer’s agent knows exactly how much the buyer can afford to pay for a property (even if the initial offer is significantly lower), and where they’re willing to bend on requested concessions.
So dual agents tend to take a hands-off approach. That puts the buyer and the seller in the position of hashing out the details of the sale directly with each other—without the benefit of an agent’s expert, and impartial, advice.
The downsides to the dual agency transaction are clear, so why would anyone agree to such an arrangement?
There are a few benefits.
Are there any advantages to dual agency?
When there’s only one agent, the sale process can be streamlined. You don’t need to wait for your agent to contact the buyer’s agent, who contacts the buyer, who calls their agent back with the answer, who calls your agent back, who calls you. A tedious phone tag game that happens every time a decision needs to be made.
Plus, since there’s only one agent who’ll collect the entire commission, you can probably negotiate a lower rate than the accepted industry standard of 6%.
However, you can only reap the benefits if your dual agent is on the up and up.
While most good agents act in good faith toward both clients during a dual agency transaction, there have been lawsuits over unscrupulous practices. This is why some states have taken action to make dual agency illegal.
Designated agency: When the listing agent or broker recruits a buyer’s agent
When your listing agent has a buyer client who’s dying to buy your home, the simplest solution is for your agent to hand that buyer off to another agent.
In some cases, it’s likely that they would hand that buyer off to a colleague within the same brokerage. In other cases, the brokerage may assign an agent to a buyer interested in the house (provided they are currently unassisted by another agent). This type of situation is most commonly known as designated agency.
There are some who say that designated agency arrangements are still problematic.
Those that warn against designated agency also say that it allows both agents (who are working for the same real estate company) to negotiate terms that are in the best interest of their shared brokerage, rather than their individual clients.
Another risk as articulated by the Consumer Federation of America, which recommends states allowing designated agency strengthen their regulations is that “the designated agent…may feel somewhat beholden to the listing agent, who has provided a source of income, with the result that the buyer may well not receive as adequate representation as the seller.”
Now, it’s also possible that the interested buyer for your house is represented by an agent from the same firm as your agent. Maybe by happenstance, or maybe because your listing agent put a call out to the buyer’s agents in her network about your house, and someone from her own firm had a buyer in mind.
In that case you wouldn’t want to limit your buyer pool by putting parameters around who could make an offer on your house, based on where their agent works.
DeFrancesco explains: “We do what’s called a designated agency. I would represent the buyer or the seller, and another agent within my firm would represent the other party. So my brokerage would be on both ends of the transaction, but we’d individually represent only our clients.”
“I’m with a larger company where we have hundreds of agents and several locations. So there might be a case where the other agent works for my firm, but I might not know that person at all.”
Whether you’re working with a single agent, dual agent, or designated agent, don’t be afraid to ask lots of questions about what you’re signing up for and read the fine print on any disclosures from the agent carefully. Then make a decision that best fits your individual needs as a seller.
“Whether representing the buyer or the seller, good agents represent their clients to the best of their abilities,” says DeFrancesco. “We owe them confidentiality and fiduciary responsibility.”