Ask the Egghead: What is dual agency?

Dear Egghead: My real estate agent sent me an electronic document to sign, and it involves “disclosure and consent to dual agency.” What does that mean, and is it a good thing to have?

ANSWER: Your agent should have explained it already (informed consent is essential in cases of dual agency), but we’ll define it here: Most often, a real estate transaction involves two agents: a buyers agent, and a seller’s agent. With dual agency, a single agent represents the buyer and the seller. This might happen, for example, if you visited an open house, and started dealing with the agent hosting the open house, not realizing that this agent represents the seller.

State laws require disclosures about this (which is the document your agent has provided) and in some areas, it’s actually illegal. Here is a link to Virginia’s law regarding dual agency, which is fairly typical.

Is dual agency a good thing in your circumstance? Let’s take a look at the pros and cons:

PRO: Ease of communication. If the same agent is working with both the buyer and seller, there is less chance for bad communication to sour the deal. There will probably be less unnecessary quibbling back and forth.

PRO: More possibility to reduce the commission. Since one agent is getting the full commission, it’s possible the agent will give a discount on the commission, reducing costs for both sides.

CON: Conflicts of interest. A dual agent can’t serve two masters equally. If the agent provides advice to the buyer, for example, then the agent will be shortchanging the other side.

CON: Conflicts of interest. The agent is getting 100 percent of the commission that is normally split between buyer’s and seller’s agents. So the dual agent has less incentive to negotiate hard for a buyer seeking a price cut, and more incentive for the price to escalate, while limiting tough negotiation.

Dual agency is illegal in eight U.S. states (Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont and Wyoming) and that that alone should give you great pause. If you want to play it safe, stay away from dual agency if you can — there are simply too many things that can go wrong. Why give up your right toward having your own exclusive representation if you don’t need to?

Also, don’t confuse dual agency with designated agency. With designated agents, there is an agent representing the seller, and another agent representing the buyer, and both work for the same brokerage office. This lessens the danger of conflicts of interest.

A licensee may not act as a dual agent or dual representative in a residential real estate transaction unless he has first obtained the written consent of all parties to the transaction given after written disclosure of the consequences of such dual agency or dual representation. A dual agent has an agency relationship under the brokerage agreements with the clients. A dual representative has an independent contractor relationship under the brokerage agreements with the clients. Such disclosure shall be in writing and given to both parties prior to the commencement of such dual agency or dual representation.

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