REAL ESTATE

What Is Dual Agency? Know When It's Right, and When to Beware

dual listing agent

dual listing agent  (DragonImages)

Most people familiar with the housing market know that a buyer's agent works for the buyer, a listing agent for the seller, but there's a third category that's much more mysterious: the dual agent. What is dual agency, anyway?

The short answer: Dual agents, also known as transaction brokers, work for both the buyer and the seller, combining both roles into one. Buyers might stumble across this scenario when they fall in love with a home where the agent they've hired to represent them also happens to represent the seller. It's rare, but it happens, especially in smaller markets where there aren't a whole lot of properties to go around. Dual agency can also mean that the buyer and seller have separate agents at the same real estate firm, which most often happens with large brokerages with lots of listings.

Certain states (but not all) permit dual agency as long as it's disclosed to both buyers and sellers. But is dual agency a good idea? Well, yes and no. There are both advantages and disadvantages to buying a house through dual agency. Here are the pros and cons.

Benefits of dual agency

Dual agency can certainly streamline the home-buying process. Think about it: If both buyer and seller have their own separate agents, there will be four people's schedules that must be consulted before the property can be shown. Cut one agent out, and it makes scheduling 25% easier. Or thereabouts.

Another potential perk of a dual agent is it can save you on the commission -- the money home sellers pay their agent for all their hard work (typically 6% of the sales price of a home), which is then split with the corresponding buyer's agent for all their hard work. A dual agent, however, keeps the whole kit and caboodle. (Good for them!) As a result, dual agents may be more open than usual to lowering that commission a bit.

Downsides of dual agency

A dual agent is supposed to be neutral, helping clients on both sides of the deal equally. But staying truly neutral can be difficult. For instance, since an agent's commission is a percentage of a home's sales price, it's inherently in an agent's best interest to get a high selling price, because he'll make more money. That's good for the seller, but not so much for the buyer.

Melanie Atkinson of Coldwell Banker Residential Real Estate, in Tampa, FL, points out, "Even if you see savings on commission, how do you know you wouldn't have negotiated a better price if you had your own capable representation?"

Also, since a dual agent works for both buyer and seller, he must tread carefully not to betray the confidence of either party. So, he might stay mum about juicy tidbits that you might have more easily learned if you'd had your own agent in your corner.

For instance: A listing agent might know his clients are desperate to sell. If the buyer's agent finds that out, he can inform his clients of their added negotiation power. A dual agent, on the other hand, might be compelled to keep mum about all personal matters.

"An example would be a buyer's broker who may be aware of a divorce situation and may share that information to a buyer," says Joyce Mitchell of Mitchell & Associates, in Bigfork, MT. "But a dual broker cannot share that information. As a dual agent, he/she can only address issues regarding the property itself and not the people or situations involved."

When to use a dual agent

In states that allow this practice, agents are required by law to inform clients if they're facing a dual agency scenario -- and they can't move forward without all parties' informed consent. What's more, both buyers and sellers have the right to opt out and use another agent so both parties have their own representation.

There are situations where using a dual agent makes sense.

"The best way to describe a transactional Realtor is one who neither represents the seller nor the buyer but facilitates the documents necessary for the sale," says Mitchell. "An example of that would be if you and your neighbor struck up a deal to sell your home and have already negotiated the terms, price, etc. You might want to use a transactional Realtor to assist both parties toward the closing." (This is also a case where you may want to ask for a lower commission, since so much of the deal is already ironed out.)