Real estate dual agents can face conflicting loyalties and ethical dilemmas. But there are steps buyers and sellers can take to protect themselves…
You’ve been searching for a new house, maybe buying for the first time or perhaps looking for something new. With all the paperwork and endless details, you’ve decided to hire a real estate agent, someone to represent and protect your interests as a buyer.
After weeks of hunting, you find the perfect house; it has everything you’re looking for, and you’re ready to make an offer. But your guide in the journey now has one more piece of paper for you to sign: a disclosure form for a term you’ve never heard, “dual agency.”
It seems that your dream house is listed by your agent’s brokerage office, which represents the seller. One company is now working both sides of the same deal.
The practice is called dual agency, and experts say it can leave clients feeling mistrustful and agents facing sticky ethical dilemmas. But others say the practice can be regulated to avoid conflicts. Some clients have filed lawsuits over the practice.
Over the last few years, some states have taken steps to regulate the process or even ban dual agency altogether. But 44 states still allow it.
“Obviously the legal community would tell you there’s a problem with dual agency because you can’t work for two masters,” said Debbie Campagnola, CEO of the Association of Real Estate License Law Officials, a national organization overseeing real estate licensing and regulation.
“It’s pretty tough to make an argument that you can be on both sides.”
Dual agency can occur when two agents working for the same broker each represent a buyer and seller. Less frequently, one agent may represent both parties. But both arrangements can result in crucial conflicts of interest, according to Ralph Holmen, associate general counsel for the National Association of Realtors.
“My sense is that it’s pretty common,” Holmen said. “It happens because an agent takes a listing and has a property that a buyer approaches them about.”
The practice has become more widespread in recent years as the idea of buyer-representation takes hold around the country. Traditionally, an agent or broker worked for a seller.
In the last two decades, however, buyers have begun retaining real estate agents on their own. The increasing number of agents representing buyers has led to more instances of dual agency. A buyer might retain an agent to help find the perfect house, only to discover that it’s listed by same brokerage firm that the agent works for.
Some brokers, however, say the arrangement isn't very common and doesn't present a problem when it does arise. Don Scanlon, co-owner of Century 21 American Homes in Wantaugh, N.Y. says his brokerage simply assigns two of its agents to work each side of a deal, and forbids them from communicating about the transaction.
"In my own company, the last time I'm aware of [an instance of dual agency] was a year ago," Scanlon says.
"It was not a problem."
Though dual agency is allowed in most states, Colorado, Kansas, Maryland, Oklahoma, Texas and Vermont have passed legislation over the last 10 years banning the practice.
Campagnola says some states have banned dual agency in favor of transaction brokering, which allows real estate agents to assist in the details and paperwork of a deal without taking over full negotiation and loyalty responsibilities to either party.
Other states have taken steps to refine laws requiring both parties to sign off on working with an agent or broker who represents both buyer and seller.
The New York state Legislature passed a bill last year that created an updated disclosure form for use in such transactions. The new form cautions buyers and sellers about the limits of a dual agent.
“In such a dual agency situation, the agent will not be able to provide the full range of fiduciary duties to the buyer and seller,” the form reads in part.
“The agent should also explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are giving up their right to undivided loyalty.”
Most states across the country have similar documents, Holmen said.
“I’m sure that in each state, each party must be advised that the agent is working for the other party,” he said. “It has some issues and perils to it, but it’s not something anyone enters into unknowingly.”
He adds that most lawsuits connected to dual agent deals happen when buyers are not told that the agent has a connection to both parties. But to win a suit, a plaintiff must show that they suffered damages from the lack of disclosure.
The conflicts of interest that expert say can arise from dual agency go straight to the core of the real estate transaction. For example, if a buyer tells his or her agent what his or her maximum price is, the agent now possesses information of value to the seller.
On the other side of the deal, a seller’s agent might know that behind that new wallpaper lurks a big mold problem which the buyer isn’t aware of.
The same steps that buyers or sellers might take to protect themselves in any deal also apply in dual agency arrangements.
Experts say buyers and sellers should read the fine print on every document associated with the sale or purchase of a house, ask their agent what his or her other obligations in a transaction are and consult a real estate lawyer with questions.
Holmen encourages people to be circumspect with their dual agent and avoid putting them in an ethical dilemma by disclosing too much.
“It’s not really necessary for a buyer to tell an agent, ‘I’ll go to X, but I’ll really go to X plus $20,000,’” he said. “Be judicious about disclosing confidential information to your agent.”
If the conflict of interest seems too great, Campagnola says the easiest solution is to simply ask for a referral to another agent.
“Real estate is really relationship-based,” Campagnola said. “You can always ask to be referred to someone else if you don’t think an agent can represent both you and another party well.”