Let's say you decide to buy a new home in California, and call a local real estate brokerage office and speak to an agent there. After explaining what you're looking for, the agent shows you various properties, some of which are listed for sale with other brokerage offices, and some of which are listed for sale by your agent's brokerage office. If you decide to buy a home that was listed with your agent, it's possible that your agent, or at least the broker's company, will end up acting as a "dual agent," representing both you and the seller in the transaction.
Another common way that dual agency can arise is if you visit an open house before you've signed up an agent to represent you as a buyer, express interest in the house, and are then told by the agent for the seller that writing up an offer for you will be no problem and might even save you money.
Before entering into any of these types of dual agency agreements, you want to understand the legal implications and how it might affect your ability to get the best possible deal in buying a home.
Normally, a seller's goal is to get the highest possible price for a property, whereas a buyer's goal is to pay the lowest possible price. How, then, can a dual agent properly represent the competing interests of both a buyer and a seller? In some situations, it might make sense to use a dual agent; in others, you will want your own agent on your side.
What Is a Dual Agent?
Legally speaking, a dual agent is a real estate broker, or agents working for the same broker, who act on behalf of both the seller and the buyer in a transaction. A broker is permitted to act as a dual agent in California only if the buyer and seller are both aware of and consent to the dual agency.
California Agents Must Disclose and Obtain Consent for Dual Agency Relationships
In California, when you work with a real estate broker, your relationship with the broker must be confirmed in writing. Brokers are expected, at some point before you make an offer on a house, to present you with a form titled, "Disclosure Regarding Real Estate Agency Relationships," the language of which is prescribed by state law (Cal. Civil Code § 2079.16).
This disclosure form identifies the broker and agents involved in the transaction. It also describes the duties of the seller's agent, the buyer's agent, and an agent representing both the seller and the buyer, the dual agent.
As explained on the disclosure form, all real estate agents (buyer's agents, seller's agents, and dual agents) owe each client a special fiduciary duty to act in that person's best interest. This includes a duty to exercise reasonable care and skill in working for the client, a duty to be honest and deal fairly and in good faith, and a duty to disclose all facts within the agent's knowledge that materially affects the value or desirability of the property and of which the client is not aware, or that the client would not become aware of through diligent attention or observation.
As discussed below, a dual agent, attempting to act on behalf of both parties to a sale, risks violating the fiduciary duty to act only in the best interest of one client, because the agent might have to balance the interests of both clients.
Pros of Using A Dual Agent
Here are some of the positive aspects of sharing a real estate broker with the seller:
- Using a dual agent can streamline the transaction. Many agents feel that when a buyer and seller are both working with the same agent, forms and documents can be prepared and signed more quickly, and offers and counteroffers can be communicated more quickly. In California, what ordinarily happens in a home sale transaction is that a buyer will prepare an offer, with the help of the buyer's agent. The buyer's agent will then send this document to the seller's agent, who will share it with the seller. When you take out one of the middlemen, communication is faster and more efficient.
- A dual agent will usually have more information about the property than an agent acting solely for the buyer would. The dual agent, when working with the seller, acquires information about the property, which the agent can share with the buyer. This can alleviate the need for the buyer's agent to continually contact the seller's agent to obtain responses to questions about the property's condition, again expediting the transaction.
- A dual agent might agree to a reduced commission. That's because the dual agent is getting paid for acting on behalf of each party.
- Buyers might have more negotiating power when using a dual agent. That's because the dual agent can help the buyer craft an offer that will be attractive to the seller. This is particularly advantageous when multiple buyers place multiple offers on a property.
- Dual agency within one brokerage office can ease communications. In a situation where both the seller's agent and the buyer's agent work for the same real estate brokerage firm but the buyer and the seller work with different agents, the two agents can efficiently negotiate, communicate, and leverage their preexisting relationship while separately advancing the interests of their separate clients.
Cons of Using A Dual Agent
Before you're persuaded by all the positive aspects of using a dual agent, take note of the negative or risky ones:
- You will not receive special, confidential information from the other side just because you share an agent. Dual agents do not (or should not) share the other party's confidential information. You might think that it's a great idea to work with a dual agent because you will find out things like how low a seller is willing to sell for, or what would motivate the seller to accept a lower price. However, under California law, a dual agent may not disclose to the buyer that the seller will accept an offer for less than the listing price, unless the seller specifically agrees to this disclosure. (Fortunately for you, the dual agent may also not disclose to the seller that you are willing to pay more than you have offered for the property unless you consent to this disclosure.)
- A dual agent who is receiving both the buyer's and seller's agency commission might be over-incentivized to close the deal no matter what. This could create ethical (and legal) issues where an agent might be tempted to not disclose a relevant fact for fear of ruining the deal and losing out on a large, double commission.
- Each agent owes a duty of loyalty to the client, requiring that the agent advance the client's interests. An agent for the seller is supposed to obtain the highest and best price for the seller. An agent for the buyer is supposed to obtain the lowest and most competitive price for the buyer. When an agent owes a duty of loyalty to two parties who have opposite, competing interests, the agent can have difficulty advancing the interests of either party, or worse, end up choosing the interests of one party over another.
- Only a buyer's agent can be expected to advise you whether the listing price is reasonable. The dual agent, by contrast, who originally worked with the seller to establish the listing price, will be more likely to defend that price.
- The seller might have used the seller's agent in the past, or on many occasions, and developed a longstanding relationship of trust and loyalty. As a buyer in such a situation, you would likely be better served by using a separate agent to represent only your interests.
- A seller's agent approached by a buyer at an open house has a goal of selling the property for the seller, not finding the property that is the best fit for the buyer. If you choose to use the agent as a dual agent, you could be losing out on the opportunity to have a dedicated agent search for properties and represent you in the home-buying process.
- Dual agency reduces your legal options if a problem arises. If you need to file a lawsuit, and you used a dual agent, you have only one broker's office to sue, and thus only one broker's insurance company that will step in and assist in paying any damages.
Although you might feel like you have to make the decision whether to accept a dual agent on short notice, don't let this sway your decision. It's possible to find a buyer's agent to step into the transaction and assist you in a matter of hours.
Your decision should also be based in part on the facts of your particular transaction. For example, in a hot market, where it happens that your broker's office represents the home seller (but with a different agent directly representing the seller), where you're concerned about beating out a number of other competitors, and where you've done enough research to have a good sense of how much the home is worth, accepting dual agency might make sense.
But if you've just started your home search, don't really know the market, and meet an over-eager agent at an open house who urges you to sit down and draw up an offer, think twice.