Buying or selling a home can be a stressful experience, so the majority of people rely on their real estate agent for professional advice and guidance.
So, how can a real estate agent represent both a buyer and a seller? A real estate agent can represent both a buyer and a seller in 42 states. Some of those states have additional regulations if one agent is representing both sides. This “one agent, two clients” arrangement is called dual agency. In the case of dual agency, both buyer and seller must give their informed consent for the agent to work on both sides of the sale.
However, the other, equally important questions that we should be asking are:
- Do the rules that apply to real estate agents also apply to real estate brokers, Realtors, and others who aid buyers and sellers, but have different job titles?
- What does the “Agent” in real estate agent mean?
- What are the legal and ethical responsibilities of an Agent?
- What are the different ways in which a real estate professional can represent you?
- In which states is Dual Agency illegal?
So, let’s begin by taking a look at what an estate agent should be doing
What Is A Real Estate Agent?
There are distinct differences between real estate agents, real estate brokers, and Realtors. You may also see a range of other job titles. The average person may be unaware of the distinctions and use these labels interchangeably, considering anyone who represents them in a real estate transaction to be an “agent.”
A Label Not A Role
From a legal perspective, in most states, a real estate professional can act as your agent, your transaction broker, a transaction facilitator, or another form of non-agent. The job titles vary. It is up to the real estate professional to provide you with full disclosure as to the exact nature of their role in your property transaction. This disclosure is a legal requirement in all states and should occur when you first sign a representation agreement.
The majority of real estate boards in each state produce standard disclosure forms. These forms make it easier for a real estate professional to provide you with clear, accurate information about the exact nature of your relationship, and what you can and cannot expect from them as part of the agreement.
Why This Is Important
This level of definition and disclosure is far more than merely creating extra work or being pedantic. Each of the ways in which a real estate professional can provide representation has a different set of legal responsibilities. As a result, the precise role of the real estate professional with whom you are working can have a significant impact on the amount, the type, and the quality of service you can expect to receive. It can also define the actions you can take if you believe your real estate professional is derelict in their duty to you.
Therefore you have to know precisely what form of representation your real estate professional s providing.
The term “real estate agent” does not mean anything in terms of what your chosen real estate professional can or cannot do. If the job title means very little, then how do you know what representation you are receiving?
It all goes back to the disclosure your real estate professional provides when you sign your contract. The disclosure will detail the type of representation they are providing.
Now let’s discuss what it means to be an agent in the legal sense of the word, the other roles a real estate professional can take on, and why dual agency is a bad idea.
The Concepts Of Agent And Fiduciary
Imagine you have signed a contract to buy or sell a home with a real estate professional. Unless you were told otherwise, you would, quite reasonably, expect that the real estate professional will represent you, keep what you say confidential, and place your best interests front and center. This is where the legal concept of Agent comes into play.
An Agent acts on behalf of another person, known as the Principal. In this case, you, the home seller, or the home buyer are the principal.
The Responsibilities And Duty Of An Agent
The Agent has a very particular legal and ethical duty to the Principal.
While acting on behalf of the Principal, Agents must always act ethically and put the Principles interests first. The Agent must follow all lawful instructions given by the Principal, act in good faith, and use their professional best judgment at all times. An Agent must share all relevant information with the Principal so they can make informed decisions, as well as acting ethically at all times.
Simply put, the Principal gives an Agent the complete authority to act on their behalf, and an Agent has a duty to act in the Principal’s best interests. It is a relationship that creates a complete trust that the Agent will always act in the Principal’s best interests. This duty is known, legally, as a “Fiduciary Duty.”
What Are The Different Ways In Which A Real Estate Professional Can Represent You?
The thing is most of us assume that when we work with a real estate professional that they are acting as our Agent and that they have a Fiduciary Duty.
Maybe. Maybe not.
Although we use the word “agent” when we are talking about real estate professionals the following if true:
- Just because someone has the word agent in their job title, it does not automatically follow that they are acting as our Agent in the legal sense.
- Just because someone doesn’t have the word agent in their job title doesn’t mean they can’t act as our Agent in the legal sense.
So, what are the different ways in which a real estate professional can represent you?
A Sellers Agent – Agent in the legal sense
As you might expect, a sellers agent represents a homeowner who wishes to sell their property. The seller’s agent will advise their homeowner client about:
- How to prepare a home for sale. For example, they might suggest decluttering, redecorating, repairs, home staging, etc. in order to attract a higher price.
- The best way to market their particular property. This could mean simply putting the home on the MLS and sharing it with other agents etc. Alternatively, it might be more appropriate to have professional photographs, drone footage, and video ads, etc. The most important thing would be that the marketing was suitable for the home and the homeowner.
- At what price to advertise the home for sale in order to meet the owner’s objectives. For example, if the homeowner wants a quick sale, the seller’s agent might advise a lower price. In addition, if the homeowner asks the agent to market the home at an unrealistically high price, it is the agent’s responsibility to advise the owner that they are unlikely to sell at that amount. On the other hand, if the seller sticks to their guns, despite the agent’s advice, the seller’s agent is obliged to follow instructions. will
- Whether or not a buyer’s offer to purchase is a good deal for the seller.
- How to negotiate with a buyer, what may or may not happen as a result of a particular negotiation strategy.
- Anything else that will impact the home sale.
If the seller’s agent discovers any information that might impact the seller’s decision making, the agent must share what they know. For example, if the seller’s agent hears that the potential buyer is in no hurry to move, the agent would tell the homeowner as it may impact the seller’s negotiation strategy.
At the same time, the seller’s agent cannot share any information the sellers share with them unless the agent is given express permission, in writing. So, for example, if the agent knows the seller is in a hurry to move, they cannot share that information as it could give the buyers an advantage in negotiations.
A Buyers Agent – Agent in the legal sense
It is becoming increasingly common for a buyer to sign an Agent agreement with a buyers agent. The buyer’s agent will advise their client about:
- How much they can and cannot reasonably expect to get for their money in their chosen location.
- Other locations that may meet their needs.
- Viewing homes that do not meet the criteria the buyers have laid out but which may still be suitable.
- What to include in an offer to purchase.
- How to negotiate with the seller, what points to concede and when they might get what they want etc.
- The potential consequences of the home inspection report.
- Anything else which could impact their purchase.
If the buyer’s agent were to discover something, that might impact the buyer’s decision making, they are duty-bound to share it. For example, if the buyer’s agent were to find the homeowners were selling up because one of them is starting a new job on the other side of the country in four weeks, they would have to share the info. On the other hand, the buyer’s agent must not share any information about the buyers with the seller or the seller’s agent in case that information was to give the sellers an advantage in negotiations.
When the same real estate professional represents both the buyer and the seller in a property transaction, it is what’s called “Dual Agency.” However, this term is somewhat misleading because there is no way for a real estate professional to act as an Agent – in the legal sense, for both sides of the deal.
When the same person is representing the buyer and the seller, that person cannot act in the best interests of one Principal without potentially harming the interests of the other.
Imagine a home is for sale for $400,000, and the seller is willing to drop the price as far as $350,000 in order to get a quick sale.
If the seller has a sellers agent working for them exclusively, that agent will keep the knowledge about the potential price drop from the buyer. The agent will advise the seller about the best course of action during the sales process, and this advice will be influenced by the knowledge the seller is willing to drop the price.
If the seller is working with the same agent as the buyer, the seller can:
- Keep the information about the potential to drop the price to themselves. This will prevent the buyers from finding out and lowering the price they offer for the home. However, it will also prevent the agent from giving the seller the best possible advice.
- Share the information with the agent, risk having them share the information with the seller and potentially receiving less for the home than they would have.
Let’s say the sellers share this information with the agent. Now the agent has two choices:
- Act in the best interests of the seller and keep the information to themselves.
- Act in the best interests of the buyer and tell them the seller is willing to go as low as $350,000.
Either way, the agent is going to be putting the interests of one party over another.
This is why an agent who is representing both the buyer and the seller, cannot have a legal Agent relationship with either of them. It is impossible to give both the buyer and seller the best advice at the same time.
It may be legal in 42 states to represent both parties, but it is legally impossible to be an Agent to both at the same time.
This is where the disclosure comes in.
If a real estate professional is going to represent both parties, they must explain the concept of Agent to the buyer and the seller. Then, the real estate professional needs to make it clear that, if they represent both sides of the transaction, neither the buyer nor the seller can expect that:
- Information they share will be kept confidential from the other party.
- That the real estate agent will always act in their best interests.
- They will end up with the same deal they will if they chose an exclusive agent.
A Transaction Broker
Some states use another role, that of Transaction Broker.
In this case, technically, the transaction broker is working for neither the buyer or the seller. Instead, they are “working for the transaction.”
The transaction broker does not have a fiduciary duty to either party. In fact, the broker is described as an entirely neutral party.
So, how is this different from dual agency?
Unlike a dual agency situation, a transaction broker must give both parties limited confidentiality and has no responsibility to provide full disclosure to either the buyer or the seller.
So in the previous situation where the seller would drop the price, the transaction broker would not be allowed to share that price drop potential information with the buyer.
However, the transaction broker must still tell the buyer about anything that is “know to the broker, are not readily observable and which have the potential to materially affect the value of the home.”
In some real estate agencies, they choose to work exclusively as transaction brokers.
A transaction broker gives a form of limited representation.
With limited representation, the buyer and seller are giving up their rights to complete confidentiality and the undivided loyalty of the real estate professional. In addition, the real estate professional will not work to place the interests of one party over the interests of the other.
The flip side to this is that neither the buyer nor the seller can be held responsible for the actions of the real estate professional.
This final point makes limited representation more appealing for some people than having an exclusive Agent.
Imagine a real estate professional who does something during a property transaction, for which they can be sued. In an exclusive Agent relationship, because the buyer or seller has given full authority for an Agent to act on their behalf, the buyer or seller can also be held responsible for any actions the Agent takes. Consequently, the buyer or seller can also find themselves being sued alongside their Agent.
In some states, there is a concept called “designated agency.” In this case, the same agency, or brokerage, represents both the buyer and the seller with the head broker overseeing the transaction. The broker then appoints two agents from the brokerage, one to act on behalf of the buyer and one to act on behalf of the seller.
This way, a single organization takes on the transaction, but each person has their own agent who will act in the legal Agent capacity for them.
In which states is Dual Agency illegal?
It is illegal for an agent to enter into a dual agency arrangement in:
While it is legal in most states for a real estate professional to represent both the buyer and the seller, it is rarely a good deal for the clients.
In a situation where the buyer and the seller hire the same person, that professional is unable to provide the kind of service that the majority of buyers and sellers expect. Once your real estate professional is unable to put your needs above the needs of the other party you are no longer going to receive the best advice for your situation.
For this reason alone you should never enter into an agreement where the same agent represents both sides of the transaction.
Working With A Dual Agency And Why To Avoid It by Bill Gassett
Working With A Buyers Agent In Real Estate by Jeff Nelson
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.