Which States Illegalized the Dual Agency?

Dual Agency Legality

Legality by State

What is Dual Agency?

A dual agency is when a real estate agent represents both the buyer and the seller in a real estate transaction. In this scenario, the real estate agent would have to protect the interests of both parties. You can see how there can be a conflict of interest in this situation. The buyer wants to pay the lowest price possible for the house, while the seller will want to sell it at the highest price possible.

Moreover, real estate agents are required to disclose any important information with their clients, while maintaining the confidentiality of their client’s information. However, in a dual agency, this becomes tricky, and the real estate agent is required to remain neutral to both parties. Many states require for the dual agency to be disclosed to the parties involved before the start of the negotiations.

While not very common, dual agency usually happens when the buyer reaches out to a listing agent, or when the listing agent offers their services to a buyer at an open house.

Dual Agency VS Designated agency

There is another type of dual agency that happens when the seller agent and the buyer agent work from the same brokerage firm. It is considered a dual agency in some states, since the buyer agent and seller agent both work for the same broker, so besides their clients, they are also representing the interests of the same brokerage.

However, in other states, such as Colorado and Wyoming, this type of agency is called a designated agency and it is legal. In this scenario, the commissionis split between the two agents, but the same brokerage gets a cut from each side. However, unlike in dual agency, in a designated agency, there is less potential for a conflict of interest.

Pros of Dual Agency

Although there is a lot of skepticism on the ethics behind dual agency, there are some benefits to working with a dual agent, which include:

Faster Communication - Since one real estate agent handles the negotiations between both parties, there is no delay in information. The chain of communication is shorter since the agent doesn’t have to speak to another agent and wait for them to discuss new information or offer with the seller or buyer.

Faster Closings - A dual agent knows the exact demands of both the buyer and seller, where there is room for negotiation and what aspects of the deal are off-limits. This and more efficient communication leads to a real estate transaction closing faster than it would have been with two real estate agents.

Reduced Commission - This might be one of the main benefits of dual agency. Since one real estate agent is representing both sides, they do not have to split the commissionwith someone else. This means that the dual agent would receive the whole commission. In this case, dual agents are more willing to give discounts on their commission. For example, instead of the 6% standard commission, a dual agent may accept 5%.

More Access to the Market - As we mentioned earlier, dual agency can also be the scenario where the listing agent and buyer agent work for the same brokerage. In big brokerages that employ both listing agents and buyer agents, it is very probable for a buyer and seller to hire agents from the same brokerage. Therefore, if you refuse to work with a seller/buyer whose agent works for the same brokerage as your agent, you would be missing out on a portion of the market that you would otherwise have access to.

Cons of Dual Agency

Dual agency presents a number of drawbacks which are mostly related to its conflict-of-interest nature. These include:

No Agent Advice - When handling a real estate transaction as a dual agent, the agent needs to be neutral to both parties. Since the buyer and seller have competing interests, the representing agent cannot provide advice or take sides. This means that you would not be able to get the typical support from your real estate agent, as you would if there were two separate real estate agents in the transaction.

Financial Incentive - It may be difficult for the dual agent to stay neutral to the situation when their payment is on the line as well. Since the real estate agent’s pay will depend on the sale price of the home, they might be willing to provide advice during the transaction for the deal to result in the highest selling price, which would be unethical.

More Room for Mistakes- When there are two real estate agents involved in a transaction, there are fewer chances for things to be missed or overlooked. Therefore, while the whole transaction may take less time than it would with two agents, there is more probability for mistakes to be made.

Confusion - Sometimes, the potentially reduced commission and efficiency might not be worth the headache of dealing with a dual agent. A house is probably the biggest purchase you will make in your life, so you would want to be fully supported by your agent and as clear about the transaction details as possible.

Is Dual Agency Illegal in Some States?

Dual agency is illegal in 8 states in the U.S. These states include:

• Alaska
• Colorado
• Florida
• Kansas
• Oklahoma
• Texas
• Vermont
• Wyoming

It is worth noting that while these states don’t allow dual agency, there are some that do not consider a designated agency a dual agency. To clearly categorize the states and the legality of dual agency, we would also have to consider those that do not allow designated agency.

Maryland presents an interesting case as dual agency is technically legal, however, the definition of dual agency differs from other states. This definition describes the aspects of a designated agency.

How to Avoid Dual Agency?

To avoid the confusion of the relationship the agent has with you and the other party, ask your real estate agent for a disclosure agreement. Make sure to ask questions about anything that you do not understand on the agent’s disclosure to feel more confident about the relationship the real estate agent has with all the parties involved in the transaction and the support you will receive from them throughout the home buying process.