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Dual Agency: Definition, Duties & Restrictions

Instructor: Ian Lord

Ian is a real estate investor, MBA, former health professions educator, and Air Force veteran.

In this lesson, we discuss how a dual agency relationship works in a real estate transaction. You will learn some of the differences in duties instead of each party having their own agent and the additional rules involved.

Dual Agency

Steve and Jane's realtor, Bill, is hosting an open house for their newly listed property. A young couple house hunting saw it and decided to take a look. The couple asks Bill to help them make an offer on the house since they aren't currently working with an agent. They are willing to pay the full asking price. This presents Bill with the opportunity to work in a dual agency relationship. Let's explore how Bill explains to the buyers what this means and the duties and restrictions of this agency structure.

Definition and Duties

In most real estate transactions, the buyer and seller are each represented by their own agent. In a dual agency relationship, a single broker represents both the buyer and seller. It is rarely used because of the complications involved. An alternate term for an agent working under a dual agency agreement is transaction broker, because an agent in a dual agency deal typically facilitates the transaction previously worked out by the buyer and seller.

One major advantage with Bill taking on a dual agency agreement is that there is no other agent to split the commission with. A typical residential home sale has a 6% commission split between the buyer's and seller's agents. Without a buyer's agent in the deal, Bill stands to make twice as much money. It also means there is one less party in the transaction to coordinate appointments, schedules, and communicate with. This offers an advantage for a buyer and seller that both with to conclude the transaction quickly.

Restrictions

Being a dual agent carries a number of restrictions and special considerations. Colorado, Kansas, and Florida do not allow dual agency relationships; other states have specific laws outlining specific duties and restrictions. An agent should check with local and state laws for any specific forms or clauses that must be included in a contract.

As a practical matter, Bill can no longer act as a true fiduciary for the buyer or seller because of a conflict of interest in representing both parties. A fiduciary has the duty to do what is best financially for the client even if it reduces his own compensation. An agent cannot simultaneously get the sellers the highest price possible and the buyers the lowest price possible, but this is known by all parties going into the relationship.

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