Real Estate Broker “Dual Agency”: What it is, and what it means for you in a real estate transaction.

Most homebuyers and sellers are accustomed to the usual model of agency: the seller and buyer each have a real estate “agent” representing them during the showing, negotiation and final closing of a real estate transaction.   Typically, the realtor is an “agent” who works on behalf of a buyer or seller with “fiduciary” responsibility to act in their best interest.  Wikipedia defines “fiduciary” as “a person who holds a legal or ethical relationship of trust with one or more other parties . . . and . . . entrusted” to act with loyalty to their principal- either the buyer or the seller.

But, what happens when the buyer and seller are both represented by the same agent, and that agent is typically being paid by the Seller under a multiple listing agreement?  Say one agent has a listing, a prospective buyer calls the number on the web-site and gets that agent on the telephone, and then shows that house to the caller.    In New York, most real estate brokers who represent sellers have a written agreement to be paid a commission at the time of closing.   When the prospective purchaser calls about the house they want to purchase, they don’t contemplate that the agent is working for the seller.

In New York, that listing agent can show the house to the buyer, but must disclose that they will then be working both for the seller and the buyer, a “dual agent.”  This arrangement is more common in small real estate markets with fewer properties and firms, but can also occur at a large real estate brokerage firms, where buyers and sellers have different real estate agents licensed by the same company.  Dual agency is legal in New York State (but not all states) so-long as conditions for written disclosure are met.   New York requires all real estate agents and brokers to specifically disclose their relationship to the transaction, buyer or seller or both.

Dual agency must be consented to by both parties, and the agent must make a disclosure that, according to a NY Department of State legal memo to home buyers “[lays] bare the truth, without ambiguity or reservation, in all its stark significance.”  This means that the agent must disclose to both parties the potential drawbacks and implication of this dual agency before they consent.  Agreeing to dual agency means the buyer “[understands] that the dual agent will be working for both the seller and buyer… understand that they may engage their own agent to act solely for them, that they understand that they are giving up their right to the agent’s undivided loyalty, and that they have carefully considered the possible consequences of a dual agency relationship.”

This dual agency arrangement has its benefits and drawbacks.  For example, having the same real estate agent as the opposing party (e.g., seller if you are the buyer) can lead to more effective communication and a potentially lower commission paid (by the seller).    However, both parties (particularly the buyer) should be wary that the agent may not be as motivated to negotiate smaller issues, may not disclose known problems, and may not be as forthcoming as they would if they were working only on behalf of one.   Dual agency has been compared to “a husband and a wife sharing a divorce lawyer,” with the lawyer not having loyalty to either side.

The Bottom Line—Since New York State real estate purchases are based upon the idea of caveat emptor (buyer beware), buyers should be particularly wary of “dual agency.”    The Real Estate agent is both parties’ first point of contact, making that relationship of trust even more critical to a successful transaction.   Before agreeing to “dual agency,” beware that, although a simplifying force in some transactions, you may not always want such “simplicity.”   Not having someone with a fiduciary responsibility to you, and you alone, can deprive you of some of your most powerful investigative and negotiating tools.  The good news is that brokers are required to explain this dual agency situation, and you must consent in writing.

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