What Is Dual Agency: Essential Info for Home Buyers and Sellers

Dual agency is when the same real estate agent represents both the buyer and the seller. This creates ethical issues, and the agent's own interests could end up taking priority.

In a typical home sale, there are two real estate agents — one to represent the buyer and one to represent the seller. Buyers and sellers have different goals.

If you're planning on buying or selling a home, here's what you should know about dual agency, including where it's illegal and how to avoid it.

What to know about dual agency

Dual agency happens when the selling or listing agent for a property also acts on behalf of the buyer. This puts the same agent on both sides of the transaction.

Real estate agents are generally assumed to be working in your best interests. For example, if you're buying a house, you expect your agent to negotiate on your behalf to get your offer accepted on the terms you want. As a seller, you assume your agent will get you the best possible offer for your property.

But if both buyer and seller are working with the same agent, the agent is expected not to disclose information — like the buyer's highest possible offer or the lowest bid the seller would accept. Neither party may get their best outcome. An agent who's supposed to be a neutral party can't negotiate in one side's best interest and remain unbiased.

The agent has their own interests, too. Maximizing their commission and minimizing the time the house is on the market so they can move on to the next transaction benefits their bottom line, not yours. And both are easier when there’s only one agent involved.

» MORE: How to buy and sell a house at the same time

Is dual agency a good idea for sellers?

When you're selling a house, you might be tempted to allow dual agency to speed up the transaction (since two agents won’t have to communicate with each other). A listing agent may also offer a lower commission — say 5% of the sale price instead of 6% — since without a buyer's agent, they get to keep the entire fee.

However, these savings might cost you in the long run. The agent's main goal may be in closing the sale as quickly as possible instead of showing the home to all qualified buyers and getting you the highest price.

There is one scenario where dual agency makes sense: For sale by owner, or FSBO. A homeowner who has a specific buyer in mind (like a relative or neighbor) may only need one agent to act as a transactional broker for the property sale. Especially if you've already agreed on a price and any concessions, you may not need separate representation. However, this scenario is known as a pocket listing, which is frowned upon in the real estate industry.

Is dual agency a good idea for buyers?

Buyers can wind up in a dual agency situation if they see a home they want and reach out directly to the listing agent, a practice that's not unheard of in a hot real estate market. A listing agent might also offer to represent you when you go to their open house.

But the listing agent's primary role is to get the best price for the seller, not the best deal for the buyer. If the agent isn't acting exclusively on your behalf, you can't be sure your interests will be their top priority.

Dual agency is illegal in some states

Dual agency is currently illegal or limited in several states, including:

• Alaska

• Colorado

• Florida

• Kansas

• Maryland

• Oklahoma

• Texas

• Vermont

• Wyoming

The National Association of Realtors (the largest trade group for real estate professionals), allows members to practice dual agency as long as it’s disclosed first.

Designated agency vs. dual agency

Some states consider two agents working for the same real estate brokerage to count as dual agency. In other places, like Colorado and Alaska, this is called “designated agency” and is allowed.

When both agents work under the same broker, the transaction is being kept "in house" even though the commission is split between the two agents. In the spirit of open competition and fairness, brokerages are not supposed to keep buyers or listings to themselves.

But if, for example, you absolutely love a house that's being sold by an agent who works for the same brokerage as your buyer's agent, you can still go through with the deal, as long as it’s legal in your state and is disclosed to both parties.

In that scenario, be sure you know how and when the agents will work together. In some cases, a third agent within the brokerage (often the actual broker) will act as a neutral party for this type of transaction.

» MORE: Working with a real estate agent to make an offer

How to avoid dual agency

If you're ready to commit to a real estate agent, ask to see (and sign) an agent's disclosure. Even if you're in a state where agents aren't legally required to give you this document until pretty late in the game, there's no reason you can't review it sooner.

Read the disclosure, and ask questions about anything that's unclear — especially if it seems to indicate that dual agency might be allowed. For instance, you might ask, “is it possible that you or someone from your brokerage would represent both the buyer and seller of a home?” That way, you can better understand the details of the working relationship and be assured that your agent is acting in your interest.