What Is Dual Agency, and Why Is It Illegal in Some States?

In a typical sale of an existing home, there are two real estate agents — one to represent the buyer and another, the seller. Buyers and sellers have different, often competing goals, and each relies on an agent to represent their interests.

Dual agency describes a situation in which 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.

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 dual agency is — and isn't

Dual agency occurs when the selling or listing agent for a property (who's ostensibly representing the seller) also acts on behalf of the buyer, either as the buyer's agent or because the buyer does not have an agent. This puts the same agent on both sides of the transaction.

The manner in which a real estate agent intends to work with you should be disclosed at the very start of your relationship, but local laws vary as to when that "start" is, and realistically, these laws aren't always followed to the letter.

Real estate agents are generally assumed to have a fiduciary duty to their clients. That means they're working in your best interests, not their own or anyone else's. As a buyer or seller, you should be able to expect that your agent will disclose any information they have that could be beneficial to you, but also keep confidential anything you share with them, particularly if it could put you at a disadvantage.

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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 on your terms.

But if both buyer and seller are working with the same agent, and 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 optimal outcome. An agent who's supposed to be a neutral party can't negotiate in one side's best interest and remain unbiased.

And it's important to remember that the agent has interests, too. Maximizing their commission and minimizing 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