Listing agents often mistakenly think that the only way they can work with a direct buyer is by acting as a dual agent. Some might even think that the only way for them to earn both sides of the listing commission is to convince the buyer and the seller to agree to dual agency.
In fact, nothing could be further from the truth as we’ll explain in the following article. Commission has nothing to do with the type of agency relationship the listing agent has with a direct buyer, and everything to do with whether there is an outside, “buyer’s agent” or not.
Furthermore, we’ll explain in this article that it’s dramatically easier and more sensible for the listing agent to remain as the seller’s agent, and to not complicate matters by trying to enforce dual agency on walk-in buyers.
The agent listing a property for sale, often known as the listing agent, can also be called the seller’s agent because he or she represents the interests of the seller.
However, a listing agent can also be called a dual agent if he or she simultaneously represents the interests of both the buyer and the seller.
For this to occur, a dual agency relationship must be disclosed to and agreed by all parties involved, meaning both the seller and the buyer. The listing agent must present a New York agency disclosure form to all parties with the proper dual agency box clearly checked.
Neither the seller nor the buyer needs to agree to dual agency for a direct deal to proceed. The listing agent can represent only the seller.
Seller’s Agent
A seller’s agent is hired by the seller to find a buyer for the seller’s home at a price and on terms acceptable to the seller. A seller’s agent represents the interests of the seller, and is able to provide reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account.
Dual Agent
A real estate broker may act as a dual agent and represent the interests of both the seller and buyer if both give their informed consent in writing. A dual agent will not be able to provide the full range of fiduciary duties to either party.
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Why do listing agents try to be a dual agent?
Listing agents often try to get direct buyers to agree to dual agency because they mistakenly perceive that is the only way for them to be the only agent on the deal, and thus collect both sides of the commission.
They are afraid that if they don’t try to also be the buyer’s agent, the buyer will come back with an outside buyer’s agent which means they’d have to split the commission.
As a result, both new and experienced listing agents often rush to try to be a dual agent when doing so is completely unnecessary.
As we’ll discuss in detail in the following section, not only is dual agency complicated to explain and potentially scary sounding to a potential buyer, it also distracts the conversation away from the property itself.
Why push for dual agency when it’s not necessary in the first place? In fact, stepping into a dual agency relationship is often not necessary for a sale with a direct buyer, and doing so is often equivalent to the listing agent shooting him or herself in the foot.
A dual agency relationship, if agreed upon by all parties, makes communication extremely difficult between the dual agent and either the buyer or the seller. The buyer and the seller won’t be able to speak in confidence and discuss thoughts, fears or tactics with his or her agent, because the agent also represents the other side.
Worse still is the possibility that the buyer or seller won’t remember or realize that that the agent is now a dual agent, and will casually let slip information that could be detrimental if revealed to the other party.
What if the seller reveals damaging information about the property during lunch with the dual agent? What should the agent do?
Let’s say the dual agent is having lunch one day with the seller and the seller casually lets slip that the house has a serious bedbug infestation that the buyer never found out about. Then the seller instructs the dual agent to keep it a secret, and that the buyer should never know about it until after the closing.
What should the agent do? If he or she reveals this information to the buyer, then he or she is breaching the fiduciary duty of confidentiality and loyalty to the seller.
But at the same time, by not revealing such damaging information to the buyer, the agent is also breaching the fiduciary duty of full disclosure, reasonable care and loyalty to the buyer.
While there isn’t an easy answer to the pickle of a situation that the dual agent has found him or herself in, the takeaway from this example is that there are some serious complications that can result from a dual agency relationship, a relationship that should be avoided unless absolutely necessary.
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Why being a seller's agent is simpler for everyone
A much better alternative in a direct buyer situation is for the seller’s agent to simply explain,
“Hi, I’m the seller’s agent. I represent the seller but I will deal with you fairly and honestly. Now please allow me to show you the property.”
Contrast this with a listing agent trying to convince a buyer to dual agency the moment the buyer walks into the door.
“Hi, I’m a seller’s agent but since you don’t appear to have a buyer’s agent I would like to represent you as well on my listing under dual agency. Dual agency means I will represent the interests of both the seller and the buyer, which means I won’t be able to provide you with the full range of fiduciary duties such as undivided loyalty. Will you email me saying that you’ve been presented the agency disclosure form and agree to dual agency?”
In which scenario do you think the buyer is going to get confused or scared and simply walk out the door? Which is easier?
Not being a dual agent doesn’t mean less commission
Listing agents need to realize that being a seller’s agent does not preclude them from earning the entire listing commission. In fact, the agency relationship type that the listing agent has with the buyer on a transaction has no bearing on how commission is paid.
Typically, real estate agents split commission when there is a cooperating broker, i.e. a buyer’s broker. If the buyer does not have a broker, then the listing commission is not split, regardless of whether the listing agent remains a seller’s agent or acts as a dual agent.
When might dual agency be appropriate?
What if a listing agent dutifully remained a seller’s agent for a listing, but the buyer has since lost interest in the listing? What if furthermore, the seller’s agent offered to show other listing ideas to the buyer, and has since started working with the buyer as a buyer’s agent?
Presumably, during the course of this new relationship, the buyer will have shared intimate information about his or her finances, timing and personal situation. What if then the buyer decides to check out the agent’s own listing again?
In this situation, the seller’s agent still represents the seller, but has clearly started working intimately also with the buyer as a buyer’s agent on other listings. What should the agent do in this situation?
Well, this is one of the rare situations where it makes complete sense for the agent to act as a dual agent. The agent would have to dutifully inform both the buyer and the seller of the dual agency nature of the relationship, and obtain written consent from all parties.
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Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.
