Dual Agency vs. Designated Agency: Understand the Difference

Posted on Apr 26 2017 - 4:13pm by Bill Gassett
#28

agent with family

In an ideal world, you would be able to do a quick search for a REALTOR® and pick the first one you find to get knowledgeable, effective representation in your real estate transaction. Unfortunately, there are certain business relationships between real estate agents and clients that can present problems for the client–in many cases without the client ever being aware of it.

As a potential client, it can be helpful to understand the types of relationships REALTORS® can have with their clients, and how to tell the difference between an arrangement that serves your interests and one that doesn’t. One such arrangement that does not benefit the general public is referred to as dual agency.

Dual Agency – Not in Your Best Interest

So what is dual agency? In most states, dual agency refers to a situation where the same REALTOR® represents both the buyer and the seller in a real estate transaction. The term, however, can have different meanings in different states. For example, in California what they refer to as dual agency is called designated agency in many other places. The two terms can have vastly different meanings. For our purposes we will use dual agency to describe using the same agent for both the buyer and the seller.

There are very few people knowledgeable in the real estate business that will claim dual agency is good for clients. In fact, many professionals question why dual agency is even legal in some states. The reality of dual agency is that the agent is put in an impossible situation–one where he or she cannot meet the requirements of a REALTOR® serving a client.

One of the fundamentals of acting as an agent for a buyer or seller is that you seek the best interests of your client. A single agent cannot seek the best interests of both a buyer and seller negotiating over the same property.

A Conflict of Interest

As a buyer’s agent, the REALTOR® is attempting to purchase the home for the lowest price possible for their client. As a seller’s agent, the REALTOR® is attempting to sell the home for the highest price possible. It is easy to see how dual agency could create conflicts. Does the agent focus on buying for the lowest price or selling for the highest. You can’t do both.

To further complicate matters, in many states REALTORS® working as dual agents are prohibited by law from negotiating on behalf of either client. It is not clear what else the agent has left to do in such a situation. Without negotiation skills, there really is not much point to having an agent.

The dual agent cannot counsel the client on price, negotiate inspection issues or do pretty much anything else that would justify the commission the client pays. Even more outlandish, the dual agent is more than happy to collect a full commission from both buyer and seller. He or she gets paid double for doing virtually none of the things they would do if they were an exclusive buyer's or seller's agent.

Not Telling Clients about Dual Agency

Perhaps the most disturbing thing about dual agency is that many times, the clients will not be aware that their agent is working for both the buyer and the seller. Maybe the REALTOR® does not realize the conflict of interest. Maybe he or she is just doing a lousy job explaining agency. They sugar coat what is really happening for the chance to get both sides of the transaction. Whatever the reason, it is quite possible to wind up with a dual agent without even being aware of it.

When choosing a real estate agent to represent you in your purchase or sale, it is important to make it known that you are not interested in employing a dual agent under any circumstances. If the agent attempts to negotiate on the matter, go somewhere else. Real estate agents who are less concerned about their wallet do not work as dual agents. Instead, when this situation arises they refer clients to someone else who can represent their best interests.

Judging by some of the arguments you see in online forums about dual agency, there are some real estate agents who clearly put money before what is best for consumers. Over at ActiveRain, you can see some varied opinions from real estate agents on dual agency. Take a look at the transparency of this subject in many of the comments from agents. If you are thinking of buying or selling, you may enjoy the banter.

What you can take away from some of the comments:

  • Many real estate agents don't know what they are able to do and not do in a dual agency relationship.
  • There are a number of agents in the business who don't want to see dual agency go away.
  • A good percentage see dual agency from rose colored glasses and not the consumers’ perspective.

Designated Agency – A Workable Arrangement

Designated agency refers to a situation where the buyer and the seller each have their own agent, but both of those agents work for the same real estate company. Some argue that designated agency is just as bad as dual agency, because the focus of the agents is on what is best for the real estate firm and collecting the commission from both clients. However, designated agency does not have to be a negative arrangement for the clients if the real estate company is reputable. As long as the company allows agents to work freely for the best interests of their clients, there is no reason why the agents would do otherwise. The big difference with designated agency is both clients have someone fighting hard for them. It is often claimed that designated agency is bad for clients. But if someone is in your corner working on your best behalf, who cares if another agent in the firm is working for the opposite side?

When you are buying or selling, you want the best real estate agent you can find. Sometimes designated agency is the only way to get the kind of top-performing agent you need to accomplish your real estate goals. Just be sure when buying or selling a home you are completely aware of how agency law works in your state. It is a requirement that agents explain agency in depth so you understand it. It makes sense to work with an agent who has your best interests at heart! Disclosure is always paramount, especially with a topic as important as agency.

For more information about how dual agency works, click here

Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell Metrowest Mass real estate for the past 30-plus years. In 2016 he was the #3 ranked RE/MAX real estate agent in New England. Connect with him on Google+.

 

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28 Comments so far. Feel free to join this conversation.

  1. Wayne April 28, 2017 at 6:22 pm - Reply

    Very good information about dual agency!

  2. Adrienne H April 28, 2017 at 7:21 pm - Reply

    After reading the resource from Active Rain it is clear many agents have no idea what they are able to do and not do when it comes to dual agency.

    Many agents are violating laws by giving guidance to both buyers and sellers.

    It’s sad that consumers have to be deceived by dual agency!

  3. Bill Gassett May 1, 2017 at 10:17 am - Reply

    Adrienne you are 100 percent correct. A large percentage of agents are doing dual agency illegally – giving guidance to each client.

    There is so much confusion when it comes to dual agency that is for sure!

  4. Wanda QUINNIE May 1, 2017 at 9:10 pm - Reply

    An amazing article that speak the truths of Real Estate.

  5. Christine Tatum May 2, 2017 at 10:58 am - Reply

    This article was written for the general public. I understand the difference between the two types of agency. This article presents a very shady, greedy and unscrupulous picture of real estate agents and a misrepresentation of the duties of an agent.

  6. Joan Farrell May 2, 2017 at 11:03 am - Reply

    Very good summary, but a bit simplistic about dual agency. In NJ, dual agency occurs when the BROKERAGE represents both the buyer and the seller. The rules of confidentiality apply, there is fiduciary responsibility to both parties, and you must treat both parties fairly, and cannot favor one over the other. Buyer wants to know what it is worth? You can provide comps, but no commentary. If you are clear from the start that you have obligations to both parties, this can work. When the parties start to butt heads, however, the agent gets smashed in the middle. In my past life, I was in human resources, dealing with boardroom execs as well as union workers and management. Sometimes in that profession you are a resource to both sides of an argument, and you cannot play favorites. You just work on getting the facts out there, and let the decisions evolve from the facts. I do agree that it is a slippery slope, and one where it is sometimes more helpful to refer the buyer to another agent in the brokerage.

    • Bill Gassett May 5, 2017 at 10:20 am - Reply

      You can provide comps but no commentary…..well isn’t that helpful! So consumers should try to become a real estate agents for the day and try to interpret data for which they have no expertise?

      Joan if I handed you a CMA in my area with no commentary you would not be able to give me what a house should sell for even though you are in the business.

      Of course a layman can’t either.

      This is exactly what I mean when agents sugar coat what they can and can’t do.

      The fact of the matter is you can’t counsel either a buyer or seller which is one of the major reasons someone hires an agent – to get professional advice!

      Your last statement is one the money……refer it to someone else.

  7. Jan Anderson May 2, 2017 at 12:04 pm - Reply

    I would beg to differ than the only thing of value an agent does for either their buyer or seller is negotiate if there is a dual agency situation! There is a lot more that goes into working with either or both that legally can be done in my state, Minnesota. This article, though it mentions that dual agency and its definition vary by state, seems only to describe a very negative description that all dual agency is bad for the client. Not true, yes the agent is not allowed to provide assistance that allows one party an advantage over the other, but a good agent still offers their clients significant support that they could not get on their own.

  8. Gary Gracia May 2, 2017 at 3:21 pm - Reply

    I suggest that there is an unfair assumption made about agents caring about the firm. I’ve been in 30 years and I don’t know an agent who would put the firm ahead of the client; the firm is just there to try to provide enough value to take a cut of the agent”s production. The agent lives and dies by what the client takes away from the transaction. It’s true that, legally, agents represent the broker and the broker represents the client. But every agent I know works for the client, not the broker.

  9. Tracy Bloom May 2, 2017 at 3:26 pm - Reply

    How can an agent ask a client to sign both contracts? Don’t they cancel each other out re conflicts of interest? I am assuming a listing agent is required to represent the best interests of their seller, and same for buyers’ agent?

    Isnt dual agency legally impossible?

    • Bill Gassett May 3, 2017 at 5:14 pm - Reply

      Ding Ding Ding – yes that is the problem Tracy. Except some real estate agents like to sugar coat the truth.

  10. Tom Wemett May 2, 2017 at 4:34 pm - Reply

    I beg to differ with you, Bill. Designated agency is dual agency but designed to deceive both the real estate licensee and the consumer that somehow the conflict of interest of doing an in-house deal goes away with the mere designating of agents. It does not. In essence, designated agency really is undisclosed dual agency, an act of fraud.

    • Donna Carpenter May 3, 2017 at 5:07 pm - Reply

      Calling designated agency fraud is ludicrous and shows a gross misunderstanding of agency. Agent’s have an affiliation with the broker (actual agent), but owe their allegiance to the client. It is not unethical or fraud – as you call it – for two agents from the same brokerage firm to work on behalf of their individual clients on the same transaction. It’s all about communication anyway, and a timely response. Agents from different firms most often work on the same transaction and they may know each other quite well, so how can one say that just being affiliated with the same company negatively affects how an agent represents their client. Frankly, I’m with a large brokerage with several offices and I don’t know most agents in the firm. On those occasions when I’ve practiced designated agency, it has been fully explained and disclosed to my client. To paraphrase an earlier comment, agents depend upon pleasing their client for their livelihood. I’m proud to be associated with great Realtors both in my firm and those in the overall Realtor community.

    • Bill Gassett May 3, 2017 at 8:00 pm - Reply

      Tom – why don’t you just come out and say you are an advocate for companies that only represent buyers. You should be a little more transparent with what you are trying to promote.

      The problem is your thinking is silly. An agent at an exclusive buyer’s agency company is no better equipped to represent a client than someone within the same firm as the listing agent.

  11. chris hill May 2, 2017 at 4:58 pm - Reply

    here in NJ, many if not most investors and savvy buyers ONLY want to work with the listing agency,hence, dual agency ALL the time.Why? the listing agent knows all the details of the property better,the deal gets done quicker and easier. And ,in the event of multiple offers, the listing agents buyer has another advantage. You can’t issue a blanket statement that “dual agency” is not in your best interest when the most knowledgeable and most frequent buyers only want to work that way. Its to their advantage!!

    • Bill Gassett May 3, 2017 at 5:13 pm - Reply

      That does not have to be dual agency Chris. The listing agent can continue to represent the seller. The buyer would have no representation.

      If the listing agent becomes dual then they can no longer counsel the seller on price and other things. They become a neutral party.

      What seller would agree to this if explained properly? How about none!

  12. Dennis Wooff May 3, 2017 at 11:56 am - Reply

    Under both concepts, the list agent never tells the seller that he will not be face to face with buyers working to get their price. They tend to infer they will be working for them, but can do little in either situation .
    That is almost as bad as when a single agent funding all marketing does not tell the seller that he/she is the one and only person working and funding. Even under a banner where everyone becomes ‘team’ it is really just a coop of one agent offices… the seller should know when there is only one agent who is the sole entity responsible to get all things done.

  13. David Blockhus May 3, 2017 at 12:54 pm - Reply

    Dual agency is quite problematic. As a real estate agent working for my client, my sole obligation is to act at all times in the best interests of my client to the exclusion of all interests, including my own. One can’t do that if they are working both sides of the transaction. See my recent post that details an agent’s fiduciary responsibility to his or her client – http://losaltoshomes.com/2017/05/02/what-is-a-real-estate-agents-fiduciary-duty-and-how-does-it-play-out-in-our-silicon-valley-real-estate-market/

    • Bill Gassett May 3, 2017 at 7:55 pm - Reply

      Cleary you get it David – many agents don’t. Unfortunately, they think more about losing the opportunity to double side a sale than what is best for the client that hired them.

      • Gail Lammersen Belt May 3, 2017 at 9:57 pm - Reply

        Very thoughtful comments all around. However you mention “the client that hired them”. There are times, maybe weeks earlier, when a Buyer Client” hired you as a “Buyer Agent” & later a Seller hired you as a “Seller Agent. Or, for that matter, vice versa. And perhaps even more weeks later, due to “price creep” or “location creep” or whatever, it becomes apparent that the listing is ideal for the Buyer. Either the Buyer moved up in price or the Seller moved down in price. By now you have invested multiple hours showing properties to the Buyer & more multiple hours counselling, marketing, holding open houses, broker opens etc,. for the Seller. In this scenario both clients “hired” you. Legitimately. There are options that work…but this discussion is not as “clear cut” as earlier comments make it appear. PS! Last month, April 2017, celebrates 50 fantastic years in real estate! I may not have seen it all, but I’ve seen a lot! 🙂

  14. Loren May 3, 2017 at 2:27 pm - Reply

    Good article, except Mr Gassett keeps referring to REALTORS®, whereas I think he means real estate salespersons(agents). Not all salespersons (agents) are members of NAR.

    • Bill Gassett May 3, 2017 at 8:01 pm - Reply

      Loren – You are correct. Although I don’t think the public knows the difference or for that matter really cares.

  15. Thomas Harrison May 3, 2017 at 5:06 pm - Reply

    I am seeing a lot of finger pointing,, keep in mind that every state has different rules regarding “Dual Agency” Transaction Broker” and Designated Agency” How one form of each works in one state, may not be legal in others. Just make darn sure you know the rules in your own state, so that you represent all parties fairly and accordingly

    • Bill Gassett May 3, 2017 at 7:52 pm - Reply

      Absolutely true Thomas – the problem is most real estate agents don’t know the law in their own state. If you want to be amused look at the dialog in the link to the Active Rain article and some of the commentary there.

      I had agents in three different states including California, New Jersey and Idaho tell me that in dual agency there is no problem with giving both the buyer and seller pricing advice.

      This is 100 percent wrong and one of the reasons why dual agency should be banned in every state.

      You have the blind leading the blind. Consumers are the ones getting harmed. It is no wonder there are more lawsuits against real estate agents than in any other situation.

  16. Bill Gassett May 3, 2017 at 5:10 pm - Reply

    What continues to amaze me is agents who don’t understand dual agency and how it works. In dual agency the buyer and seller both lose a fiduciary. Many of you need to look it up and UNDERSTAND what a fiduciary means.

    Here is a great quote regarding dual agency:

    “The only one who wins in dual agency is the agent. If consumers truly understood the dynamics behind dual agency, they would never agree to allow it. Unfortunately, they don’t understand and the one who’s explaining it to them is the agent who will benefit from them saying yes to it.”

    It is abundantly clear that consumers are not getting an accurate description of dual agency from many real estate agents. Even some of the comments left above confirm that.

    By the way Tom Wemmet – I totally disagree. Your statement is just non-sense designed to confuse the issue. It is just another way of selling a company that just does buyer’s agency and nothing more.

    An agent in the same firm is no less equipped to represent a buyer than someone else from another firm.

  17. Kathleen Carlson May 3, 2017 at 6:42 pm - Reply

    Please address “Transaction Broker”, which is assumed in the state of Florida.

  18. Thomas D. Guidry, J.D. May 3, 2017 at 9:55 pm - Reply

    Dear Bill,

    It is so refreshing to see a highly successful real estate agent share the truth about an aspect of real estate brokerage that is not right or fair for the consumer. Hopefully other outdated and/or bad industry practices will be brought to light and eventually changed to benefit consumers. Thanks for your truthfulness. I am still scratching my head over our “Transaction Brokerage” here in Colorado…

    • Bill Gassett May 4, 2017 at 5:02 pm - Reply

      Thanks very much Thomas.

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