Is Dual Agency Illegal in Some States?

Dual agency is illegal in some states, such as Alaska, Colorado, Florida, Kansas, Maryland, Texas, Vermont, and Wyoming. In other states, dual agency is legal as far as we know, but always consult your attorney before making any decisions in this area.

Even where it is legal, dual agency is not common, only practiced in around 10% of real estate transactions. People still prefer to have their own real estate agents.

If you´re trying to sell your house and you want to save on commission, you´ll probably wonder, ‘is dual agency illegal in some states, and is it legal in my state?’ When a person acts as a dual agent, they usually agree to a lower commission than the national standard of 6% because they don’t have to share the commission with the buyer’s agent.

The biggest issue with dual agency is its potential for conflict of interest.

Conflict of interest issues in dual agency

Dual agency occurs when one agent represents both the buyer and the seller in a real estate transaction. Because the buyer and the seller in a real estate transaction have competing interests (i.e., the seller wants a higher sale price while the buyer wants a lower price), some find that it is near impossible for one person to represent both parties while still observing one’s fiduciary duties. This is the very reason for which dual agency is illegal in some states.

Agents have fiduciary duties to their principals. These fiduciary duties include the duties of obedience, loyalty, disclosure, confidentiality, accounting, and reasonable care. The agent must follow his principal’s instructions. The agent must be loyal and put the interests of the principal first and foremost, even before their interests. The agent must disclose material facts to the principal, such as facts that would assist in the principal in making an informed decision about the transaction. The agent should not disclose confidential information that he learned from the principal without the principal’s consent. The agent must account for all funds regarding the transaction. Lastly, the agent must do his best to protect and advance the principal’s interests.

Example. You are the seller, and you tell your agent that your listing price is $600,000, but you are willing to accept $575,000. The buyer comes to your agent, really loves your house, and is even willing to pay $615,000. The dual agent cannot disclose to the buyer that you are willing to accept a lower amount, and at the same time, cannot tell you that the buyer is willing to pay more than your listing price. In this case, the dual agent may have difficulty representing both parties without violating his fiduciary duties. In addition, the agent would favor more the seller because a higher sale price would translate to a higher commission. If there were separate agents, one agent would aggressively negotiate for a higher price, while the other would advocate for a lower price.

Aside from the listing price, dual agents also have more difficulty negotiating on inspection matters. A buyer’s agent will request for a lower selling price to account for repair costs or actual repairs to be made after an inspection report comes back with several issues. A seller’s agent, on the other hand, will advocate to ensure that the seller doesn’t have to pay excessive costs in the repair of the house. A dual agent will be divided in this case of conflicting interests.

How to spot dual agency

Dual agency is easy to spot when only one agent represents both buyer and seller. However, the consensus is split when different agents from the same brokerage firm represent the buyer and seller separately.

Example. You sign a listing agreement with your agent. During an open house, your agent meets a prospective buyer who is not represented by any buyer’s agent. In order to avoid conflict of interest, your agent refers the prospective buyer to another agent from his same brokerage company to represent the buyer in his offer to you. In this case, would you consider there to be a conflict of interest, considering that there are two separate agents representing the buyer and seller, even if they come from the same brokerage firm?

Most agents believe that there is no conflict of interest in this case because they do not have access to confidential information of the other party. They are able to represent their client’s interests effectively, even if the other agent is from the same brokerage company. Some, however, believe that there is still a conflict of interest in this case. In states where dual agency is illegal, agents will avoid the appearance of any apparent conflict of interest, which includes separate agents from the same brokerage firm representing both buyer and seller.

Dual agency in New York

In New York, dual agency is legal, but agents must disclose to their principal such fact of dual agency, and the principal must agree that the agent can represent both buyer and seller.

Some agents even advocate for dual agency because they find that the transaction is smoother when only one agent represents both buyer and seller. In addition, sellers can save more on commission with an offer that comes from a dual agent because of the reduced percentage.

Example. Suppose that you are selling your house for $500,000 and your listing agent agrees to a 4% commission as a dual agent and 6% commission if the offer accepted is from another agent. Four percent of $500,000 is $20,000, and 6% of $500,000 is $30,000, a difference of $10,000. If another agent offers $505,000 on your home, while a dual agent has another offer of $500,000, you will still save more in accepting the dual agent’s offer, even if it has a lower selling price because of the reduced commission.

Dual agency is illegal in some states, but it is legal in New York. The agent, however, has to fully disclose such fact of dual agency to both the buyer and the seller, and both parties must agree.

Regardless of whether you choose dual agency or prefer an agent solely representing the buyer or the seller, you still need to have your contracts reviewed by a real estate attorney. Buying or selling a home is a major milestone and investment in life. In New York, buyers and sellers are always represented by separate attorneys in real estate transactions. We have represented both parties during closing and can help you in this journey of closing a transaction in buying or selling a house.

Should you need assistance, we at the Law Offices of Albert Goodwin have represented both buyers and sellers in buying or selling a home. We have offices in New York City, Brooklyn, NY and Queens, NY. You can call us at 212-233-1233 or send us an email at [email protected].