Is Dual Agency a Trap for Real Estate Buyers?

Posted on 24th May 2016

Imagine if you hired somebody to find you a car to buy, and that person found one where he or she just so happened to represent the seller. Would that seem odd to you? It seems odd to us, yet many people allow a real estate agent to convince them that they can represent both the buyer and seller fairly in the same real estate transaction. Dual agency is a risky proposition, and we advise clients against it when asked.

What’s Wrong with Dual Agency?

Real estate agents owe clients a fiduciary duty, which means they owe a superior level of knowledge, advice, and guidance through the entire real estate process. A fiduciary has legal and ethical obligations to the client, and as a real estate agent, this means always acting in the best interest of the party the agent is representing. New York law treats buyers and sellers as adverse parties. As a fiduciary for the buyer, a real estate agent owes then a fiduciary duty to obtain the best property at the best price. If the same agent is also a fiduciary of the seller, his or her obligation is to obtain the seller the highest possible selling price. This inherent tension illustrates the problem: if someone is representing both a buyer and seller, how can that one person act in the best interest of both parties?

What Is the Advice for the New York State Department of State?

The New York State Department of State advises New Yorkers to be wary of dual agency. To help ensure full disclosure of potential conflicts, the NYS Department of State requires that any real estate broker who does act as a dual agent fully disclose this to all parties. The disclosure must inform the reader about the dual agency and the implications that carries, and written acknowledgement must be obtained from all new clients, which illustrates that they understand what dual agency means. That understanding must include the knowledge that New Yorkers may engage their own agent who represents only their interests, that hiring a dual agent means giving up the right to undivided loyalty, and that the possible consequences of the dual agency must be considered.

What Do You Lose in Dual Agency?

You lose the ability to negotiate. People think dual agency sounds like a cost-saving measure, as usually the percentage a dual agent takes is less than that taken by both a buyer and seller agent combined. What may be saved is lost in other ways, however. Dual agents are legally prohibited from negotiating price or terms. This is a major problem for you, if you want to negotiate either price OR terms, which most people wish to do, particularly buyers. So, for example, if the seller lists the apartment you want to buy at $500,000 and you ask your dual agent if you should counter at a lower price, the agent cannot answer. This is a huge detriment, as most of us rely on agents to help us with such issues. There is just no negotiation possible once you agree to dual agency, and that is not in any party’s best interest.

If It Is So Bad, Why Do Agents Even Engage in Dual Agency?

Double the agent means double the commission. Instead of sharing with the buyer agent or seller agent, the single agent gets the whole commission, without ever representing your best interests the way a broker does in a non-dual transaction. There is no other reason to engage in dual agency outside of the financial reason.

If you are considering entering into a dual agency relationship with a real estate agent, you should seek advice from an experienced real estate attorney to ensure that somebody is advocating for your best interests. Contact us today at (718) 347-6800.