Dual Agency: When Is It Appropriate?

In brief, dual agency is appropriate in a sales transaction only when it is agreed to – in writing – by fully informed sellers and buyers.

One of three types of agency representation (see box), dual agency arises when a firm is representing both the sellers and buyers in an in-house sale situation.

Practicing dual agency lawfully is challenging because the sellers and buyers must agree to be represented in an adversarial relationship by the same agent. A dual agent who must act with a combination of discretion and fairness that can be difficult to balance.

Although the laws and rules by which dual agency is practiced have not been reviewed to any significant extent by the courts, theoretically a dual agent owes the full range of agency duties to both principals. This creates practical problems for the dual agent regarding such matters as disclosure of material facts (especially confidential information about a client) and advocating for clients.

Thus, a broker’s ability to provide full representation of the client may be compromised to some extent. By entering into dual agency without the full understanding and consent of both clients, a broker may unfairly deprive those clients of the level of service they expect to receive. Additionally, brokers can potentially have more exposure to claims of conflicts of interest when practicing dual agency.

To alleviate the conflicting responsibilities of dual agency, the North Carolina Association of REALTORS® has developed agency contract forms which place limits on the disclosure by a dual agent of information relating to any party’s motivation, possible agreement to price, terms or other conditions, or any information identified as confidential. The contract forms also include an acknowledgment by the client that the agent will not act as an advocate for or exclusive representative of the client. Whether this form or another is used, all brokers are required by the Commission’s rules to reduce their dual agency agreements to writing with the seller from the outset and with the buyer before one of the partiesmakes an offer.

Designated agency (a modified form of dual agency), is defined in rules adopted by the Real Estate Commission. It gives each client exclusive representation from an individual broker, while still allowing the firm to represent all of its clients. Remember, a broker-in-charge should never act as a designated agent in a situation where the other designated agent is a provisional broker under his or her supervision.  The broker-in-charge loses his or her ability to supervise or assist a provisional broker in such a situation.

An agent who lists his or her own property, or property belonging to the firm, should refrain from acting as a dual agent when selling that property, as there are inherent conflicts of interest in offering one’s own personal property for sale and then attempting to represent a buyer in the transaction as well.

What about the case of an unrepresented buyer or seller – can a broker work with him or her while solely representing another party?  Yes, so long as the broker reviews and has the unrepresented party sign the Working With Real Estate Agents brochure, disclosing in writing that the broker will represent only his or her client (buyer or seller) in the transaction. Remember, there is no requirement that both the buyer and seller have broker representation in a transaction. An agent can work with an unrepresented buyer or seller as a customer, and still fully represent his or her client.

What if a previously unrepresented buyer or seller tells the listing broker that he or she would now like representation in an ongoing transaction where the listing broker has already disclosed that he or she represents only the interests of the seller? The broker’s client may object, considering the information that the client has previously given the broker about his personal situation and/or desire for exclusive representation. If the parties do not consent to Dual Agency at that point, the listing broker should refer the unrepresented party to an outside broker/firm for buyer representation.

All parties in the transaction deserve the best representation possible.  Agents should remember to consider the interests of their clients first and determine which form of agency best suits their needs.


Agency Refresher

Clients may choose:

•  Exclusive Representation – both the broker and the firm represent only one client in the transaction, to the exclusion of all others;

•  Dual Agency – the firm and its agents may represent both the buyer and seller in a transaction; and

•  Designated Dual Agency – the firm represents both the seller and buyer via one agent designated exclusively as the seller’s agent, and another agent designated exclusively as the buyer’s agent, with each agent representing only the interests of their designated client.

This article came from the October 2010-Vol41-2 edition of the bulletin.