Dual agency is a term mostly used in the real estate industry to describe property agents that represent more than 1 party in the same transaction.
In a typical case of dual agency, or sometimes known as dual representation, the agent would represent both the buyer and seller of a property.
While this can appear to streamline the whole transaction making it more efficient at a faster speed in closing, it is also susceptible to a conflict of interest.
For example, how does a real estate agent decide what to do when a home buyer wants a price as low as possible and a seller wants a price as high as possible.
Since agent remuneration is commission based, it is only natural for agents to have an eye on a higher price. If a buyer drives a hard bargain, does the agent do the buyer’s bidding? Against his own interest?
The simple way to stamp out these problems might seem to ban dual agency altogether. But this is easier said than done because dual agency can organically come into play in this industry.
An agent could very sign an exclusive representation for a homeowner looking to sell his house, and also have an agreement in place to help a prospective buyer find a house.
Essentially making money from both sides.
What happens when the buyer absolutely loves a house that the agent exclusively represents? If dual agency is made illegal, does it mean that a natural buyer will the full intention to buy the property cannot do so due to the agent’s wide network?
In a typical transaction where there are only these 3 parties involved, a dual agent can easily become the single party with the most power and leverage because he knows all the buying and selling criteria of both parties. This is not a good place to be in for buyers and sellers… especially when they are the ones forking out the funds and taking on the huge mortgage loans.
Some countries have indeed banned dual agency from property transactions. Many allow it as long as there is full disclosure by the agent to all parties involved regarding his interests in the transaction.
Representing both sides without disclosing it is a shady way to do business.
Property agencies and brokerages that recognize the potential problems that come with dual agency can sometimes have internal guidelines for their agents.
For instance, when an agent encounters a transaction with dual agency, it might be suggested that the agent calls on the help of a colleague from the same company to represent 1 side of the deal.
While this does not totally eliminate the potential conflict of interest, it can still alleviate it.
Potential home buyers and sellers can usually see the potential problems with dual representation and would prefer their own agents to fully loo out for their interest. They would therefore seek agents and make it clear what their expectations are.
But as stated earlier, some unique situations can still arise.