Dual Agency - What Should I Do?

I had a former client of mine call me. She was selling her mother’s home, out of the area, and was listing with another agent to sell the home. She was concerned about the listing agreement and called to talk to me about it. Her concern was that in the listing agreement, the new agent noted that if the he were to represent the buyer in addition to my former client, his commission would be discounted for dual agency. She asked me what I thought about it.

First I explained that there were 4 ways that a deal could give rise to dual agency:

1. An agent represents both the buyer and the seller on a transaction.

2. An agent represents two buyers making an offer on the same property.

3. Two agents working for the same broker/office are both making an offer on the same property.

4. The seller is represented by one agent and the buyer by a different agent, but both work for the same broker/office.

Personally, maybe because I work for a large office and don’t know half the agents there, I don’t feel there is a terrible conflict of interest in the type of dual agency mentioned above in items 3 and 4. They are different agents that happen to work for the same broker. This type of dual agency is not that uncommon and is usually not discounted because each client has the same amount of work as they would in a single agency deal.

Where representation can get blurred and confusing, is, in my opinion, when you have a single agent representing two parties that don’t have common interests, as in item 1 and 2 above. It would be like hiring an attorney that is representing the defendant and the plaintiff! There are inherent conflicts of interest. Yet, in California, this is legal, so long as it is disclosed.

The classic example is the case where a listing agent is holding an open house and a potential buyer walks in. The listing agent begins discussing the property and the buyer's particular situation. The buyer may assume, just from talking to the listing agent, that the agent would represent him/her. But this isn’t the case. Whether the agent knows it or not, the agent has inadvertently placed himself/herself into an undisclosed dual agency situation. Not all open houses are held by the listing agent, so it does make this situation confusing. As a buyer, if you go into an open house, make sure you ask the agent if they are the listing agent or not. Also, if you are being represented by another agent, but sure to let them know.

In all dual agency relationships, fiduciary duties are owed to both parties. However, the representation is consequentially limited. For instance, in representing the Buyer and Seller in a transaction, the agent cannot tell the seller if the buyer is willing to pay a price greater than the asking price. And reciprocally, the agent cannot tell the buyer what the seller might settle for. Thus, no suggestion can be made or inferred that anything other than the listed price is acceptable.

Because my ability to represent my client is compromised in dual agency (situations 1 and 2 above), I discourage my clients from agreeing to it – even if it means a discount to the commission they pay. After talking with my former client about the pros and cons, she agreed that she wanted an advocate in her corner and did not want to consent to dual agency. Having worked with her in the past, she had first-hand knowledge of the money I saved her during negotiations, something that could not have happened in a dual agency position.

So, in wrapping up dual agentcy: In California, dual agency is discouraged, but it is legal so long as it is disclosed to both parties and agreed upon in writing.