What is Dual Agency in Real Estate?
You don’t have to be intimate with the real estate market to understand basic concepts. The home’s buyers have a real estate agent, the home’s sellers have a real estate agent, and those two agents work to get their clients the best possible deal.
That’s how most real estate transactions function but what if the buyer’s agent and the seller’s agent are the same person? It seems like a strange situation, but it does happen in a process known as dual agency.
Let’s learn more about dual agency in real estate including what it means, how it happens, the benefits and drawbacks of dual agency, and how it functions in Colorado. Dual agency is a rare situation in real estate, but it’s happened before and will happen again.
What Does Dual Agency Mean in Real Estate?
Dual agency means a home or property is being represented by one real estate agent (or agency) for both its sell and purchase. Dual agency combines the roles of buyer and seller into one role. Dual agents are also known as transaction brokers.
Situations that Involve Dual Agency
Small Towns and Low Inventory
If a town is particularly small, there might be only one real estate agent or agency available for the entire town. When there is no choice and low inventory, an agent might be forced to represent both buyer and seller.
Imagine your coworker is suddenly moving and has decided to sell you their house to use as a rental property. If you and the neighbor have already agreed to price and terms, you might only need one agent to facilitate the deal. In this case when terms are pre-negotiated, a real estate agent can act as both agents since their commission and duties are already set.
Advantages of Dual Agency
It’s much easier to take care of a real estate deal if you don’t have to arrange meetings between all the different agents or constantly wait while for different offers to be approved or disapproved. Cut one agent out of the mix and that’s 25% less people (and their paperwork) to work with during a real estate deal.
Disadvantages of Dual Agency
Who Pays Dual Agency Commission?
A seller’s agent is normally paid by the seller from the proceeds on the home, and that money is then split with the buyer’s agent. In dual real estate the buyer and seller’s agent are the same person, so how does commission work? Well, it works doubly for the agent. They get to take the entire cut of the seller’s percentage and don’t have to divide between anyone else.
This could work to the seller’s advantage as an agent might be willing to take a lower commission if they know they’re essentially being paid commission twice on one job. However, the prospect of a double commission could compromise the agent’s ability to stay balanced.
Whose Side are They On?
A dual agent is supposed to stay neutral, but that can be difficult. The commission comes from the selling price of the home so an agent will always be motivated to get the best price, especially if they know they’re getting paid twice on it. An agent might also withhold or give away private information based on their chances at a fat commission.
Does Colorado Allow Dual Agency?
Unlock most states, Colorado does not allow for dual agency due to the potential for a conflict of interest. Until 1994 all Colorado real estate brokers were considered an agent or sub-agent of the seller, leaving little representation for the buyer. In 1994 Colorado amended those laws to allow for a buyer’s agent, seller’s agent, and dual agency in some cases. In 2003 Colorado eliminated dual agency altogether. In the state of Colorado one agent cannot represent both the buyer and seller.
Figuring Out Dual Agency
In dual agency one agent represents both the buyer and seller and while that can create conflicts of interest, it’s useful when you need to move a transaction forward quickly or have already arranged the terms of sale. Colorado homeowners cannot use dual agency but must hire an individual buyer’s agent and seller’s agent for a fair real estate transaction for all involved.