Real Estate 101

Dual agency pros and cons

In Canada, most buyers and sellers seek out independent representation but there are situations where dual agency does and should occur. Here are the pros and cons of multiple representation
Dual-agency-pros-and-cons-man-sitting-in-front-of-two-men

When buying a home in Canada, it’s typical for one real estate agent to represent the seller and another real estate agent to represent the buyer. But with dual agency, one agent ends up working for both the buyer and seller — and keeps the full commission. Dual agency can also occur when different agents from the same brokerage represent each party in the same real estate transaction. There’s been a lot of talk about dual agency, as of late, and we thought it would be a good idea to run through dual agency pros and cons of agreeing to have the same agent represent you and the other side of that real estate transaction.

Here are our top four dual agency pros and cons of having the same real estate agent representation.

Dual Agency Pro #1:
Streamlined communication

One of the biggest advantages of accepting dual agency representation is that is streamlines communication between the buyer and the seller and this can certainly streamline the home-buying process.

If both the buyer and the seller have their own separate agents, there will be four people that must schedule times to talk and to meet. That’s four people (at least) that must be consulted before the property can be shown, inspected, discussed or negotiated over. Cut one agent out of this equation and you make scheduling times to meet and talk about 25% easier. In fast-moving markets, this streamlined communication can make or break a buyer’s ability to act quickly. Even in balanced markets, where buyers or sellers aren’t competing for attention, streamlined communication translates into a smoother transaction and can eliminate disturbing problems, such as agents who do not respond in time.

Dual Agency Pro #2:
You can expect full disclosure

Shocked-woman-chatting-with-friend-dual-agency-full-disclosure

Whether you’re a seller or a buyer, you should expect to be fairly and adequately treated during any real estate transaction — even in a situation where the buyer and seller are represented by the same agent or different agents from the same brokerage. That means that even before you sign a document, you must be told that a dual agency relationship exists — and the agent must explain what that means in terms of representation and advice. Plus, both parties must agree to this arrangement. The best advice is to review the offer to purchase agreement to determine if any potential conflicts of interest may arise and, if you’re unsure, ask. You should expect nothing less than full and complete disclosure.

Dual Agency Pro #3:
Better access to the market

Dual agency isn’t just about one agent representing both sides of the party, but one brokerage representing both sides. But just because one brokerage represents both buyer and seller, doesn’t necessarily mean there is a conflict of interest.

Take, for example, large brokerages with hundreds of agents. It’s quite possible that two different agents from the same brokerage could end up representing the buyer and seller in the same transaction. This dual agency relationship would require both agents to disclose this situation to their client and to explain what it means — a disclosure that ensures that each agent provides the best service to each client. But what would happen if one client didn’t like the idea of a potential conflict of interest and opted not to agree to the dual agency?

Let’s say the buyer doesn’t want dual agency. This would mean that any home listed by any agent in that brokerage would need to be eliminated from the home search, or the buyer would have to find another real estate representative (potentially someone who doesn’t know the community quite as well). Now, if the seller were to decline consent on a dual agency relationship, they would be unable to sell their home to any buyer that any other agent in that brokerage was working with. As a result, dual agency can, at times, give both buyers and sellers more access to the market.

Dual Agency Pro #4:
You could save money

Close-Up-Woman-Hand-calculator-dual-agency-save-money

When a seller gets an offer from a buyer that’s represented by the same agent who is working with the seller, this agent will end up getting both sides of the total commission. Since the commission will be higher for the agent and the brokerage, the agent (and their brokerage) may be more amenable to lowering the total commission earned. This negotiation of lower fees will either save the seller money or could end up saving the seller and buyer some money if the seller opts to pass on some of the savings to the buyer as an incentive.

Dual Agency Con #1:
No advice

Because a dual agent is working in a potential conflict-of-interest situation — the seller client wants to get as high a price as possible, while the buyer client wants to pay as little as possible — this agent can’t take sides or give advice. It’s a lot like asking one divorce lawyer to represent both husband and wife during separation negotiations. Because the agent cannot go against their fiduciary duty to both clients, the agent in a dual agency situation becomes more of a referee, than a coach.

Dual Agency Con #2:
Lack of checks and balances

Red-stoplight-high-speed-train-dual-agency-checks-and-balances

Have you ever fallen in love with a sofa or car only to have your significant-other point out a defect or problem? While it might seem cliche, the concept “two heads are better than one,” certainly applies when trying to make decisions about a very expensive asset, like a condo or house.

When a buyer and seller are using just one agent to represent them in a real estate transaction, they limit the number of “heads” that can weigh in and help with a rather large financial purchase. There’s always a chance that one agent will miss something because there isn’t another real estate professional to provide that check and balance.

The system of checks and balances also helps prevent one side from becoming too powerful, a particularly bad situation when the agent representing both sides opts to act unethically or illegally.

Dual Agency Con #3:
It’s confusing

Buying and selling a home is confusing enough without adding in the difficulty of trying to understand exactly what limitations an agent has due to a dual agency relationship. It’s one reason why some states in the U.S. have already banned dual agency and why a few provinces in Canada are implementing a ban on dual agency.

Dual Agency Con #4:
It’s may be tempting

A Realtor in a dual agency relationship is supposed to be neutral and help their clients on both sides of the deal equally. But staying truly neutral can be difficult, particularly when payment for your work is tied up in the transaction. Since an agent’s commission is a percentage of a home’s sales price, it’s inherently in an agent’s best interest to get a high selling price — he or she will make more money. So it may be tempting for an agent representing both sides to censor their own actions, for fear of scuppering the deal.

When to use a dual agent

When-to-use-dual-agency-business-group

If you are buying real estate in North America, it’s wise to first check if the state or province where the property is located allows for dual agency arrangements.

In Canada, only B.C. has banned the use of dual agency but the ban doesn’t go into effect until June 15, 2018. Ontario is considering a ban on dual agency but no decisions have been made, yet.

In provinces and states where dual agency is allowed, there are rules and requirements that must be followed by the agent and brokerage. By law, the agent or brokerage must inform the clients they’re facing a dual agency scenario — and no transaction may be finalized until both parties’ agree, in writing, to this relationship. This is known as “informed consent.”

Both buyers and sellers have the right to opt out and use another agent or brokerage.  so both parties have their own representation, but there are situations where using a dual agent makes sense. Ideally, the only time a dual agent makes sense is when the Realtor is not expected to advise either the seller or the buyer, but rather the agent acts as a facilitator — making sure that all documents are accurate and complete in order to finalize the transaction. A good example is in commercial real estate sales, where both the seller and buyer are represented by their own legal counsel. Another example is would be if you and your neighbour struck up a deal to sell your home and have already negotiated the terms, the price, and all the other particulars. In both of these situations, using a transactional Realtor would be a benefit and may even help create a smoother transaction and potentially lower transaction costs.

Romana King
Romana King

Romana is an award-winning personal finance writer with an expertise in real estate. She is obsessed with the property marketplace and is the current Director of Content at Zolo.