Q: Is it legal for one real estate agent to represent both the buyer and the seller in the same real estate transaction?
A: This is referred to as “Dual Agency”, and yes, it is legal as long as the agent discloses same in writing to both parties. However, whether you should agree to allow one agent to represent both you and the party on the other side of the table, is a decision you should carefully consider. A real estate agent has a fiduciary duty to their clients, which means that they must put the interests of their clients first. When you list your property for sale with a real estate broker, it is clear what you expect of them- to get you the highest price and best terms for the sale of your property. When, as a buyer, you use the services of a real estate broker, it is also clear what you expect of them- to negotiate the lowest price and best terms for you in purchasing a property. Now, what if your broker is representing both parties- how can that broker negotiate the highest price for one client and the lowest price for their other client? They simply cannot. The agent can mediate between the two parties, but he/she can’t really advocate for either.
Why would anyone agree to this arrangement? Sometimes there is a perception by a buyer or seller that they will be the one to get the benefit out of the arrangement. For example, if you are a real estate developer who gives your agent regular business, you may expect them to favor you in negotiating a sale with a seller that do not anticipate continued business from. There is a true conflict of interest at play here. On the positive side, communication between the parties is streamlined, and the agent can act as a mediator bringing both sides to agreement. Dual agency can arise in several ways:
- One Agent Representing Buyer and Seller: This is what I have referred to above. You are a buyer working with an agent and they show you a property that is their own listing. Or, your listing agent brings a client to view your property. The agent goes back and forth between you and the other party to try to make a deal.
- Two Agents from the same Brokerage Office: In this circumstance, dual agency is created even where there are two separate real estate agents in the transaction. Your listing agent receives an offer from one or more clients represented by other agents in their same office. Why is this still considered dual agency? Because each real estate brokerage has a licensed broker who is responsible for all of the agents who work for their office and under his/her supervision. In practical terms, it is the licensed broker who is representing both parties, despite the physical participation of two individuals.
- Two Agents from Different Offices of the Same Brokerage: In this situation, even though the two agents have greater degrees of separation, the law still defines this as a dual agency. Again, even with different offices, the brokerage itself is the agent of both parties. The California Supreme Court has ruled that not only is the broker/brokerage the dual agent with a fiduciary obligation to both clients, but that the same fiduciary obligation extends to each agent in the transaction. Each agent has a fiduciary duty to the party represented by the other agent. This again puts the agent into a conflict of interest situation, as it puts the burden on each agent to look out for the best interests of not only their own client, but the other agent’s client.
Due to that CA Supreme Court ruling, there has been much speculation as to whether dual agency in real estate may no longer be viable, bringing too much liability to the agents and brokerages. Indeed, attorneys are prohibited by law from engaging in the same scenario, representing both sides of a transaction, even with disclosures. Law firms run vigorous “conflict checks” before taking new clients and decline representation where a conflict of interest is present. Maybe it’s time that real estate brokerages take these conflicts more seriously, and only take on clients whose interests they can represent to the fullest degree. Something to think about. Meanwhile, as a buyer or seller, carefully consider the benefits and detriments of dual agency before you enter into it, and remember that you have a choice.
Disclaimer: This article is intended to be primarily for entertainment purposes, and is not to be considered legal advice.
ABOUT LISA PHILLIPS, ESQ./ CA Bureau of Real Estate Lic# 01189413
Lisa Phillips is an active Realtor in the Los Angeles area, with more than twenty years as a practicing Real Estate Broker and attorney. Lisa is also a member of the National Association of Realtors “Green Resource Council”, and achieved its “GREEN” Designation. Her unparalleled knowledge of real estate, from local markets and pricing to legal issues and deal-making, has made her a trusted and valuable asset to her clients. In addition to her real estate and business savvy, Lisa is passionate about helping others, and works tirelessly to achieve the best results for her clients. For more information, please visit www.LisaPhillipsRealEstate.com.