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Just Say "No" to Dual Agency

by Matt Difanis
November 9, 2001

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In the old days of real estate, all agents represented the interests of sellers. This arrangement was established under the common law doctrine of agency. The idea was that listing agents worked directly for sellers as their agents, while any agent who brought the buyers entered into a sub-agency agreement to indirectly represent the sellers' best interests since the sub-agent was also compensated by the seller. This all changed in Illinois in 1995 when a revised Illinois Real Estate License Act introduced designated agency, which permitted an individual agent to represent his or her respective client—either buyer or seller—regardless of the source of the agent's compensation. This meant that even though buyers' agents are still typically compensated via sellers and their agents, the law obligates buyers' agent to work in the best interests buyers. The law establishes a fiduciary relationship between the agent and the client, a relationship of duty and trust that is analogous to an attorney-client relationship. Despite this exclusive representation and all the benefits it entails, many buyers and sellers voluntarily agree to give all of the advantages away while allowing the agent to collect a double-paycheck in exchange for the reduced obligation. This occurs because of the legal loophole of dual agency.

Dual agency representation occurs when a single agent represents both parties to a single transaction. Because of the inherent conflict of interest that exists in such a scenario, the word, "represents," is used very loosely. Dual agency representation can arise because a single agent happens to have been representing a buyer for some time, and that same agent exclusively represents a seller who just put her home on the market. If the agent's buyer decides that the newly listed home is perfect and wants to make an offer, a dual agency scenario results unless the agent refers one of the parties to another agent to eliminate the conflict of interests. Lest you worry that an unscrupulous agent can foist dual agency representation upon you unwittingly, you can take some small comfort in knowing that the law requires that the agent's role as a dual agent be disclosed to both parties and that those parties consent to such an arrangement prior to any offer being made. Since dual agency often means a double paycheck for the agent, who stands to get "both sides" of the deal (the listing commission plus the commission that would have ordinarily have been paid to a buyer agent), unscrupulous agents have a powerful incentive to understate the drawbacks of dual agency to get both parties' consent.

While dual agency always involves a conflict of interest, that conflict is not always injurious to the parties. For instance, there are quite a few transactions in which both the buyers and the sellers easily come to terms on price, closing date, and financing. If the inspection goes perfectly and the transaction closes without any glitches, then such a transaction is truly a win-win-win situation for the buyers, the sellers, and the agent. The problem lies in the fact that no one can ever predict which transactions will unexpectedly turn from being mutually warm and fuzzy to being adversarial and acrimonious. The most common example of such a turning point is a home inspection that reveals some terrible latent defect in a property. Suddenly the buyers want huge concessions from the sellers, while the sellers question the validity of the inspection and the character of the buyers. There are many other instances in which the interests of the buyers and sellers in a single transaction diverge substantially. If both parties are exclusively represented by their own respective agents, they have a trusted professional whom they can turn to for counsel. If, on the other hand, a single agent is attempting to represent both parties, the agent cannot advise either party regarding any matter that might be contrary to the interests of the other party. Questions such as "What do we do now?" or "How much credit should we offer?" are off limits to the agent.

Because most buyers and sellers lack experience with dozens of transactions, they are at a major disadvantage relative to an experienced agent when it comes to appreciating the risks of dual agency. If confronted by an agent requesting your consent to dual agency representation, just say no and insist that you be exclusively represented by your own agent.

Just Say "No" to Dual Agency

by Matt Difanis November 9, 2001

Matt's Article Archive

by Matt Difanis
November 9, 2001