Does dual agency have a future in real estate?

Dual agency has come under fire as of late, and because of its potential to create a conflict of interest, one western Canadian province banned the practice earlier this summer to protect consumers.

Dual agency, also known as multiple representation or dual representation, occurs when one agent (or two agents from the same brokerage) represent both the homebuyer and seller in the same real estate transaction.

Rules of dual agency in North America

As you can imagine, the opportunity for a conflict of interest can be quite high in these situations. As a result, there are many rules and regulations around the use of dual agency in real estate transactions throughout North America.

In Canada, most provinces require the buyer and seller to sign an official standardized form stating that they have been notified of the possible difficulties that can arise when using the same Realtor.

On June 15, 2018, the new Real Estate Council of BC (RECBC) rules took effect for all real estate licensees in the province of British Columbia. In short, these new rules severely restrict or limit the situations where one Realtor can represent both the buyer and the seller in the same transaction.

These new rules also stipulate how and when a Realtor must disclose how much commission they are earning and whether or not they will receive any referral fees — fees paid by other professionals as a courtesy for referring a client.

Other provinces in Canada, as well as some U.S. states, may follow suit.

The inherent problem with dual agency

A real estate agent who represents both the buyer and seller is expected to provide full and ethical representation to both sides of the transaction. This can be hard.

For instance, if a buyer’s agent learned that the seller is listing because the family needs to move to another city for work, then that agent would probably advise the client to come in with a competitive bid. But if that same agent was also representing the seller, he or she could not pass on this information to the buyer client.

If the agent did let the buyer client know of the seller’s motivations, the agent would be in breach of fiduciary duty to the seller client; but at the same time, the buyer is missing out on smart, strategic advice from the real estate representative.

The inherent problem with dual agency is the potential inability for Realtors to provide the best possible service to their clients.

Best practices

Using the same agent for both sides of a transaction can be confusing, and this situation can lead to misunderstandings or legal liabilities; yet almost all provinces and states in North America still allow the practice of dual agency.

Unless your real estate practice is in B.C., you probably want to brush up on the best practices when in a dual agency situation. Here are six ways to keep it all above-board.

1. Be upfront. You must notify both the seller and buyer in writing that you will be representing both sides of the transaction. But notification isn’t enough. You (or your brokerage) must also explain how this impacts the advice and the type of representation the buyer and seller will receive. If the buyer and seller still want to proceed as-is, you must get that agreement in writing.
2. Represent the seller and buyer equally. When you represent a client in a transaction, you must put their fiduciary concerns first. That means you cannot act in a way that will hurt the buyer’s chance for a good deal and the seller’s chance of getting the best price. For an agent in a dual agency situation, this often means making sure not to disclose information that could risk either client’s best chances. For example, an agent representing a seller cannot share why a person is selling the home, nor can they divulge the lowest price the seller is willing to accept. When representing the buyer, the agent cannot tell the seller how much the buyer is willing to pay or the reasons for buying. In short, the agent cannot give information to either party that might result in an unfair advantage for either the buyer or the seller.
3. Disclose all material facts about the property. By law, the seller and the agent representing the seller must disclose all material facts, including latent defects known about the property. This requirement doesn’t disappear just because you, the agent or Realtor, also represents the buyer.
4. There are smart ways to answer questions. Quite often, buyers will have questions about a property. Just because you represent both the buyer and seller doesn’t mean you can’t answer these questions. It just means you must be more diligent about how you answer and what you say. The best way to do this is to advise buyers to put all questions in writing. You can then forward these questions to the seller, who should then provide answers in writing. By keeping everything transparent and a little more formal, you can avoid any misunderstandings and ensure that both clients are represented fairly and accurately.
5. Explain how the closing process will work for both parties. As the agent working on both sides of the agreement, you must perform the work of both the buyer’s agent and the seller’s agent. This means explaining the process to both clients and advising them on what each term means and what procedures to expect next.
6. Provide full-service right up to the completion day (and beyond). Work diligently to complete the sale even after the purchase agreement is accepted. For most buyers and sellers, this means a bit of hand-holding with regard to preparing for the final closing date and for the final transfer of the property. Sure, legal representatives may help in some jurisdictions, but as the client’s agent, you are essentially the quarterback — you must make sure everyone is in the right spot at the right time and knows what the next move is going to be. The easiest way to do this is to keep in contact with both sides of the transaction throughout the process.

Keep your eye on the prize

Despite the potential for a conflict of interest, not all real estate agents who operate in dual agency relationships lack ethics or honesty. Across the continent, many dual agency transactions are completed each year, where the agent provided excellent advice and maintained professional integrity.

While the best step for every buyer and seller is to find independent representation, this isn’t always an easy task (particularly in smaller, more rural communities). Investing in a home is a huge financial undertaking, and it can be quite intimidating for both the buyer and the seller.

As agents and Realtors, however, we must always fulfill our role, which is to help guide clients through the real estate transaction and give the best advice when possible.