A recent real estate transaction had neighbors abuzz about the ethical nature of the arrangement and the role that a sole real estate agent played for both buyer and seller.

The property in question had an asking price of $1.4 million, and although the price was rather steep, it was an “As Is” listing, which would require a considerable amount of money to renovate it to be on par with properties in the neighborhood. One neighbor was upset because she put in a higher offer of $1.7 million, only to discover later that the property sold for $300K below her offer price.

Another agent chimed in that he represented a client with a $2 million bank loan approval, for the same property, and had put in an offer for $1.9 million, but was also never considered.

This agent went on to provide proof that he had reached out to the seller’s agent to ask for the customary real estate forms that were signed by the seller, acknowledging the higher offer, to confirm that the offer had indeed been presented. Unfortunately, the agent never received the requested signed documents and was then ghosted by the seller’s agent.

When the documents for the sale were finally recorded, it was revealed that the seller’s agent was the same as the buyer’s agent, meaning that the agent was in a position to receive double commission.

Is this illegal? 

Here’s what we learned.

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Can an Agent Represent both Buyer & Seller in a Real Estate Transaction?

Although there are many reasons why a seller and buyer would want to use the same agent, there are also situations when this is not advisable. When a buyer and seller are represented by the same real estate agent, this agent is acting as a “dual agent” for the transaction.


What is a Dual Agent?

A dual agent is a real estate broker, or agents working for the same broker, who acts on behalf of both the buyer and the seller in a real estate transaction.

In California real estate law, a broker or agent may act as a “dual agent” for both the buyer and the seller on the same property transaction.

Dual Agency Trends & Statistics


Where Dual Agency is Illegal

Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, Vermon, and Wyoming currently are the only states that prohibit Dual Agency in real estate transactions.

The stipulation of the dual agency relationship, in states that do permit this arrangement, requires that both parties are made fully aware of the arrangement and that each party consents to the relationship. Most importantly, the dual agent has a fiduciary responsibility to both parties, as if he were representing each party separately, being mindful of their individual best interests.

Opponents of dual agency do not believe an agent can fairly represent both seller and buyer with “utmost care, integrity, honesty, and loyalty”, without compromising the best interests of one or both parties. The dual agent will at some point encounter a conflict of interest for one or both parties regardless of whom he personally represents.


What is an Associate Licensee?

An Associate Licensee is person who is licensed as a real estate broker or salesperson under a broker to act as that broker’s agent. For example, Mary Smith, an agent for Mary Smith Group, works as an Associate Licensee for Coldwell Banker Brokerage.

Associate Licensees who work for the same brokerage are treated as dual agents, if they represent opposing clients on the same real estate transaction. Simply put, Associate Licensees from the same brokerage must follow the rules of dual agency, if they are part of the same real estate deal, as either the buyer’s or seller’s agent.

Associate Licensees from the same brokerage must follow the rules of Dual Agency

If John Green, of John Green Realty, is an Associate Licensee of Coldwell Banker and he and Mary Smith represent the buyer and seller respectively in a real estate transaction, Mary and John, as Coldwell Banker Associate Licensees, are acting as dual agents.

The rules of dual agency are the same for Associate Licensees from the same brokerage, as they are treated as if they are one person representing both buyer and seller. This practice is also referred to as “Designated Agency”.

For the purpose of this article we are discussing the dual agent as one agent working for both buyer and seller, yet the rules and outcomes are the same, as if there were two agents working for the same brokerage firm representing opposing clients.

Real Estate Agent Showing Property to Young Couple


A Dual Agent’s Responsibility to the Seller

Since funds to pay both the buyer’s and seller’s agent are technically derived from the actual sale price of the property, it is in the seller’s agent’s best interest to sell for the highest price.

The agents for both parties split the commission fee, which is usually a percentage baked into the sale price of the home. Since the buyer is the only one actually “buying”, his mortgage loan is used to pay these fees. Thus, contrary to popular belief, it is the buyer who actually pays all of the agency fees during a sale.

Naturally, in a dual agency situation, the seller’s agent should want the highest price for the home, in order to garner the best fee from a percentage of the final sale price and to get his seller the best profit on the sale of the property.

In doing so, an ethical agent receives all offers, presents them to the seller and responds to buyers’ agents with either acceptance or rejections of their respective offers. The seller’s agent is legally obligated to present ALL offers, no matter how low or high, fairly and objectively, and it is the seller who should make the choice as to which offer to accept.

When an offer is pending and the seller’s agent accepts a subsequent offer as a “backup” offer, he must complete, with all signatures, the form that reflects acceptance of the “backup” buyer’s offer. This form must be submitted to the backup buyer’s agent as a matter of record.

Additionally, the seller’s agent is responsible for communicating to interested parties, and through the listing agencies, when there is an accepted offer. At this point he should not entertain additional offers.

Limitations of the Duties of a Dual Agent

Statutes in most states specify certain limitations on the duties of a dual agent. One particular limitation that a buyer should be aware of is that a dual agent may not disclose to the buyer that the seller is willing to sell the property at a price less than the listing price, without the express written consent of the seller.

A dual agent may not disclose to the buyer that the seller is willing to sell the property at a price less than the listing price, without the express written consent of the seller

Conversely, the dual agent may not disclose to the seller that the buyer is willing to pay a price greater than the offering price, without the express written consent of the buyer.

A dual agent may not disclose to the buyer that the seller is willing to sell the property at a price less than the listing price, without the express written consent of the seller


A Dual Agent’s Responsibility to the Buyer

The buyer’s agent is responsible for writing up and presenting all offers from his client to the seller’s agent. He owes his client complete fiduciary responsibility and must disclose any and all information, of which he is aware, that may have a material effect on the purchase of the property. In other words, the buyer’s agent must disclose any and all known material defects of the property, even if this will kill the deal.

The buyer’s agent must also provide an accounting of all funds received and dispersed since, as mentioned previously, it is the buyer who pays all of the agency fees. In short, because of the duty of loyalty, a buyer’s agent is required to put the buyer’s interests above the seller’s, and also above his own.

A buyer’s agent is required to put the buyer’s interests above the seller’s, and also above his own


Dual Agency Conflicts of Interest

Dual agency is a slippery slope and may not be in the best interest of all parties in the transaction, as it poses challenges of confidentiality and responsibility to two conflicting clients.

In a dual agency situation, a seller’s agent could accept an offer only because he is also that buyer’s agent, regardless if a higher offer is presented. Since offers are presented directly to the seller’s agent, the agent can choose any offer, including those he wrote himself for his buyer or investors, to present to the seller. The rationale here is that he could collect both the buyers and sellers fees rather than having to split a fee with another agent who brought in a higher offer.

Real Estate Agent in the Office on the Phone

In other words, a dual agent could earn a greater commission from a significantly lower winning bid. For example, a 6% total commission of a $1,500,000 dual agent sales price would be $90,000, whereas a 3% shared commission of a $2,000,000 sales price would only be $60,000.

This practice of selective offer presentation to the seller is highly unethical, and violates the terms of the Real Estate Board.

A dual agent could also fail to disclose materially adverse information about the property in order to insure that the deal was fully executed. They have a fiduciary responsibility to both parties and must disclose all information about the property, regardless if it will cancel the transaction.

In some situations, seller’s agents make deals with wholesalers, who later turn around and sell the property again for a profit in a short period of time. The short holding period is purely to arbitrage the value of property, since no renovations, or flipping activity is performed.

In this “buy low, sell high” scenario, the property is offered for a higher price than when previously purchased, sometimes right after closing. In this situation, oftentimes the agent receives a kickback from the wholesaler. Again the dual agent will earn total commission on the first transaction (e.g. 6%), then later earn at least another 3% commission on the follow-up transaction.

How Realtors Feel About Dual Agency

From the Bernice Ross article “The Legal Pitfalls of Dual Agency in Real Estate,” Inman (January 16, 2017) cited by CFA

“If consumers really understood it, they would never agree to working with a double

“I tell my clients that a dual agency situation would be akin to sharing an attorney
with your soon-to-be-ex-spouse in a divorce.”

“I’m constantly amazed how Realtors don’t see dual agency and affiliated business
relationships as a huge conflict of interest.”


Scenarios When a Higher Offer Is Not the Best Offer

In some situations, the higher offer is not always the best offer and may not be the reason why a seller accepts an offer. Sellers may have other circumstances that will dictate which offer is the best one to fit their current needs and their plans after the sale:


All Cash Offers

All Cash Offers are becoming very common with the proliferation of property technology, (AKA proptech), firms that make this transaction possible for almost any buyer. All Cash Offers are less cumbersome and less risky for sellers, as there is no need to wait for the approval of the buyer’s mortgage bank to approve a loan, so the deal can be executed quickly.


No Contingencies

Sellers of older homes prefer no contingencies, or terms and conditions that must happen before a sale is actually executed. This is good for homes that require major renovations, or have sustained some type of damage, such as foundation or water issues that would cost more to repair than a seller is willing to finance. Also, buyers who must sell their current home cannot guarantee that their home will sell, and oftentimes sellers are not willing to wait out the buyer’s home sale issues in order to sell their own home.


Timing or Shorter Escrow Period (e.g. Close in 30 days)

In situations, such as a death, illness or a need to move quickly, shorter escrow periods are preferred by sellers. In contingency situations, such as the purchase of another home, the seller needs to time their sale with the purchase of their new home.


Inheritance or Probate Sale

When a parent or loved one dies and leaves their property to children or another person, it makes sense to find the most expeditious way to sell. This approach assumes that the sale price is on par with current market valuations.


Relationship Between Buyer and Seller (e.g. An Internal Sale)

Homes sold between relatives, or during divorce, may be part of a court-ordered settlement arrangement and would not be influenced by a higher competing offer.

Sometimes a real estate deal is structured outside of the normal channels, due to personal circumstances. If the seller wants the property to be purchased by a relative or friend, for example, then a dual agency can represent both parties and not entertain any “outside” offers. Neighbors may get wind of the property being for sale, yet their offers would not be presented to the seller at his discretion.


Profit Sharing of a Future Flip Sale (e.g. FlipSplit)

FlipSplit, a real estate investor firm based in Los Angeles, recently introduced a new hybrid business model. The firm not only makes “instant” all-cash offers to home sellers, but it also offers a 50% share of the future profit from a post-renovation “flipped” transaction.

If the seller were presented a FlipSplit opportunity, it may make more sense to take a lower upfront asking price. The home seller could hold the belief that a post-renovation sales price could earn significantly more in profit when combined with the initial sale price, than would an upfront “As Is” offer price.

FlipSplit’s business model allows the seller to share in the profits of the newly remodeled home that they flipped. The net profits of the resale amount are shared 50/50 between the seller and FlipSplit. The lower the cost to FlipSplit, the higher the profit on the resale.


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