How Does Commission Work in Dual Agency Situations?

In real estate, a dual-agency situation arises when a single agent represents the buyer and the seller in the same transaction. While this setup can streamline communication, it also changes how the commission is structured and raises potential conflicts of interest. Typically, the agent in a dual-agency scenario earns the total commission that would otherwise be split between two agents in a traditional transaction. However, with this financial incentive comes the responsibility to remain neutral, ensuring neither the buyer nor the seller is unfairly advantaged. 

Key Points to Know About Dual Agency 

1. One Agent, Two Roles: In a dual agency situation, a single real estate agent acts on behalf of both the buyer and the seller. They are responsible for facilitating the entire transaction, from negotiations to closing. 

2. Full Commission: The agent typically earns the full commission—usually 5% to 6% of the sale price—that would otherwise be split between two agents (the buyer’s agent and the seller’s agent). 

3. Disclosure Required: Dual agency requires full transparency. Both the buyer and the seller must be informed of the dual agency arrangement and consent in writing. 

4. Neutrality Obligation: The agent must remain neutral and is legally obligated to avoid favouring one party over the other. This means they cannot provide advice that would benefit one side at the expense of the other. 

How Commission Works in Dual Agency Situations 

In a typical real estate transaction, two agents are involved: one representing the buyer and the other representing the seller. The total commission, often ranging from 5% to 6% of the home’s sale price, is divided between these two agents, each receiving half. However, in a dual-agency scenario, the same agent represents both the buyer and the seller, earning the full commission. 

Full Commission Earnings 

The most notable financial difference in dual agency situations is that the agent receives the entire commission. For example, if a commission rate is 6%, the agent would keep the complete 6% rather than splitting it with another agent. This makes dual agencies financially attractive to agents. 

For instance, consider a home sold for $400,000 with a 6% commission rate. In a traditional transaction, the buyer’s and seller’s agents would earn $12,000 (3% of the sale price). In a dual agency scenario, the agent representing the buyer and seller would earn $24,000 (6% of the sale price). 

While this financial incentive is clear, it comes with additional responsibilities. The agent must now balance the interests of both parties while following the legal and ethical guidelines that govern the dual agency. 

Neutral Representation 

One of the biggest challenges of dual agency is that the agent must remain neutral throughout the transaction. In a standard transaction, each party’s agent would advocate on their client’s behalf to secure the best deal. However, in a dual agency, the agent cannot offer advice that would give an advantage to one party. They must act as a facilitator rather than an advocate. 

For example, the agent cannot advise the buyer on how low to offer on the property or suggest how to counter an offer to the seller. Instead, the agent’s role is to present both parties with the relevant information and allow them to make their own decisions. This neutral stance can make negotiations more challenging, as buyers and sellers rely on their agents to help them navigate these conversations. 

Disclosure and Consent 

Another critical requirement of dual agency is full disclosure. The buyer and seller must be informed that the agent represents both parties. This is typically done through a written dual agency disclosure form, which outlines the agent’s role and ensures both parties understand the implications of the arrangement. 

They can request separate representation if either party is uncomfortable with the dual agency setup. If the agent fails to disclose the dual agency, they risk legal penalties and may forfeit their commission. In states where dual agency is legal, disclosure is critical to ensure transparency and avoid conflicts of interest. 

State Regulations 

It’s important to note that dual agency is prohibited in all states. Some states have banned the practice due to potential conflicts of interest, while others allow it but impose strict regulations. For example, dual agency is permitted in California, but agents must adhere to stringent disclosure requirements. In contrast, states like Colorado prohibit dual agency entirely, recognizing the inherent challenges in remaining neutral while representing both parties in a transaction. 

Where dual agency is legal, agents must follow specific rules designed to protect both the buyer and the seller. These rules ensure that the agent does not provide advice that could unfairly benefit one party. 

The Role of Neutrality in Dual Agency 

One of the most significant challenges of dual agency is the agent’s obligation to remain neutral. When representing both parties, the agent cannot favour the buyer or the seller. They must objectively present all offers and counteroffers, allowing both sides to make informed decisions without any strategic advice that could tilt negotiations. 

For example, a buyer might ask an agent whether to make a lowball offer on a property. In a traditional transaction, the buyer’s agent could advise on how much to offer based on market conditions, comparable properties, and the seller’s motivations. However, in a dual agency scenario, the agent cannot provide this advice, which could disadvantage the seller. Instead, the agent would present relevant market data and let the buyer decide on the offer. 

Similarly, the agent cannot suggest that the seller counter an offer at a higher price or offer concessions to close the deal faster. Both parties must rely on their judgment and seek outside advice, as the agent cannot provide counsel favouring one side. 

Considerations and Implications of Dual Agency 

Alternative Perspectives 

While dual agencies can streamline the transaction process by having only one agent involved, it also creates potential conflicts of interest. Buyers and sellers may feel that their interests are not being fully represented. Without an agent strongly advocating for their needs, both parties might worry they are not receiving the best possible deal. 

For instance, a buyer might feel that the agent is more aligned with the seller’s interests, primarily if the agent has worked with the seller before. Conversely, the seller might think the agent is trying to push the sale through at a lower price to close the deal quickly. These concerns can lead to tension and dissatisfaction, even if the agent does their best to remain neutral. 

Implications for the Transaction 

Dual agency can speed up the transaction process since only one agent coordinates the deal. With fewer people involved, communication is often more straightforward, and decisions can be made more quickly. However, the trade-off is that both parties may feel underrepresented, as the agent is not advocating for their specific needs.

Additionally, buyers and sellers in dual agency situations should be prepared to rely on their judgment or seek outside counsel when making important decisions. Without an agent providing tailored advice, both parties must be more independent in navigating the complexities of the real estate transaction. 

Conclusion 

In dual-agency situations, a single agent represents both the buyer and the seller, earning the full commission that would typically be split between two agents. While this setup can simplify the transaction process, the agent must remain neutral and avoid favouring one party. Full disclosure and written consent from both the buyer and the seller are essential to ensure transparency and mitigate potential conflicts of interest. 

Dual agencies can offer both advantages and challenges for agents and clients. For agents, it presents the opportunity to earn a larger commission but also requires strict neutrality and ethical responsibility. For buyers and sellers, dual agency can streamline communication, but it may also lead to concerns about underrepresentation. Ultimately, both parties must fully understand the implications of dual agency before agreeing to the arrangement, ensuring that their interests are adequately protected.