Why Dual Agency is Bad for Home Buyers and Sellers

Why Dual Agency is Bad for Home Buyers and Sellers

Historically, many home sellers have believed that their best course of action is to hire a real estate agent who could "bring me a buyer." Home buyers have similarly, historically, tended to underestimate the value of  having their own representation in a home purchase. In part, many people have believed the myth that they can save money by not hiring their own agent.

Although it may seem like an attractive or easy option to buy or sell your property, with quicker communication and a smaller chance for mix-ups, we believe that the practice of dual agency is a net negative for both buyer and seller. Let’s explore why...

What is Dual Agency?

Dual agency is what happens when both a buyer and seller are represented by the same agent in a single transaction.

As an example, let’s say Mike is the listing agent for a gorgeous property in Lincoln Park. The sellers are long-time clients of his. 

Mike also has a new buyer client who is looking to move into this particular neighborhood. That buyer looks at that Lincoln Park property and decides to make an offer. Mike agrees, and writes up the offer on behalf of his buyer client and delivers it to his seller client. Mike is now acting as a dual agent, representing both the sellers and buyer in the same transaction. 

What’s the Problem?

Here’s our perspective. At the end of the day, the real issue is that Mike is now “serving two masters,” which puts him – and his clients – in a difficult legal and financial position.

The heart of the problem is that Mike's job, as an agent, is to emphatically represent the best interests of his clients. But when his sellers want the highest price and his buyers naturally desire the lowest price, how can he fairly represent both?

Let’s look at another common scenario: Say Mike is hosting an open house at his Lincoln Park listing when a buyer walks in, ready to make an offer. While the best real estate agents would refer the buyer to another agent to complete the transaction, Mike might smell a steal. And if Mike has a long-term relationship with his sellers, while the buyer is relatively unknown, his incentive may be to tip the scales toward the sellers. Though he claims to be representing both parties, Mike now has a conflict of interest.

There are other problematic scenarios that could come up in dual agency, as well. For instance, one situation worth discussing is how a listing agent could disenfranchise other prospective buyers, because he is representing one interested buyer party in addition to his sellers. In other words, in cases like this, the broker may be tempted to steer his seller to the clients that he represents, and give them the "win" so that he can collect both sides. In doing this, though, he is under-serving his sellers - who may actually have been better off with another offer, one not represented by their agent. In some cases, a dual agent may even be tempted to suppress a better offer, perhaps one with a higher purchase price or better financing terms, in order to give his buyers a leg up. This is a major conflict of interest, as well. 

When it comes to dual agency, there’s also the tricky problem of disclosure and access to information. Suppose Mike knows some information about his sellers that could impact the sale: Maybe they need to sell because they're getting divorced, or, say, they have another baby on the way and they’re desperate to upsize. But Mike knows that sensitive information in confidence, and he cannot share it with his buyer client. In a scenario like this, all parties will come out losing since Mike will be unable to truly negotiate a fair deal – and if he trades on confidential information, he runs the risk of running into a major ethical and professional dilemma.

The Bottom Line

Although it is allowed in Illinois, there is reason that dual agency is actually illegal in some states, while others require certain disclosure requirements to be met. 

In just about every case, our belief here at Real Group RE is that it is better for each client to have separate and individual representation.

Were we in Mike’s position in any of those circumstances, we would strongly advocate that the buyer, whether previously represented by us or not, seek representation by an unaffiliated agent. If we were working with them already, we would refer them to another capable agent.

In the end, when it comes to dual agency, the risk for potential problems far outweighs any benefits.  

When you’re looking to buy or sell with brokers that has your best interests at heart, drop Real Group a line! We have the experience and the resources to help you find your perfect home.

Real Group Real Estate

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2526 N Lincoln Ave
Chicago, IL 60614

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