What is Dual Agency and Designated Agency in Real Estate?

3 min

Representation plays a critical role in ensuring that transactions are fair and beneficial for all parties involved. While exclusive representation, where each party has its own agent from different brokerages, is considered ideal, there are instances where dual agency and designated agency come into play. 

This article aims to shed light on these two types of representation and their implications in real estate transactions.

How Does Dual Agency Work?

Dual agency occurs when a single real estate agent represents both the buyer and the seller in a transaction. This agent is affiliated with only one brokerage. A common analogy is a lawyer representing both parties in a divorce, which highlights the potential for conflict of interest.

In a dual agency scenario, the agent's role is restricted. They cannot negotiate on behalf of either party, as their duty is to remain neutral. This arrangement typically arises in situations such as:

  • An unrepresented buyer approaches a listing agent directly.
  • Real estate developers and investors, who are well-versed in the market, handle negotiations themselves.
  • A single agent or brokerage dominates a specific real estate market.

The primary advantage of dual agency is financial, as the agent earns commissions from both the buying and selling sides. However, this can lead to ethical dilemmas, such as an agent favoring one party's offer to secure a commission. The main drawback is the lack of dedicated advocacy for either party, which can be particularly problematic in complex transactions. Consequently, dual agency is not highly favored, especially among buyers.

How Does Designated Agency Work?

Designated agency, also known as appointed agency, occurs when two agents from the same brokerage represent the buyer and the seller in a transaction. This setup allows each party to have their own representative, even though both agents are under the same broker's supervision. The broker, in this case, must remain impartial and cannot assist either agent.

Designated agency can occur in scenarios such as:

  • An unrepresented buyer is referred to another agent within the listing agent's brokerage.
  • A single brokerage dominates a large portion of the market.
  • Large brokerages with thousands of agents, where the chances of two agents representing opposing parties are higher.

While designated agency is considered more ethical than dual agency, there are still potential conflicts of interest. The broker benefits from double commissions, and there's a possibility of collusion between agents to serve their interests over their clients'. However, in large brokerages, the likelihood of agents working together unethically is reduced due to the sheer number of agents involved.

Is Dual Agency Illegal?

It's important to note that dual and designated agency are not legal in all U.S. states, and many have disclosure requirements for these arrangements. As a real estate professional, understanding the laws in your state and ensuring compliance is crucial. This knowledge is a vital part of your real estate license training, preparing you to handle these situations ethically and legally.

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TL;DR: This article examines dual and designated agency in real estate, highlighting ethical concerns and conflict of interest. Dual agency involves one agent for both buyer and seller, limiting negotiation and raising ethical issues. Designated agency provides separate agents within the same brokerage, enhancing representation but still posing conflicts. The discussion underscores the importance for real estate professionals to understand these concepts, particularly for licensure exams.

3 min