In most real estate transactions, the buyer and seller are each represented by their own separate agents: one buyer’s agent and one listing agent. Each agent protects their individual client’s interests. It’s also possible, however, for both the buyer and seller to work with the same real estate agent in an arrangement called dual agency.

Having only one agent involved in a transaction can simplify the process. But it also presents the risk that the agent may favor one party over the other — specifically the seller, as their commission fee hinges on the final sale price of the house. In fact, in several states, acting as a dual agent is actually illegal. Still, if it’s permitted in your state, it can be worth considering. Here’s what you should know about dual agency, whether you’re a buyer or seller.

What is dual agency, and how does it work?

Typically, when a buyer searches for and purchases a home, they do so with the help of a buyer’s agent — an agent who works specifically for them, helping them find and buy the right property. The seller of a home, meanwhile, works with their own dedicated agent, whose job is specifically to market and sell their home (usually referred to as the listing agent, as they manage the listing). Each agent in the transaction works on behalf of their respective party under a principle known as fiduciary duty, which means each must act in their own client’s best interests. But in a dual agency situation, the same real estate agent represents both the buyer and the seller of the home.

Dual agency often occurs when the buyer and seller of a home use the same brokerage. It can also happen when a buyer approaches the listing agent directly, such as through a for-sale sign or online listing, without being represented by their own buyer’s agent.

Here’s an example: Say you’re a buyer who’s just starting to look at homes, and you are not yet working with an agent. You attend an open house, love it, and chat with the agent hosting it, who is representing the seller. You hit it off with that agent and decide to work directly with them to submit an offer and purchase the home. If that agent agrees, they are now a dual agent, representing both parties in the transaction.

Whether you’re the buyer or the home’s seller, it’s important to understand how you’re being represented. Both parties must formally agree to a dual agency arrangement, notes Than Merrill, a real estate investor and founder of FortuneBuilders. “For an agent to represent both sides in a real estate transaction, they must receive informed consent from the buyer and the seller,” he says. “If either the buyer or seller isn’t comfortable with the idea, they reserve the right to opt out of the deal.”

Risks of dual agency

By its nature, dual agency can present very real conflicts of interest.

A real estate agent’s commission is based on a percentage of how much the home sells for — in other words, the higher the sale price, the more money they earn. So they “are incentivized to bid up the sale price,” Merrill says. “That’s not to say that all dual agents don’t have their customers’ best interests in mind, but rather that the incentives inherently work in favor of sellers.”

It also raises potential ethical questions. “Dual agency in and of itself is not unethical, but there are actions and tactics that could be sneaky,” says Farid Yaghoubtil, an attorney with Downtown LA Law Group in Los Angeles. He notes that “both the buyer and seller may be under the impression that the agent is biased toward or favoring the other party, which can result in suspicion, mistrust and anger.”

Overall though, buyers and sellers can usually count on getting fair, if not full, representation in a dual agency transaction, says Deb Tomaro of Bloomington, Indiana’s Deb Tomaro Real Estate. “For example, if I am the agent in a dual agency arrangement, I cannot make suggestions to a buyer about how much to offer, because that’s not fairly representing the seller,” she says. “If a buyer tells me he wants to see a list of all homes with 2,000 square feet that sold in the past year in the same neighborhood, I can run that report. But I can’t help him interpret it or point out differences. I can only provide the facts.”

Is dual agency illegal?

For these and other reasons, some U.S. states actually prohibit the practice of dual agency. “The fact that it is illegal in several states should be enough to give some parties pause and elicit further consideration,” says Yaghoubtil. Real estate dual agency is illegal in these eight states:

Alaska
Colorado
Florida
Kansas
Maryland
Texas
Vermont
Wyoming

Advantages of dual agency

While dual agency can be inherently problematic, it can also offer advantages — namely, a smoother transaction.

“Since both the seller and buyer are working with the same agent, documents can be prepared and signed more quickly,” says Raj Dosanjh, founder of Rentround, a rental agent-matching platform. “There will be one person who knows everything about the property. This can eliminate excessive back-and-forth questions.”

Another plus? The seller has more leverage to request a reduced commission fee, since there’s only one agent. “You can use the single point of payment to your advantage,” Merrill says. “You may be able to negotiate lower commission fees when the dual agent doesn’t have to split profits with anyone else.” (Read more on this below.)

Who pays commission in dual agency?

In a traditional two-agent transaction, each agent earns a portion of the overall commission. In contrast, a dual agent will receive the entire commission on the transaction, since there’s no second agent to split it with. Thus, the amount can often be open to negotiation. For example, a dual agent may agree to a 5 percent commission instead of 5.5 or 6 percent, or maybe even less, since they do not have to split the fee with anyone else.

As for who pays that commission, buyer or seller, it used to be that the seller paid the commission for both agents out of their sale proceeds. But that is changing thanks to new commission rules going into effect after a federal lawsuit, which are due to kick in this August. Be sure to hammer out the details of who is paying what percentage of a dual agent’s commission beforehand, and have it clearly spelled out in the purchase and sale agreement.

Bottom line

Dual agency is legal in most states and can make for a more convenient transaction, provided you understand the risks. But it isn’t often recommended. “I believe buyers should have their own representation and enlist their own agent before they start looking for homes,” Tomaro says. “Having representation with a Realtor you trust and develop a relationship with will always end better than just calling a random name on a sign and having them represent you.”