There are three different types of representation for real estate transactions. The first is exclusive representation where two agents from two different brokers represent the parties. This is the ideal situation, where each agent can effectively advocate for their client. But there are two more types of representation: dual and designated. Because you may encounter one of these setups in your work as a real estate agent, this post will summarize and compare them.
What Is a Dual Agency?
A dual agency is a situation where one agent represents both buyer and seller in a real estate transaction. This agent, of course, works for only one broker. An equivalent in law would be a divorce lawyer representing both members of a couple during the proceedings.
Because of the potential conflict of interest, in a dual agency situation, the real estate agent's role is limited. They cannot negotiate on behalf of either party. This typically happens in three situations:
An unrepresented buyer contacts a listing agent about a property, and the listing agent manages the entire transaction.
Real estate developers and investors are both well-informed and do not need help negotiating.
A single brokerage or agent controls most of the real estate market in an area.
Both the benefits and drawbacks of dual agency are tied to the agent getting two commissions: one for buying, and one for selling. As an example, an agent helping a seller may promote the offer of a buyer they're representing to get the buyer's commission as well. This is particularly common in hot markets.
The main disadvantage of a dual agent is that the agent cannot support either party in the negotiation. If the transaction is tricky, both buyer and seller do not have access to someone advocating for them. It's also easy for an agent to fall into a conflict of interest. Dual agency is definitely not beneficial to buyers and is not widely practiced.
What Is a Designated Agency?
A designated agency is when two agents from the same broker represent the parties in a real estate transaction. Designated agency can also be called appointed agency.
In a designated agency situation, each party is able to get representation from a different agent, although both agents work for the same broker. It is significantly more ethical, even though there are still risks of collusion between the agents. The agents are able to fully represent their clients, but the broker must remain a neutral party and cannot help the agents it supervises.
Designated agency can happen when:
An unrepresented buyer contacts a listing agent, and the listing agent puts the buyer in contact with a colleague from the same broker.
A single broker has a large part of the market.
Some brokers manage thousands of agents, so it can even happen organically.
In the case of large brokerages, the two agents may not even know each other. This situation happens more frequently than dual agency.
The conflict of interest here mostly concerns the broker, since it will get two commissions instead of one. The agents, too, may try to work with each other to benefit themselves instead of their clients. So although designated agency is more ethical than dual agency, there are still potential issues.
Dual and designated agency aren't legal everywhere in the United States, but most states have a disclosure requirement. Make sure to review the law in your state if you find yourself in a dual or designated agency situation. This information should also be part of your real estate license training.