Dual agency is commonly misunderstood.  Some buyers may unknowingly confide in an agent with the perception that the agent is working with them as a buyers' agent.  In fact, the agent does not legally represent their best interest but is actually working as a  seller  subagent as required by cooperation agreements with the listing firm or agent. 

• Undisclosed, Unintentional Dual Agency

In dual agency,  buyers are sometimes not aware that the agent working with them actually represents the seller as a subagent.  This can lead to confusion.   If the agent does not conduct him/ herself properly, their actions could mislead the buyer into thinking that the agent represents them. The agent must be very careful to not  give the impression that he/she is working for the buyer. Improper conduct by the agent could result in the creation of undisclosed, unintentional dual agency. 

In states that permit dual agency, a real estate agent (or firm) may not represent more than one party in the same transaction without the full knowledge and written consent of all parties. 

Dual agency is most likely to occur when a buyer,  represented by a buyer’s agent, wants to purchase a property listed by that same agents' firm.  A dual agent must carefully explain to each party that the agent and the agent’s firm are also acting for the other party for whom they have the property listed.

Examples of Dual Agency

•  Agent A has a contract to sell Homeowner Bs' home and he also shows potential buyers the home. (He represents both buyer and seller). 

In this situation, both seller and buyer must agree in writing to this arrangement. The agent must carefully represent each party.  (It is difficult for the agent to try and help the seller obtain the highest possible price for their home AND try to help the buyer obtain the lowest amount possible.

• Agent A desires to show a potential buyer one of  his own firms' listings. 

Under the firms' relationship with the seller,  this too can be considered dual agency. The agent must disclose that the firm represents both seller and the  buyer. 

Practical Problems with Dual Agency

• Buyers and sellers have conflicting interests - In a general sense, the real estate agent is obligated  to serve the best interests of  his or her principal.  An agent representing both buyer and seller must be extremely careful to represent both equally and fairly.   Under the common law of agency, if an agent chooses to represent both parties, this dual agency must be fully disclosed in writing and consensual by both parties.
• Both parties lose "advocacy" for their best interests - By representing both client's (with conflicting interests), the agent cannot advocate or seek an advantage for either client.  A dual agent must always remain neutral even if he/she has previously represented one of the parties exclusively and cannot show favoritism.  Providing equal service to both clients may be practically difficult.   Some states do not permit dual agency. 
• How does an agent handle personal information about a client?  The dual agent may become aware of personal information that does not necessarily relate to the property but,  if disclosed, could harm one party and benefit the another.  

Example: Agent A lists commercial property for seller B with an offering price of $500,000.  Seller B tells the agent that he is in need of cash and will take as low as $425,000 for a quick sale.  In a  morning staff meeting the next day at Agent A's firm,  Agent A informs  other agents of the buyers bottom line price and need to sell quick.   Agent C  (another agent with the firm) acquires a buyer who is interested in the property.  (Agent A and C at this point become dual agents).  

The above example creates a unique situation since under traditional agency law, Agent C must disclose the sellers bottom line.  At the same time, the firm and selling agent are obligated legally to act in the best interest of seller B without disclosing personal information about the seller that might harm the sellers' bargaining position.   One possible solution to the above dilemma is for the agent to include, in the dual agency contract, a provision that the dual agent cannot be liable to either party for refusing  to disclose information the law does not require be disclosed and which could compromise (potentially harm) one party's bargaining position and benefit the other party.

Key Issues In Dual Agency

Courts vary in their interpretation of what is acceptable and not all states endorse dual agency.   Primary issues in determining equitable treatment in dual agency include:

• Did the agent provide timely disclosure of dual agency and were the potential consequences of dual agency sufficiently explained to both parties?   Generally, both clients must provide "informed consent" meaning that not only do they consent but that they sufficiently understand the agency relationship.    
• Did the agent treat each party equally fair and comply with his/her duties required under the laws of agency?   Most importantly, a dual agent cannot favor one party over the other.  All the disclosures in the world will not relieve the Agents' liability if  he/she advocates for one client at the expense of the other.  It is not yet clear by the courts whether the loss of advocacy (in dual agency) results in a reduction of the agent's "duty" to the client. Proper explanation and advance authorization by all parties in the initial agency contract is the critical factor.