August 17, 2021

Dual Agency Brokers Are A Major Risk And Should Be Avoided

The process of engaging in a complex financial transaction is highly legalistic and involves entities coming together to complete the transaction. The process should not be made so complex as to confuse and frustrate those looking to make a transaction. One situation that those getting into a financial transaction should be aware of is a type of broker known as a dual agency broker. The term might sound rather harmless on the surface, but there are risks to dealing with a dual agency broker that everyone should be aware of. 

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What is a Dual Agency Broker? 

A dual agency broker is an individual who has entered into an agency relationship with both sides of a general financial transaction. In other words, they have a foot in both camps and are not fully committed to either one. This is not ideal because it means that the broker is unlikely to be able to act impartially when disputes or issues arise (as they nearly always do at some point in a transaction). The broker will always be thinking about which side of the transaction is more profitable for them at that moment. A website detailing all things related to the mortgage industry lays it out perfectly here: 

At best, they say, dual agents can't fulfill their fiduciary obligations to both parties. They can't advance the best interests of both buyer and seller because those interests always diverge.

At worst, the dual agency creates a harmful conflict of interest.

Conflicts of interest arise almost immediately in a situation where an agent is acting on behalf of both sides of the transaction at the same time. 

Both Sides Suffer

Academics have researched how dual agency brokers operate compared to traditional brokers (those who are only on one side of the transaction) to see how they compare to one another and essentially to see if one option is superior to the other. The stark reality is that when dual agency brokers are involved, everyone suffers. 

What this means is that the dual agency broker is pressuring one side or the other of the transaction to work against their best interest. The broker convinces both sides to do the exact opposite of what is in their best interests if it means that they as the broker can step in and make more profits for themselves. Either way, they are trying to move the two parties away from the natural middle ground that likely would have otherwise been found in favor of making a faster sale or making a bigger commission. 

Legal Matters

Certain states have taken it upon themselves to issue broad legal advice to the public to be wary of dealing with dual agency brokers in real estate transactions. One notable case is the state of New York and the legal memorandum that it issued stating that dual agency brokers pose a significant risk to both buyer and seller in real estate transactions. In fact, the state is going so far as to say (in the same legal memorandum) that participants in a real estate transaction who opt to use a dual agency broker must first sign an acknowledgement of what they are getting themselves into: 

That acknowledgment requires each principal signing the form to confirm that they understand that the dual agent will be working for both the seller and buyer, that they understand that they may engage their own agent to act solely for them, that they understand that they are giving up their right to the agent's undivided loyalty and that they have carefully considered the possible consequences of a dual agency relationship.

This is clearly a flashing red sign that the state of New York does not have full faith and confidence in the concept of dual agency brokers. They want to strongly discourage everyone in the state (and beyond) to avoid using them. 

One of the defining reasons for the state to come out so aggressively against dual agency brokers is the fact that lawsuits against these brokers are on the rise. A high-profile one is taking place in New York right now that calls into question the very concept of these brokers and their ability to serve their clients at all. The reality is, the public has largely lost faith in dual agency brokers to do their work without participating in deceptive practices. 

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Better Advantages of Using an Exclusive Broker

On top of all the pitfalls and downsides to using a dual agency broker is the fact that exclusive brokers can provide a whole range of benefits as well. For example, exclusive brokers are obviously useful in that they can dedicate their full time and attention to your side of the transaction. They have your interests exclusively in mind, and they are not splitting up their time between you and the other side of the deal. 

Exclusive brokers can spend more time with you working out the details of what precisely you want to get out of your financial dealings. They are not going to forcefully push you in any direction that does not satisfy your needs. They can wait it out with you until you find the type of financial transaction that is ideal given the circumstances that you find yourself in. 

Another thing to keep in mind is that working with an exclusive broker can be ideal for the long term as well. Should you decide to engage in another complex financial transaction down the road, or should you need to renegotiate some aspect of the deal that you already have, then you can go back to the same broker you worked with. That is much better than trying to get back in touch with a dual agent who was never fully in your corner.

Please contact us for the latest on why you should avoid dual agency brokers and the latest on financial markets and economic conditions in general. You do not want to miss out on all the twists and turns that continue to shape financial transactions.