Updated on January 30, 2024
The topic revolves around the real estate agent, more specifically the dual agent; responsible for most purchase and sale property transactions. Is navigating this process with a dual agent be a bad idea? What are the disadvantages of dual agency in California?
Unlike other states, in the State of California, most buyers and sellers rely on the assistance, advice, and guidance of a real estate agent to help them navigate every step of the purchase and sales process, including the preparation of real estate agreements and other documents. In other states, purchase and sale transaction usually involve the assistance of a real estate lawyer.
In connection with the same, the real estate agent acts as the liaison between the seller and buyer and also with escrow and title. Indeed, leading up to and during the transaction itself, nearly all communications go through the real estate agent. This means that during all critical steps of a purchase and sale transaction, including pre-contract negotiations, repair credit negotiations, and questions related to the condition of the property, the agent has the power to filter and decide how and what information it will ultimately convey.
Needless to say, any or all of these communications can affect whether a deal will ultimately result it a closed sale or not. Although real estate agents owe their principals a fiduciary duty of honesty and loyalty, there is necessarily some tension with the fact that the real estate’s agent’s compensation is directly tied to whether or not a sale closes. There are many good agents out there that can juggle and navigate this reality. Indeed, many agents can. However, there are some who cannot.
With that in mind, it is easy to see how having a dual agent who is supposed to represent the best interest of both sides can further complicate matters. For one, a dual agency with one real estate agent representing both sides (as opposed to a designated agency with two agents from the same brokerage), stands to gain a much larger benefit from the closed sale because it would not have to share the commission with the other side.
In addition, it is hard to see how a real estate agent can truly represent the best interests of both parties during negotiations involving important deal terms and repair credits. For example, a seller may be in a situation where a quick sale is really important and cannot afford to lose even a day to close.
This could potentially make the seller at mercy of a buyer who threatens to cancel if it does not receive repair credits. Where there are at least one agent on either side of each other, the seller’s situation could remain confidential, which could level the playing field.
However, in a dual agency situation, it is impossible for that agent to represent the best interests of the seller, i.e. a quick close at the maximum sales price, while also representing the interests of the buyer, i.e. closing at the lowest price and leveraging the information about the seller’s situation to accomplish the same.
The above scenario may not always arise in every transaction and there are dual agency sales that close without incident. Indeed, for a sophisticated buyer who can essentially act on behalf of itself in the transaction, a dual agency may be fine.
In addition, these potential issues could potentially be mitigated by the retention of counsel. However, in most instances, there will always be some risk arising out of the inherent tension in a dual agency where a real estate agent is required to juggle their own interest in obtaining a commission and closing the sale, the best interests of a seller, and the best interests of the buyer.
Schorr Law, APC has experience addressing issues and disputes that arise out of purchase and sale transactions, including transactions involving dual agencies. Schedule a consultation with one of our real estate lawyers in Los Angeles and let us review your case. Call us at 310-954-1877. You can also text (310) 706-2265, or send us a message here.