Understanding Agency in Real Estate Transactions

By Charlie Ostlund, Ed.D., Realtor, MRS, SRS, ABR

An adage in Real Estate is: Q: “What’s the most important thing you want from the Realtor who has listed your property for sale?”; A: “A buyer!”. While this may be true, when considering the many roles provided by a Realtor, if the seller’s agent also becomes the buyer’s agent for the same property, known as “Dual Agency”, there are legal limitations regarding which of the roles that agent, as a dual agent, is able perform.

While Dual Agency is legal in Virginia (eight states outlaw it), Virginia legislators were concerned enough to change the Code of Virginia (54.1-2139) in July 2012, so that full disclosure in brokerage agreements is required in writing prior to the commencement of dual agency or dual representation. This written disclosure is included in both the Exclusive Right to Represent Seller Agreement, as well as the Exclusive Right to Represent Buyer Agreement. The push for transparency was designed to ensure that both buyers and sellers are aware of the services from their Realtor they are legally surrendering should they elect to agree to dual agency.

In short, both buyers and sellers, under dual agency receive a reduced level of service. In Virginia, a Realtor, as a Dual Agent is prohibited from advising either party as to the merits of specific terms, offers and counteroffers of a contract; they cannot advise a buyer client about the suitability of the property or condition (except for disclosures required by law); and are unable to advise either party in a dispute concerning the transaction that might later arise. In effect, the law renders the dual agent a non-negotiator on behalf of either client, mitigating one of the primary reasons for having a Realtor in the first place.

In Virginia there are four types of agency (representation) that are included in Brokerage agreements:

Seller representation occurs with Seller’s consent to use Broker’s services and may also include any cooperating brokers who act on behalf of Seller as subagent of Broker.

Buyer representation occurs when buyers contract to use the services of their own broker (known as a buyer representative) to act on their behalf.

Designated representation occurs when a buyer and seller in one transaction are represented by different sales associate(s) affiliated with the same broker. Each of these sales associates, known as a designated representative, represents fully the interests of a different client in the same transaction. Designated representatives are not dual representatives if each represents only the buyer or only the seller in a specific real estate transaction. In the event of designated representatives, each representative shall be bound by client confidentiality requirements, set forth in the CONFIDENTIAL INFORMATION paragraph. The broker remains a dual representative.

Dual representation occurs when the same broker and the same sales associate represent both the buyer and seller in one transaction. In the event of dual representation, the broker shall be bound by confidentiality requirements for each client, set forth in the CONFIDENTIAL INFORMATION paragraph.

In a time when almost all Realtors were individual agents, the distinction between designated and dual agency was much clearer than it is currently. In today’s world of Real Estate, many Realtors are working together as a team. In smaller communities, such as Lake of the Woods, where there are only a small number of Brokerages, the likelihood of designated agency occurring is common, and clients are still fully represented by their own agent (they just happen to work for the same brokerage firm). However, when the buyer’s agent and seller’s agent work for the same team the line between Designated and Dual Agency can become less definitive. For this reason, our broker, Coldwell Banker Elite’s official position is that when the team represents both sides of a transaction it is considered Dual Agency. Many other brokerages, do not consider different members of a Team representing the two sides of a transaction a Dual Agency transaction.

Often when an agent has many homes listed and represents many buyers, it is only logical that there will be times that one of their buyers will want to make an offer on one their listings. Just as the adage suggests, as the seller, you don’t want to lose a potential sale. Therefore, when interviewing an agent to list your home it is important that you ask the question regarding what their plan is if one of their buyers wants to purchase your home? A good place to start is to ask, “In the past year, in how many transactions did you or a member of your team represent both the buyer and the seller of a specific property and how was that handled.?” Even if a team has specific Buyer Agents and Seller Agents, the team itself is receiving both commissions, so this also provides the opportunity to inquire as to any adjustments the team may willing to make regarding reducing their total commissions.

As agents for Coldwell Banker in a case where a buyer we are working with would like to make an offer on one of the properties we have listed, we would refer the buyer to another agent that is not part of our team. This provides a much more transparent separation and eliminates any actual or perceived limitations of the services provided to each party.

There may be some cases where both the buyer and the seller wish to be represented by the agent they originally agreed to work with, especially if they have a strong relationship. It is totally up to the client and their willingness to receive a reduced level of service from their Dual Agent. Hopefully both clients have a clear understanding as to the potential conflict of interest and have determined in advance if the if their Realtor is to amenable to reducing the total commissions. The bottom line, as a buyer or seller, is to have a clear understanding regarding Dual Agency and ask in advance from your agent how things will transpire should the agent or someone from their team be representing both sides of the transaction!

The information contained within is the opinion and interpretation of the Ostlund team, and is not, nor is it intended to constitute legal advice. For further clarification we urge readers to research other opinions regarding Dual Agency or seek the appropriate legal counsel prior to entering an agency agreement.