Report Raises Concerns Over Dual Agency

January 16, 2019

Consumers are confused when it comes to dual agency arrangements in real estate, according to a new report from the Consumer Federation of America that reflects results from a consumer survey and a mystery shopper survey of real estate agents.

Two-thirds of consumers surveyed believe that real estate agents are always or almost always required to represent the interests of the home buyer or seller they’re working with. However, they’re confused when agents can also work with the other party.

“Today, many home buyers and sellers do not know whether their agent is representing their interests, those of the other party, or those of neither,” says Stephen Brobeck, a CFA senior fellow and author of the report. “Given the huge expenditure of a home purchase and the conflict of financial interests between seller and buyer, it is important that consumers know who their real estate agent is actually representing.”

A road sign with arrows pointing in opposite directions.

Charliedoug - Morguefile

States have laws requiring real estate interests and relationships to be disclosed to clients. But the CFA report suggests the laws may not be sufficient. The report says that the laws typically define agent roles as “agent,” “subagent,” “transactional agent,” “designated agent,” and “dual agent”—words consumers say they do not understand.

Also, the CFA notes that these disclosures could be diminished by the fact that they are only required to be given orally and may not be required early on during the home purchase. The CFA also notes that some agents are failing to make these disclosures or mention dual agency issues.

The failure of these disclosures can harm consumers, the report says. For example, home buyers who think subagents are working for them often have disclosed information about their finances and house price ceilings that the subagents are then legally required to share with sellers.

The CFA report calls for reforms including the prohibition of dual agency. Eight states currently ban the practice. Also, the report calls for clearer written and verbal communications from the real estate professional to the consumer about whether the agent will function as a fiduciary agent, subagent, or transaction agent or facilitator and what exactly that will mean to them.

“These reforms would benefit both consumers and real estate agents,” Brobeck says. “More informed home buyers and sellers will make better decisions. … And agents will not face the risks and ethical dilemmas of dual agency and undisclosed subagency.”

Read the CFA’s full report.