Conflict of interest is the main issue at stake when one agent represents both the buyer and seller in a real estate transaction in NYC.
It is a term known as ‘dual agency’.
How do ‘dual agency’ transactions arise?
Though dual agency poses risks — and you should definitely get the guidance of an attorney — it may arise out of your actions and not out of a nefarious plan set out by the agent to collect both sides of the commission.
Let’s walk through two examples.
You are represented by an agent, a seller is represented by an agent — a different agent — and the two agents work at the same firm. In this case, though you and the seller have your own agents, the broker the two agents work under has dual agency. According to the New York State Department of State, “The real estate broker and his salespeople are ‘one and the same’ entity when analyzing whether dual agency exists.”
You are not represented by an agent, you search for properties on the internet, for example on Marketproof, and contact the listing agent of a property through the website. You go and visit the property and decide to work with the listing agent directly.
What are the legal ramifications of ‘dual agency’ in NY?
Dual agency is completely legal in NY State. However, a real estate salesperson or broker is required to fulfill several disclosure requirements before being permitted to transact as a dual agent. New York’s dual agency disclosure requirements were made effective in on January 1, 2011 with the amendment of Section 443 of New York State Real Property Law.
What are the risks for buyers and sellers when they use the same agent?
When an agent agrees to represent a buyer they promise “reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account”.
A seller’s agent also makes the same promise.
However, it’s impossible to make the same promise to both a buyer and a seller in the same transaction. As such, law requires that a disclosure document be signed stating that a buyer understands that they are giving up this right.
Such disclosure will address the following two points:
- Clearly explain the existence of dual agency and its implications to both parties
- Present both buyer and seller with a “New York State Disclosure Form for Buyer and Seller” in order to obtain a written acknowledgment from each party consenting to dual agency
What are the cons of ‘dual agency’ for a buyer?
The main disadvantage, as stated above, is not having a dedicated agent advocate for you during the buying process. This may manifest itself in many ways — the listing agent may not disclose all the “issues” with the property you are buying, they may not negotiate ardently for you regarding the price, especially after a home inspection. Also, they might close at a date that is preferable to the seller but which might not be best for you.
What are the pros of ‘dual agency’ for a buyer?
Using one agent makes it easier to coordinate showings, discuss pricing and prepare the board application (if you are buying a co-op or condo).
If you have conducted a home inspection, have a good attorney in place and are buying a new condo that has less likelihood of physical problems, a dual agency can be a good way to secure an in-demand property.
