Conflict of Interest for a Real Estate Agent

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If you are in the market for a piece of real estate, you will need to approach the services of a real estate agency that will conduct business negotiations on your behalf. If you use the services of a dual agency, however, it may not be acting in your interests, but rather seeking to maximize its commissions.

The Role of a Dual Agency

A dual agency is a type of real estate agent consultancy. Unlike a single agency, where agents separately represent the buyer and seller, a dual agency handles the interests of both parties. There are thus three parties involved in the real estate transaction. However, the problem with such agencies is that they represent the differing interests of both the buyer and seller. Where the seller of a property is seeking the highest possible price, the buyer is looking for the lowest possible price.

Conflict of Interest

Because the seller is seeking the highest price possible, and because the agencies commission, or "cut," is linked to the final selling price of the property, the dual real estate agency will often seek to align its interests with the seller. As a result, the buyer will in effect be using a service that is not working in his best interests. In the end, the property tends to be weighted toward the highest price possible.

Licensing Laws

Each state manages its own licensing laws for addressing the conflict of interest of real estate agents. A licensed dual agency is prohibited from acting as an agent for both the buyer and seller unless this is explicitly explained to all parties involved. Buyers and sellers must therefore sign a dual agency contract that states the roles and motivations of the dual agency. Furthermore, many licensing laws forbid the working of special relationships between the agency and the seller. By having all parties sign a dual agency contract, they are aware of the potential for a conflict of interest.

Dealing With Dual Agencies

Many dual agencies are in fact broken down into two parts: one that represents the buyer and the other that represents the seller. Each of these parties seeks to maximize the interest of the party it represents. To avoid any possibility of a conflict of interest, the easiest solution is often using the services of a single agency. A single agency, working for the buyer, is primarily interested in obtaining the cheapest price for its client. Using the services of an agency that charges a set fee rather than a variable fee will also mitigate any motivations to secure a higher selling price.

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