Is dual agency legal in Illinois?

When you're involved in a real-estate transaction, do you assume that the realty agents are required to represent the best interests of the home buyer or seller with whom they are working?

The Consumer Federation of America recently posed that question to a national survey sample of adults, and 50 percent answered yes. Another 16 percent said "yes, almost always." So two-thirds of consumers in the survey had roughly the same impression.

Advertisement

But a new report from the Consumer Federation — an umbrella group representing nearly 300 local and state consumer organizations — suggests that it's not necessarily so. The reality, according to the study, is that “real estate agents often are not required by law to represent the interests of buyers or sellers.” As a result, sometimes things can go seriously awry.

The study cites ongoing litigation in New York, where clients of a major realty brokerage firm have filed suit alleging that the company “has stripped thousands” of buyers and sellers of the right to employ an agent who is “loyal to them and only them” through its alleged misuse of “dual agency.” In a dual-agency situation, agents of a single brokerage purport to represent both sides of a transaction, the seller and the buyer. The broker and agents in these cases pocket the entire real-estate commission rather than having to split it with a competing firm's agent.

Advertisement

The plaintiffs in the New York case claim that they were pushed into either paying tens of thousands of dollars more for a house or selling a house for much less than it was worth because the agents were working for the same broker — an inherent conflict of interest designed to keep the full commission “in house.” They also allege that the realty company made it a practice to do large numbers of 100 percent in-house-commission transactions to maximize its revenues, despite the potential harm to its clients. Among other things, the company allegedly paid its agents bonuses when they brought in both sides of the commission. The brokerage has denied the allegations.

Dual agency is legal in 46 states, according to Finley Maxson, senior counsel for the National Association of Realtors. Illinois is one such state. Typically the brokers or agents involved are required by state law to disclose the arrangement to clients, but the CFA says that rule is not always followed or disclosures are presented in a paperwork blitz and clients fail to focus on them.

Stephen Brobeck, author of the new report and immediate past executive director of CFA, says the vast majority of consumers don’t understand the varying types of representation by realty agents. The key question they need to ask before agreeing to work with any agent, he says, is: Will you be representing us exclusively throughout the transaction and have a fiduciary duty to us? A fiduciary duty means that the agent is legally obligated to “procure the greatest advantage” for the client.

Among the common forms of representation examined in the CFA study:

• Single agent. In this case, the agent works solely for the client and has a fiduciary responsibility to the client.
• Subagent. This is where the agent works with the buyer but has a fiduciary duty to the seller.
• Transactional agent. In this case, the agent works with both the buyer and seller to facilitate a sale but has no fiduciary responsibility to either party.
• Dual agency. The study describes this as an arrangement whereby “the agent somehow is expected to represent the interest of both the seller and the buyer in a home purchase.”

“The Holy Grail is to capture the entire commission,” Brobeck told me. “The listing agent might say to the seller, we've got a hot buyer for your house” who happens to be a colleague.

In the New York case, one plaintiff alleges that she sought to buy a four-bedroom house for its list price of $599,900 but was pressured to pay $635,000 by her agent. She subsequently received a disclosure form with a pre-checked box indicating that she was giving “informed consent” to dual agency — which was not provided to her in advance and thus violated state law. Another plaintiff says he was pressured to pay $125,000 more than he should have because of a dual-agency arrangement between agents.

The takeaway: If agents’ disclosures aren't clear to you, probe further. You need to know who — if anyone — has your best interests paramount.

Just as you can’t be in two places at once, some would argue that you can’t truly represent two sides of a real estate transaction at the same time. But dual agency — where a single agent represents both sides of a real estate deal — happens all the time.

“I would say probably 20% of my deals are dual agency,” says Connie Antoniou, an agent with Jameson Sotheby’s International Realty in Barrington, Illinois. “Which is kind of unusual — I’m doing more of it now than ever.”

Jenny Ames, an agent with Engel & Völkers in Chicago, estimates that she’s a dual agent in about 10% of her sales. “Sometimes it’s just that I’m working with a buyer, and I might interview for a listing, and it might be a great fit for somebody,” she says. “I know what they’re looking for, so I can get them in early.” Other times, she adds, buyers approach her directly, hoping to gain an advantage by working exclusively with the listing agent.

Also see our report: 

Working in both the Boston and Miami metro areas, Keller Williams Realtor Hudson Santana has a unique perspective on dual agency, since the practice is permitted in Massachusetts but prohibited in Florida.

Agents in Massachusetts can choose to be a seller’s agent, buyer’s agent or dual agent — or simply act as a facilitator, not representing either party. In Florida, meanwhile, agents can work as a single agent representing either the buyer or seller or as a transaction agent. (read more)

.

And yet, in other places, dual agency doesn’t happen at all. Eight states have outright banned the practice, from major markets like Texas, Florida and Maryland, to sparsely populated ones like Wyoming, Alaska and Vermont. Even where it remains legal, some agents prefer not to dabble in dual agency, saying it creates an inherent conflict of interest — or, at the very least, the appearance of one.

Here’s the crux of that conflict: In a dual agency relationship, the agent has a fiduciary duty to both the seller and the buyer — a lawful obligation to act in each client’s best interest. While both parties generally share the common goal of a smooth, fair transaction, they clearly have opposing interests when it comes to the price or other terms of the sale. So a dual agent is, at the very least, limited in their capacity to fully advocate and negotiate for one side or the other.

Many consumers seem perfectly fine with those limitations, though — and some agents say it makes for a more efficient, less stressful transaction for everyone involved. “If I’m able to be a dual agent, it actually goes more smoothly,” Ames says. She doesn’t have to worry about an inexperienced or difficult broker bumbling the sale from the other side. “When I’m on both sides, I can control it better and make sure that nothing’s getting lost in translation.”

Some clients do express doubts over whether she’ll be able to advocate for them effectively, Ames adds, when she explains that she’s also representing the other side (an important step). “But the answer really is yes,” she says. “Our goal is to bring buyers and sellers together, and to have it be a win-win.”

Getting to that point without getting into trouble demands that agents make some important adjustments to their usual work practices, however. Here’s what you need to know about dual agency and other options for single-agent transactions.

Dual agency done right

The National Association of Realtors takes a neutral stance on dual agency. But where it is allowed by state law, the NAR’s Code of Ethics and Standards of Practice offers guidance for conducting a lawful and ethical dual agent transaction. “There are a few provisions, and mainly they focus on disclosure and consent,” says Missouri-based agent and attorney Bruce Aydt, a member and past chair of the NAR’s Professional Standards Committee.

In fact, articles 1-12 and 1-13 state that agents should discuss with clients even the potential for a dual agency situation to arise, well before it ever does. “Before you enter into an agreement with a client, either a listing agreement or a buyer agency agreement, you have to disclose to them any potential for you to act as a dual agent — the circumstances under which that might occur,” Aydt says.

Article 1-5, meanwhile, states that Realtors may represent both the buyer and seller in a transaction “only after full disclosure to and with informed consent of both parties” — a standard that most states hold agents to, as well. “Virtually any place that allows for dual agency is always going to have this idea of full disclosure and informed consent to both parties before you can go into dual agency,” Aydt says.

“The most important thing is to always disclose, disclose, disclose,” Antoniou adds. “Disclose everything you can, to both sides, so they know exactly what you can and cannot do for them legally.”

That doesn’t mean simply handing clients a boilerplate disclosure form to sign. “The idea of informed consent is that the parties know what they are entering into,” Aydt says. So, agents have to make sure their clients fully understand the limitations of dual agency and what they’re agreeing to — something that might demand a discussion or verbal explanation to accompany any state-mandated forms.

“I specifically walk them through the dual agency form,” Antoniou says. “I literally read right to them what I can and cannot do for them.”

And what can’t she do? Some typical agent duties — such as offering advice on price — may be off-limits, since you risk violating confidentiality rules. “You can’t disclose to either side the confidential information of the other side,” Aydt says. “A dual agent can’t tell a buyer what the seller’s lowest price is, nor can they tell a seller what the buyer’s highest price is. They can’t discuss the motivations of the parties; they can’t discuss the negotiating position of the party or negotiating strategy of the other party.”

Agents can still counsel their clients based on publicly available information. “If it’s a public record, or anything that the buyer or seller tells us that we can share with the other side — I prefer that to be always in writing, of course — then we can share that,” Antoniou says. “But besides that, we cannot suggest, obviously, an offer price to make, nothing like that. And that’s where it gets tricky — sometimes these people are really leaning on you, they want you to tell them what to do. And the second you fall into that trap, you’ve crossed the line, and now you could get into trouble.”

Alternatives to dual agency

In some states where dual agency is illegal, a single agent can still handle both sides of a real estate sale, but only as a transaction agent or intermediary — a facilitator who doesn’t represent either party. Some states also permit a close relative of dual agency, called designated agency or assigned agency. That’s where, instead of trying to faithfully represent both sides of a sale, the agent refers one party to work with another agent within the same brokerage.

This is common in Texas, where dual agency isn’t permitted but acting as an intermediary is, says Richard Miranda, chair of the Houston Association of Realtors. “To act as an intermediary, the broker must obtain the written agreement of each party in the transaction,” Miranda says. But to further limit the potential for a conflict of interest, “what most brokers will do in Texas is they will assign an agent who will serve the interests of the buyer, and then another agent will act in the best interests of the seller. That way, even though the broker is an intermediary, there are two different parties in the same brokerage working on behalf of the interests of either party.”

The potential for favoritism or the sharing of confidential information still exists; the lead broker could pressure a less experienced agent into pressing forward with the sale, for example, even if their buyer wants to back out. But because each agent must be lawfully loyal to just one client, it does add an extra layer of protection.

“One party cannot divulge particular confidential information to the other party, even though those two agents may be working for the same broker,” Miranda says. “They’re obligated to watch out for the interests of the party that they’re representing, and they owe them a duty of confidence, confidentiality and fiduciary.”

Even where dual agency is allowed, some prefer the designated agency model. Hudson Santana, an agent with Keller Williams in the Boston and Miami metro areas, is no fan of dual agency, because he says it’s difficult for an agent to remain impartial. “I never work as a dual agent,” Santana says. “I introduce that buyer to an actual agent, somebody that’s going to represent them… and I just continue to be a fiduciary to the seller.”

As a team leader who believes his colleagues are among the best in the business, Santana typically refers buyers to someone from his own team. “Now, does that create a conflict? I don’t believe so, because that person is liable by law to represent that consumer,” he says. “We’re no longer team members — you work for that consumer, and I work for this consumer, and they don’t have access to the information that’s important to my client, and I don’t have access to the information that’s important to their client. I take that very seriously.”

But in another common scenario, buyers will contact Santana (as the listing agent) directly, hoping to score a discounted commission or an inside track on a property. Sometimes, even after a full explanation of what they’re giving up by declining representation, they’ll still insist on forgoing a buyer’s agent. Rather than act as a hands-off facilitator or transaction agent — loyal to no one but the sale itself (which is, shockingly, the presumed default for agents in Florida) — Santana prefers to continue representing the seller. “We’ll have them sign a disclosure showing that I am the seller’s agent, which means you are not being represented by anybody, and I’m still representing the seller,” he says.

“You could still help them do the paperwork — you need me to type up the offer? Tell me the terms that you want, I’m happy to type it up for you, happy to explain to you the steps,” he says. “But I’m making it very clear that I don’t represent you, my fiduciary duty is just to the seller. And as long as you’re OK with that, I’m happy to help you accomplish the transaction — but I’m not representing you.”

When buyers or sellers willingly decline agent representation, agents must still be truthful and fair with them, Miranda says — but they don’t owe them more than that. “My job is to be honest and fair,” Miranda says. “I have a duty to the customer — who is not a client — to be fair and honest and truthful with that customer. But I do not owe that customer fiduciary duty.”

Dueling offers and dual agency

Ames also encounters homebuyers who go straight to her as a seller’s agent, in hopes of saving on commissions in a dual agency deal. But even if that’s something an agent would entertain in normal circumstances — and many don’t, or legally can’t — it’s certainly not happening in a multiple-offer scenario. “Any kind of commission negotiation, in my opinion, is off the table 100% in a multiple-offer situation,” Ames says. “Otherwise, you run into a scenario that’s really messy.”

Imagine, Ames explains, representing a buyer who loses out on a home during a multiple-offer situation. “And then you saw it closed later for a lower price, with the listing agent as the buyer’s broker — you’d feel like something unethical happened,” she says. “That’s the seller’s choice, and maybe the seller liked the terms better or something else, but it opens you up for scrutiny.”

“It’s difficult enough to be representing the buyer and the seller, but then when you have another agent bringing in their own offer, now you really mix it up,” Antoniou says. At that point, she calls in her managing broker as an impartial party so that she doesn’t see any of the other offers.

“I have him represent the seller, and then I obviously represent my buyer, and then the other Realtor represents their buyer, and we just send the contracts to my managing broker,” she says. “He’s able to kind of step in and present the offers to the seller and advise the seller on what to do.”

Antoniou sits on the Professional Standards Board for the state of Illinois, hearing and judging cases where sellers feel wronged by an agent, for example. Some complaints do arise from mishandled dual agency relationships, she says, and punishments can vary depending on the severity of the infraction and whether it was a repeat offense. “Sometimes they’ll just get a letter put in their file down at the state… saying that they were disciplined on such and such a date, and that stays in the file for a couple of years,” she says. “If they do it again, there’s going to be a fine… there are procedures, all the way up to losing your license.”

The simplest way to maintain a good reputation and stay on the right side of the law, Ames says, is to trust your gut and consider how you’d want your own family members to be treated in a real estate transaction. “Your gut is going to tell you whether you’re doing the right thing,” she says. “And if you have even the tiniest little question about a decision or comment or recommendation, you should be careful and not go in that direction — follow your gut.”

Is undisclosed dual agency illegal in Illinois?

Is designated agency allowed in Illinois?

Can you list your house with two agents?

Can a realtor represent themselves as a buyer Illinois?