Dual Agency in NYC Real Estate Transactions
In NYC real estate, Dual Agency arises when a real estate broker represents both the Seller and the Buyer or the Owner and the Tenant.
In a Legal Memorandum to the public, the General Counsel of the NYS Department of State cautions to “Be Wary of Dual Agency” noting that parties to real estate transactions “seldom realize the inherent problems of a real estate agent acting as a dual agent.”
Inherent Problems with Dual Agency
In NYC, a real estate Seller and Buyer are considered adverse parties.
Real estate brokers have a fiduciary duty of undivided loyalty to their clients, which prohibits them from advancing any interests adverse to their clients. This means that the fiduciary duty of loyalty owed to you by your real estate broker prohibits the broker from advancing any interests adverse to yours or doing anything to benefit anybody else but you in the transaction.
This is the entire point of the inherent problems with dual agency. The seller’s broker owes an undivided fiduciary duty to the seller to sell his or her property at the highest price. Your interest is to buy the property at the lowest possible price and know all the potential issues associated with the purchase. If the seller’s broker is also your broker, how can those two adverse interests be reconciled? And price is only one of the terms that you need to negotiate to your satisfaction.
To drive this point home and protect consumers, the NYS Department of State requires that any real estate broker wishing to act as dual agent must not only make full and complete disclosure to all parties and clearly explain the existence of the dual agency and its implications but also obtain a written acknowledgment from the prospective clients that they understand that the dual agent will be working for both the seller and buyer, that they understand that they may engage their own agent to act solely for them, that they understand that they are giving up their right to the agent’s undivided loyalty, and that they have carefully considered the possible consequences of a dual agency relationship.
The way this works in practice, however, is that anytime you attend an open house or are shown property for sale by the Seller’s real estate broker, the agent hands you a 2 page printed Department of State Dual Agency Disclosure form for signature, typically saying that this is just a standard form required by the Department of State saying that I represent the seller. Period the end. NYC real estate brokers figure that once they have a signed form, they’re good to go.
What they won’t tell you is that by consenting to dual agency, you are giving up your right to have a loyal broker, since your broker is now also representing your adversary. Once you give up that duty of loyalty, the broker can advance interests adverse to yours. This means that once you agree to dual agency, everything you tell your broker, including, for example, the highest price you are willing to pay for the property, may be used for the benefit of the seller. Significantly, when you sign a dual agency agreement, the seller does Not give up his or her right to undivided loyalty. You are the only one who’s waiving their rights.
So know your rights and don’t give them up just because you clicked on the seller’s agent ad and went to see your dream house without your own broker. You have the right to be represented by a broker who is loyal to you and you only and there is absolutely no need for you to compromise that right. When buying NYC real estate, you do not pay broker fee. So use your own broker, it’s free and it’s worth it.
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