My lender flagged that the broker on a deal I'm financing has both sides of the transaction and asked me to look harder at it

The appraisal source is the right thing to be sitting with. When the appraiser comes from a list the dual agent's brokerage maintains, the independence problem compounds, and an appraisal ordered through a preferred vendor relationship does not give you clean collateral coverage even if the number looks fine on paper.

The "other offer" claim is the assumption doing the most work in this deal. A dual agent representing a buyer has a structural incentive to close at a higher price because the commission on both sides scales with it, and there is no way to verify a competing offer claim after the fact without the seller's written disclosure or a signed competing offer in the file. Your borrower saying he did not push back much because of what the broker told him is exactly the scenario that makes dual agency a collateral risk question, not just an ethics question.

Order your own appraisal from a vendor with no relationship to this brokerage, and make sure the engagement letter goes directly from your desk to the AMC or appraiser. What is the current ARV the loan is sized against, and did that number come from the same appraisal you are already questioning?

The lender's counsel spotted a real structural problem, and the flag makes sense.

In dual agency, one agent represents both the seller and the buyer in the same deal. That agent has a financial interest in the sale closing at a higher price, because commission is typically a percentage of the sale price. On a $340k purchase the economics are not enormous, but the conflict is real regardless of dollar size.

The part that would make me think harder is the combination of things you described: the "other offer" claim you cannot verify, minimal pushback from your borrower, and the appraisal coming through the broker's preferred vendor. Any one of those is ordinary. Together they form a chain where an interested party influenced the buyer, set the price, and then selected the person who confirmed the value.

On the appraisal specifically: I am not a licensed appraiser or attorney, so I would not tell you what to do here, but your instinct to want an independent order is the same one the lender's counsel seems to be arriving at from their side. An appraisal ordered through a vendor with a relationship to the dual agent is harder to defend as truly arm's-length if the loan ever gets scrutinized later. That is a question for the lender's counsel and your compliance team, not me.

Maryland does permit dual agency with written disclosure. Whether the borrower received and signed that disclosure is worth confirming, and it may be part of what the lender wants to see in the written explanation.

The strategy guide for dual agency covers why the arrangement draws exactly this kind of scrutiny, and the Rena 2027 outlook on the strategy reflects the regulatory direction it is heading. Worth a read if you want the fuller picture.

What does the purchase agreement show for the disclosure language? That would help narrow down what the lender's counsel is actually looking at.