If you’re selling a home, you know your real estate agent wants you to get the highest price. If you’re buying, you know your agent will help you pay the lowest price as well as find and fix (or get a discount for) all flaws. You know you’re getting the best deal possible on the biggest transaction of your life, right?
Not quite. It’s legal in most states for real estate agents to play both sides of a deal. It’s called dual agency and it’s very common.
A new report from the Consumer Federation of America calls for a ban on dual agency which happens on up to 20% of deals in some markets, and the report says 66% of people don’t know dual agency is even allowed.
If you’re selling and your agent is also repping the buyer, their incentives can shift their bias toward accepting a that buyer’s offer, even if another buyer is offering more or will close faster.
Check out how this can work, according to the report:
Depending on the local area, between about 10 and 20 percent of all home sales involve only one agent who works both with seller and buyer. In many instances, the agent signs an agreement with the seller to provide fiduciary representation then, if the agent finds a buyer, persuades the seller to agree to dual agency. The seller, fearing the loss of a sale, agrees to give up fiduciary representation. In doing so, the seller no longer has a champion seeking the highest sale price.
Agents also have a strong financial incentive—retaining the entire commission—to promote the sale to those buyers who will work directly with them. These buyers are not necessarily those who are willing and able to make a timely purchase at the highest price.
For instance, to retain the entire commission, an agent listing a home would be sorely tempted to persuade the seller to accept an offer of $290,000 from a buyer with whom they could work directly, rather than an offer of $300,000 from a buyer working with their own agent.
So how can you avoid working with an agent who’s playing both sides like Littlefinger?
It’ simple: you have total freedom to decline dual agency, and the real estate agent representing you as a buyer or seller will still do just fine. Here’s why:
A sales commission on most homes in the U.S. is 5% to 7%, and in most markets that commission is agreed to between seller and selling agent when the home is listed. When a buyer’s agent brings in a buyer, they get half of that seller-paid commission.
So if you’re selling a $500,000 home for a 6% listing fee, you’re agreeing to pay $30,000 to sell the home. If your listing agent brings in a buyer and you agree to it by signing a dual agency agreement showing that agent will rep you and the buyer, then your listing agent gets the whole $30,000.
If another buyer’s agent brings in the buyers, you’re still paying $30,000 when the deal closes, but your agent gets $15,000 for repping you only and the buyer’s agent gets $15,000 for repping the buyers.
You sometimes hear “pros and cons” cases made for dual agency, but when you consider these questions a dual agent can’t answer (from realtor Bill Gassett), you start to understand why dual agency doesn’t have many pros:
– How much is the property worth?
– Is the Zillow Zestimate accurate on the home?
– What should I offer for the home?
– What should my counter offer to the buyer be?
– Is there anything in close proximity to the property that could impact the market value?
– Is there a sex offender living near the home?
– What repairs or concessions should I ask for from the home inspection?
– Are the buyer’s repair requests reasonable? What should I agree to fix?
– What happens if I need to dispute a low home appraisal? Who will help me?
– When purchasing a home, not having a buyer’s agent is foolish and could cost you lots of money. The same can be said of not having representation as a seller.
They can’t answer these as a dual agent because it creates conflict for the other side. So either you don’t get straight answers, or these questions do get answered and you have to judge whether you trust the answers.
And of course there will always be a certain case where dual agency might make sense for buyer and seller, and those cases come down to total commissions paid, timing and ease of the deal, and integrity of representation on both sides.
But in most cases, dual agency doesn’t save money, speed up or simplify the deal, or properly protect both buyer or seller. It’s much safer for buyer and seller to each have their own representation.
Overwhelmingly, agents shouldn’t hard-press you on dual agency. But it does come up, especially in cases where you’re a buyer who doesn’t have your own agent yet and you tell a listing agent you want to buy the home they’re listing.
If that listing agent pushes you hard to use them as a buyer, just tell Littlefinger you’ve got it under control and that you’ll find your own agent.