Dual agency occurs when a real estate agent acts for both the seller and buyer in a property transaction. Personally, I’ve utilized a dual agent for three home purchases. I found the listings online, established rapport with the listing agents, and persuaded them to represent me, aiming for a discount on the purchase price.
In these deals, dual agency led to substantial savings: about $50,000 on the first house, $150,000 on the second, and $200,000 on the third. With my background in real estate investment since 2003, I felt comfortable choosing this path. However, dual agency isn’t suitable for everyone.
While dual agency might seem beneficial for both parties, it also increases the risk of errors. This article explores the advantages and disadvantages of dual agency.
Explaining Dual Agency
In dual agency, the listing agent also acts for the buyer. This can potentially earn them the entire commission, typically between 5% and 6%. As a seller, you generally pay this commission, with half usually going to the buyer’s agent.
When I sold my rental property in 2017, I questioned why I was paying a 2.5% commission to a buyer’s agent who was negotiating a lower sale price. It led me to consider the unfairness of this system, which eventually resulted in a class action lawsuit against major real estate organizations for their non-competitive practices.
For seasoned homebuyers, bypassing this system by choosing dual agency can be more financially prudent.
In dual agency, savvy buyers can negotiate with the listing agent to reduce their commission, passing on the savings in the form of a purchase price discount.
Dual agency tends to be more prevalent when a property struggles to find a buyer, with listing agents more open to compromise.
The Reluctance of Real Estate Agents Toward Dual Agency
Most real estate agents I’ve spoken to are hesitant about dual agency. The main reasons include:
- Increased liability, as the agent is responsible for any issues from both parties.
- Double the workload without necessarily double the commission.
- Challenges in maintaining transparency and fulfilling their fiduciary duties to both parties.
- Potential conflicts during negotiations in the escrow period.
In slower real estate markets, however, agents might need to negotiate harder and be more open to dual agency.
Feedback From a Top Agent on Dual Agency
A top agent I recently spoke with expressed strong dislike for dual agency, citing negative experiences and a preference to avoid it in the future. She highlighted that, in her opinion, dual agency can lead to buyers overpaying due to lack of honest feedback.
Double Ending vs. Dual Agency
While this agent was against dual agency, she was willing to refer a colleague to represent me, a practice known as “double-ending.” This approach, where two agents from the same brokerage represent each party, isn’t much different from dual agency, as both agents are likely to communicate and collaborate.
What Real Estate Agents Do
The listing agent’s responsibilities include pricing, marketing, and selling the property, along with ensuring the buyer is qualified and negotiating favorable terms for the seller. On the other hand, a buyer’s agent focuses on identifying suitable homes, providing market insights, negotiating terms, and guiding the buyer through various aspects of the purchase process.
Dual Agency Challenges
In dual agency, the agent must balance their duties to both parties, striving to be fair and honest. This can be challenging, especially in negotiations, where their loyalty might lean more towards the seller.
Pros and Cons of Dual Agency
Advantages of dual agency include streamlined communication and potential commission savings. However, it also brings challenges like potential bias towards the seller, limited advice due to neutrality, and a higher risk of errors.
Ideal Candidates for Dual Agency
Veteran homebuyers who understand the real estate process and market may benefit from dual agency, especially in negotiations. However, it requires careful consideration and a thorough understanding of the agent’s role.
States Where Dual Agency Is Illegal
Dual agency is prohibited in several states due to ethical concerns and potential conflicts of interest. In states where it’s allowed, agents are expected to maintain high ethical standards, but there are instances of agents crossing lines.
Seller Considerations for Dual Agency
Sellers might opt for dual agency if it means lower commissions, a quicker sale, or if they trust their agent to act in their best interest. However, transparency and agent commitment are crucial.
Empowering Yourself with Real Estate Knowledge
Being well-informed about real estate processes, costs, and market trends is vital. This knowledge can lead to comfort with dual agency, especially if you’ve established a good relationship with the listing agent.
In my last home purchase, extensive discussions with the listing agent built trust and led to a successful dual agency arrangement. As homebuyers or sellers, understanding and navigating these dynamics is key to achieving your real estate goals.
