Dual agency is when a real estate agent represents both the seller and buyer. Personally, I've bought bought three homes using a dual agent before. I simply found each listing online, built a relationship with the listing agents, and convinced them to represent me to save on the purchase price.
In the end, I believe dual agency saved me ~$50,000 for the first house, ~$150,000 for the second house, and ~$200,000 for the third house. Given I've been investing in real estate since 2003, I was comfortable going the dual agency route. However, dual agency is not for everyone.
Although representing both sides of the transaction sounds like it could be a win-win scenario, there is also more room for mistakes. In this article, we'll take a deeper look into the pros and cons of dual agency.
What Is Dual Agency?
Dual agency is when the listing agent also represents the buyer. A dual agent may be able to earn double the commission or the entire 5% – 6% commission.
When you are a seller, you usually pay a 5% – 6% commission. However, half of it goes to the buyer's real estate agent, which can sometimes feel ridiculous when you're the seller.
When I sold my rental property in 2017, I remember asking myself why the hell was I paying a buyer's agent a 2.5% commission when the agent was trying to ask for a $30,000 price concession.
A class action lawsuit against RE/MAX and the National Association Of Realtors for their uncompetitive practices was inevitable. Why should the seller have to pay a buyer's agent a big commission? It doesn't seem logical.
For experienced homebuyers who feel paying a 5% – 6% commission is economic waste, going the dual agency path becomes more attractive.
As a savvy buyer, one of the biggest attractions of dual agency is to save on the purchase price. Buyers should not let the listing agent earn a double commission. Instead, a buyer should try and convince the listing agent to cut their 5% – 6% commission down to 2.5% – 3% and give the buyer the 2.5% – 3% price discount.
Dual agency is more common when a property has been sitting for a while and cannot find a buyer. In such a scenario, the listing agent is more willing to be a dual agent and come to a compromise.
Why Real Estate Agents Don't Want To Be Dual Agents
I've spoken to over fifty real estate agents about the prospects of dual agency and 90% of them refuse. The main reasons are as follows:
- Double the liability as the dual agent is liable for anything that goes wrong from both the seller and buyer
- Double the work, which isn't worth it if the commission isn't double as well
- Hard to be completely transparent and perform their fiduciary duty equally for both sides
- A lot of potential conflict when it comes to negotiations during the escrow period
- The real estate industry is like a cartel that wants to fix real estate commissions
But here's the thing, in a slow real state market, you had better hustle harder and negotiate more if you want to get paid!
Recent Feedback About Dual Agency From A Top Agent
I recently spoke with a top listing agent at her open house the other day and asked for her thoughts on dual agency.
She said, “I hate dual agency. In my 18 years of experience as a real estate agent, I've only done dual agency three times and I hated each experience. I will never do it again. If you would like a referral, I know of some great real estate agents in my office I can introduce you to.”
She went on to say, “Don't get hung up on the price savings. Here at Sotheby's, my broker won't let me cut my commission anyway. There was this one situation where a house was listed for $12 million and the buyer thought they got a good deal for $11 million. But in reality, the house was worth only $9 million! Due to dual agency, the agent couldn't give 100% honest feedback to the buyer.”
As a finance guy, I don't believe her pricing logic. No listing agent worth their weight would list a $9 million house for $12 million. And no buyer would pay $2 million, or 22% more for a house than necessary. Buyers are not that ignorant.
The reality is, some real estate agents hate dual agency because it doesn't allow them to collude to make more commission dollars. Finally, a jury decided against the National Association of Realtors, Keller Williams, and HomeServices of America for colluding to keep commission rates high. Their initial penalty is $1.78 billion, but could go up to $5+ billion!
Double Ending Versus Dual Agency
Although this agent was against dual agency, she was completely OK for me using one of her co-workers to put in an offer. Two real estate agents at one brokerage, one representing the seller and one representing the buyer, is called “double-ending a real estate transaction.”
The agent's strong opposition to dual agency would have carried more weight if she was also against double-ending the deal. However, she is not.
The way the real estate brokerage business works is that a portion of each real estate agent's commission is paid to the brokerage.
For example, let's say a listing agent has a $1 million home and charges 5%. 2.5% goes to the buyer's agent, which leaves 2.5% to the listing agent. The listing agent doesn't actually earn the entire 2.5%. Between 0.5% – 1.25% goes to the brokerage, like Compass or Sotheby's in this case.
Therefore, of course the brokerage is going to encourage a double-ended transaction because the brokerage earns double the fees! And of course the brokerage will also reduce its take slightly to incentivize more double-ending. Brokerage examples include Compass and RE/MAX.
Plenty of listing agents who refuse to be a dual agent will happily refer out a member of their own team to represent you. Come on now. In this case, a double-ended transaction is not much different from dual agency because both agents are cozy with each other and will talk.
What Does The Listing Real Estate Agent Do?
Hiring a real estate agent to sell your property is usually a good idea. If you can negotiate a lower commission, then even better. However, I'm getting more enthusiastic about paying a fee to list the property on the MLS yourself and paying a real estate lawyer a flat free to transaction.
The listing agent is hired by the seller and is responsible for the following:
- Pricing the home
- Marketing the property
- Selling the property
- Communicating with the seller and potential buyers
- Ensuring that the buyer is qualified for the home purchase
- Negotiating terms acceptable to the seller
- Going to the home to oversee inspections and fixes
- Coordinate with handymen and service people to fix problems in the home
- Being present at a home appraisal on behalf of the seller
- Arrange staging to make the house more attractive
- Recommending title & escrow, insurance companies, and other vendors to help the buyer complete escrow
The listing agent represents the seller and is trying to get the most money for the home as possible. As a result, the listing agent is loyal to the seller. The listing agent has full accountability and confidentiality with the seller.
What Does The Buying Real Estate Agent Do?
The buying agent is responsible for representing the buyer’s interests in the home purchase. Here are the main services the buyer's real estate agent performs:
- Helps identify a list of homes that fit the buyer's household and financial needs
- Helps keep a buyer's real estate FOMO in check by not overpaying for a home
- Helps connect the buyer with a quality lender (bank) if needed
- Provides expertise and knowledge of the local real estate market and future developments
- Gives an honest assessment of the state of the real estate market and provides a housing price forecast 1 year, 3 years, and 5 years down the future
- Provides an honest assessment of the pros and cons of every particular home the buyer is interested in
- Acts as the main negotiator on price and terms, including price concessions during escrow, the fixing of issues, and the addition of other items
- Walks the buyer through disclosures and points out any housing warning signs
- Recommends a home inspector to evaluate the property
- Analyzes the layout and helps verify the square footage of the house so there are no huge discrepancies
The more novice the homebuyer, the more valuable a buyer's real estate agent is. Conversely, the more experienced a homebuyer, the less valuable a buyer's real estate agent.
If a buyer is buying their first home or if the buyer is buying in an unfamiliar market in a new neighborhood or city, getting a buyer's agent is likely worth it.
The Buyers Agent Is Probably Going Away In 10-15 Years
After the real estate collusion judgement, home buyers may have to pay the buyer's agent directly a fee or commission, which is the way it should be. Having the seller to pay the buyer's agent creates misaligned incentives.
Here's my hour-long conversation with Mark Ketchmark, the lead attorney responsible for busting the real estate cartel and stopping their real estate collusion and price fixing ways. Mike believes the buyers agent will likely go away in 10-15 years (2033-2038). I think you'll find the conservation fascinating!
Conflict Of Interest In Dual Agency
Now that you understand what a listing agent and buyer's agent do for their clients, you can see how dual agency could be difficult for one agent to pull off.
A dual agent now has the fiduciary duty to represent both sides to the best of their ability. The dual agent has to be honest, truthful, and fair to both parties. Threading the needle by making both parties happy is no easy task.
Experienced real estate agents tend to be the most against dual agency. While part-time or less experienced real estate agents tend to be more for dual agency. As a buyer, this situation may be great for them because it gives the buyer more leeway to get a better price.
Dual agents must have both parties' consent and remain as neutral as possible if there are any disputes between the seller and the buyer. Given the requirement for dual agents to remain neutral, it's difficult for the agent to perform their jobs to the best of their abilities.
Pros and Cons of Dual Agency
Let's look at the pros of dual agency.
Pros of dual agency:
- More streamlined communication. It's much easier for buyers and sellers to communicate by going through one agent compared to two agents. More streamlined communication means quicker communication that cuts to the chase and is more clear.
- Potential to save on commission. Given the listing agent is also representing the buyer, the seller, who pays the commission, can fairly ask to pay a lower commission. The lower commission saves the seller money. Alternatively, the buyer can request a lower price where the commission cut counteracts the lower price to the seller.
- May increase the chances of the seller getting a buyer. If the dual agent can cut their commission and give the buyer a 2.5% – 3% price cut, this may help facilitate the sale. It certainly did for three properties I bought
- Gives the buyer a potential discount. On the flip side, a veteran buyer can potentially get at least a 2.5% – 3% price discount going the dual agency route.
Cons of dual agency:
- Dual agents are more loyal to the seller. The listing agent first built a relationship with the seller. Therefore, it is only logical the listing agent will be more loyal to the seller in dual agency. Hence, buyers agreeing to dual agency need to be aware of this inevitable bias, even if the agent is supposed to be neutral.
- Neutral agents offer less helpful advice. To avoid a conflict of interest and a violation of fiduciary duties, a dual agent often can't advise what they truly believe.
- More potential for errors. Given the agent represents both sides, there can be more potential for pricing errors, inspection errors, other contingency errors, escrow errors, and missed information. With two agents, there's a lower chance something will be missed.
What Type Of Home Buyer Should Use A Dual Agent?
Only veteran home buyers who've purchased at least one home, but preferably two or more homes, should consider using a dual agent.
After you purchase your first home, you will understand the intricacies of the home-buying process. From making an acceptable offer, to understanding any financing and home inspection contingencies, to the close of escrow. If you take meticulous notes and pay attention, you'll realize buying a home can be a straightforward process.
After buying three properties, you should fully understand the home-buying process and all the unexpected variables too. Therefore, if you thoroughly understand the real estate market, understand all the downsides of the home you want to buy, and are a master negotiator who can keep your emotions in check, going the dual agency route can be worth it.
The dual agent has a fiduciary duty to help the buyer as well. So it's not like a dual agent is just going to leave you high and dry without giving you any helpful advice.
Questions A Dual Agent Shouldn't Answer, But Will
Here are some examples of questions a dual agent SUPPOSEDLY cannot answer for either party:
- How much is this property worth?
- Is the online estimate accurate for the property?
- What would be a fair opening offer for the home?
- How much should my counter be to the buyer’s offer?
- Is there anything that can lower the property’s value nearby?
- Are there any sex offenders living in range of the home?
- What repairs or concessions do you recommend I ask for after the home inspection?
- Should I agree to the buyer’s repair requests? Which ones seem unreasonable?
- How should I go about disputing the appraisal and who can help?
Huh? These are basic fundamental questions that need to be answered by the dual agent. Of course a dual agent will be able to answer them.
The dual agent will simply talk to the seller and the buyer separately about various issues. The dual agent acts as a mediator to come to an agreement on price, terms, and timeline.
Where things get tricky is if the dual agent advises one thing for the seller and another thing for the buyer. This likely happens but with the ultimate goal of trying to get the transaction done.
As a buyer, you just need to be aware the dual agent is trying to appease both sides. In addition, the dual agent is almost certainly more loyal to the seller. Therefore, buyers must take these points into consideration, be more savvy, and use more aggressive techniques when negotiating.
States Where Dual Agency Is Illegal
Given problems can arise with dual agency, the following eight states prohibit the practice:
- Alaska
- Colorado
- Florida
- Kansas
- Maryland
- Oklahoma
- Texas
- Vermont
These states have found there are too many unscrupulous agents who don't provide full disclosure. Therefore, the states decided to just outlaw dual agency completely.
Although dual agency is banned in these eight states, this also means forty-two states allow dual agency. Dual agents are supposed to have the highest ethical standards. But of course, some dual agents will cross the line and hope nobody notices.
When Should Sellers Go The Dual Agency Route
Sellers should be OK with dual agency if:
- The agent agrees to cut their commission to save the seller money
- The agent agrees to cut their commission to help close a transaction
- The seller trusts the listing agent will be a good fiduciary to the seller and still provide tremendous advice and insights
- The seller has no offers after several months and has no other choice but to take on a savvy buyer who wants dual agency representation
If I ever sell a property again, I'm fine with dual agency if I trust my listing agent. I will make my agent fight in my best interests because ultimately, I have the power to pull the listing.
At the end of the day, the most important variable is the price. If the deal can get done at the price that I believe to be fair, then dual agency is fine. All the better if the commission rate is lower.
However, if I feel my listing agent is not being transparent with me, I will have a talk with them. And if they continue to be opaque, then I will likely fire the agent.
Educate Yourself About Everything Real Estate
The more you know about real estate, the more confident you will be in buying and selling property. You might get to the point where you are comfortable going the dual agency route.
- Learn about how much it costs to sell a house.
- Know that even if you buy a home with cash, you still have buyer's closing costs.
- Understand financing and home inspection contingencies.
- Be thorough in reviewing the seller's disclosure documents.
- Know all the property's comparable sales over the past 12 months
- Come up with realistic upside and downside pricing forecasts for the property over the next 1-3 years
Once you've purchased your first home, you have the potential to go the dual agency route to try and get a better deal. Just make sure you thoroughly get to know the listing agent first before proceeding. Ideally, you will have worked with the listing agent in the past.
When I last purchased a home, I spent about 10 hours speaking to the listing agent over five private visits. During this time, I got to know everything about him, his family, his professional background, his market outlook, and the way he operates. I was also trying to convince him to be a dual agent so I could buy the house at a better price.
In the end, everything worked out. As a result, I will probably not use a buyer's agent again unless they find me an amazing off-market property at an attractive price. Thanks to the internet, all of us can easily find listings on our own.
Best of luck in your home-buying or home-selling journey!
Real Estate Commissions Will Be Coming Down
On Friday, March 15, 2024, the National Association of Realtors (NAR) announced a settlement with groups of homesellers, culminating in the end of landmark antitrust lawsuits through a payment of $418 million in damages and the elimination of rules on commissions. As a result, real estate commissions will go lower and dual agency will become more popular.
You can listen to the podcast episode I had with Mike Ketchmark, the lead trial attorney who won the case against the NAR. The main implication of the NAR settlement is that commission rates will come down immediately and long term, home prices get a boost.
Reader Questions And Recommendations
Are you a real estate agent who hates dual agency as well? If so, please share why! As a buyer, have you ever gone the dual agency route to get a better deal? If so, how was your experience? As a seller, do you have problems with dual agency?
To dollar-cost average into real estate more strategically, check out Fundrise. Fundrise manages over $3.3 billion and invests in the Sunbelt region where valuations are lower and yields tend to be higher. The minimum investment amount is only $10.
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Hi Sam,
In Florida, from a practical perspective, dual agency is allowed using different words. Using a simple workaround. Agents are allowed to transition to a “transaction broker” form of representation with both parties, essentially the same thing as dual agency. This is a commonly used practice in the state to sell a property within a single office. Many brokers collect this consent in their standard listing paperwork.
Only an attorney could argue the difference.
I don’t know about the other states you mentioned.
Your Sotheby’s story is a bit naive. I’m questioning your real estate acumen… Buyers are VERY bad at pricing, at any level – mispricings are rampant. Agents and brokers are frequently bad at this, too. That’s how investors make money.
I enjoy your logic. Yes, if you are bad at pricing and understanding the market, then get a buyer’s agent. I wrote in my post that first-time homebuyers should probably use an agent. You need to go through the buying process two or three times first before going dual agency.
It’s totally fine to question my real estate acumen. The irony is, the higher the acumen, the more confident you are going the dual agency route.
And if you are a real estate agent who is struggling in this low volume market, hang in there. I think brighter days are ahead.
I think it should also be worth noting that you or a spouse can just get a real estate license yourself…
My wife has her license literally just for our properties (I think she’s helped us with around 10 investment deals for my immediate family and ourselves and our best friends). But when you look at the prices of everything, 1M house – get in with the cheapest brokerage (in some states $500/deal). You save 29.5k without having to find the right “selling” agent.
I only bring this up because I used to go down the road you said but then when you do this route it was a lot easier. Then there are paths for reciprocity etc. And there are even paths where you can represent in a state out-of-state and get the commission for the purchase (aka saving off the purchase price).
Dealing with decent sized deals if you’re savvy I think this may be the best of all worlds if you have the time to get the certification. As a seller sure just pay the small MLS fee and press but as a buyer if they have negotiated 3% for the buyer’s agent your work is already done. You can still probe seller’s agents (in this market) and extract a lot of meaningful information since they still want to get a deal done.
It saved me a lot of wasted time versus when I would try to convince seller’s agents to give me a break on the commission. Just my .02!
The only item that sucks about that 3% savings is you still pay the taxes on the higher listed “purchase” price and the time commitment to get licenses/cost for joining MLS. If you don’t know what you’re doing as a buyer then this is obviously not a good route as you alluded to though ha!
Hey Sam,
Long time reader. I enjoy your articles, and thank you for your continuous writing. I’ve been a part time Realtor for ~20 years. Interesting article. I think listing agents charge too much, especially in an expensive coastal area like yours.
Let’s take a million-dollar property. 25k-30k listing agent commissions to do the following:
Pricing the home – I believe there are enough online tools to do this yourself. Sales and tax info are all out there. You can run your own comps if you know your area.
Marketing the property – if you are a semi decent writer or know some, you can put together a decent description. If the property gets uploaded to the MLS, aggregators take it to different websites. What other marketing is useful and worth this type of money? Furthermore, I’ve taken cellphone pics that look professional. YouTube is fabulous place to learn.
Selling the property – hope so
Ensuring that the buyer is qualified for the home purchase – What do they do that you can’t do yourself? It’s due diligence. Talk to their lender, ask about their job history, etc.
Going to the home to oversee inspections and fixes – If you are a seller wouldn’t you want to oversee this yourself? Why trust a listing agent to oversee inspections and fixes done to your own home?
Coordinate with handymen and service people to fix problems in the home – They probably have referrals, but again, wouldn’t you want to do your own due diligence yourself? Especially if you are paying for repairs/service due to inspection issues? This is something homeowners do all the time.
Being present at a home appraisal on behalf of the seller – hard life.
Arrange staging to make the house more attractive – OK, I’ll give you this one. maybe.. Or you can just pay a small one-time fee to an interior designer.
Recommending title & escrow, insurance companies, and other vendors to help the buyer complete escrow – Good attorneys can assist with this and everyone should get a good attorney.
If it were my property and I wasn’t a Realtor? Pay a flat MLS fee and list your own property.
Though some have mentioned these points already, as a home buyer I would recommend trying to use a dual agent if:
-It gives you an advantage in a competitive market/multiple offer scenario. The listing agent would receive more money even if you negotiate to reduce the overall commission slightly (e.g. from 5% to 3%). You “may” get some insight as to what constitutes a competitive offer (get you in the door).
-You know the area and understand market trends in the area. If you are buying in a location you are NOT familiar with, to me it’s important to have a good buyer’s agent that will fulfill their fiduciary duties to the maximum extent.
A con to dual agency you listed:
“More potential for errors. Given the agent represents both sides, there can be more potential for pricing errors, inspection errors, other contingency errors, escrow errors, and missed information. With two agents, there’s a lower chance something will be missed.”
I disagree with this Con or it just seems minor to me. If you have a competent dual agent then there shouldn’t be many errors. Maybe I’m biased b/c I am usually correcting errors on the other side of the transaction. Furthermore, both parties should have their attorneys looking out for their best interest, and being a safety net to catch other errors…
Best of luck with your real estate endeavors!
What a great advantage to buy with the right type of agent. I wouldn’t want to be the agent – sounds quite stressful – but what a great way to save on fees as the buyer.
Thanks for clarifying the terminology on double ending. I watch a lot of real estate reality tv and there are cases like that which come up a lot but I never knew what that was actually called until now. Great stuff as always, thanks Sam!
We bought a FSBO condo without an agent on either side. Thought we got a good deal. Found out later that a section of the community was for low income apartments. If you do not know the area like the back of your hand use a buyer’s agent. On the seller side we’ve found that using an agent gets more traffic. People that come without a buyer’s agent are usually investors looking for a significant deal beyond the fees. I wish we could do away with the agents but they’ve created a sort of cartel.
Sounds more like they’ve created value for both homebuyers and home sellers (or could have)…in your experience.
I purchased my first home in 2009. Due to the downturn in the real estate market, I was able to negotiate with a buyer’s agent to give me 2% of the sale price while they received 1% commision. I had used Zillow to find the house I was interested in purchasing, thus I saved the real estate agent a lot of time and effort. All she had to do was the paperwork and it didn’t take much time to convince her that was a good deal for 1% of the purchase price. With my second home purchase in 2014, I used the same tactic and was again able to get 2% of the sale price from the buyer’s agent while she received 1%. With the purchase of my third (2016) and fourth (2017) home purchase, I targeted new builds and didn’t bother hiring a real estate agent to represent me. I negotiated directly with the builder’s agent and was able to get favorable pricing plus 2.8% “commission” while the builder’s agent received an additional 0.2%. Anything is possible and everything is negotiable. You just have to have the confidence to try. Worst they can do to you is say “no.”
I bought a place with dual agency. The agent took a reduced commission. Interestingly it was in Florida. That was in 2018. I wonder if it was illegal then for her to do so.
I’ve bought 2 houses. Both times I found the house online. Was shown the house by my realtor. Put in offer and got house. I would much rather go through a real estate lawyer if I could. I think realtors are antiquated. If a double agent would save me money I would use one. Final price is really all I would care about.
May I ask if your realtor provided any value during the buying process? And if not, did you ask your realtor for a credit back?
I got I think $1,000 or $2,000 back from my realtor in 2005, when I found a house online myself and the realtor was away. But that was the turning point for me where I realize there was economic waste, going to a buyers real estate agent, especially if they provided no value.
Bought my first home last year. Takeaway was buyers agent a TOTAL waste of money. We found all the places ourselves on Redfin.
Me: Jane, what do you think I should bid on this house?
Jane: You should bid what you feel it’s worth to you.
There’s much more along these lines. She was absolutely worthless, even worked against our interest a few times. For example, she argued against my ask for a sewer line inspection saying it wasn’t covered by inspection language. Lawyer confirmed it was. Another example — home we bid on obviously needed a new roof which she never mentioned. Inspector said it was obvious (didn’t know roofs at the time, now do).
My experience was agents don’t care about you at all. They just want the shortest path to their commission. They want you to think they care about you though lol.
Seems to me dual agency can help you outcompete other bidders if you structure it in a way for the selling agent to make more money selling to you than others. Sure, they’d deny that but come on we’re all adults here.
Just bear in mind that they agent is NOT representing you. She is repping herself.
“Me: Jane, what do you think I should bid on this house?
Jane: You should bid what you feel it’s worth to you.”
Ugh… no value at all!
Yes, if the listing agent can make more than their 2.5%-3% cut through dual agency, they will be more incentivized.
I WISH I had the knowledge in 2005 to do dual agency. I would have saved at least $25,000 off the purchase price. Too bad Financial Samurai wasn’t born until 2009!
But it worked out in the end wen I sold the property in 2017 for 80% more.
Good on ya Sam. Agents and brokers are extracting massive economic rent by controlling information and gaslighting the public into thinking they add value worth 5-6% of sale price. Opt-out is the smart play.
Sure their services have some value, but just a few $k at best.
If you have any business/contract experience at all you’re better off not using an agent at all for buying or selling. As a seller you can get your house on the MLS using a discount broker for cheap. Then hire a professional photographer, good atty, stager if needed etc. Not difficult to do.
Agents do have a lot of power over their clients’ minds, and these people are your counterparties. Seems important to give the other party’s agent a “win” and get paid something, i.e. if a seller pay at least 1%, probably 2% commission to the buyer agent. Otherwise they’re likely to steer their client away from your house.
If a buyer, ask selling agent if they’ll rep you and they’re likely to favor your offer because they’ll make more money.
Agents aren’t bad people (well, most of them anyway lol) — they are just responding to hard economic incentives.
The whole agent/client structure presents a massive conflict of interest (Google up “principal/agent problem”). The biggest lie in real estate is your agent saying “I work for YOU!” Lol it’s risible.
Her interest is in a fast close and getting her commission, not in giving you advice like “That roof needs replacing” or “Offer lower than ask price”. She wants to *appear* to look after your interest, but come on incentives direct behavior (paging Charlie Munger). Nothing wrong with that, business is business. I don’t care for the lying though, and generally hold the entire broker/agent industry in low regard.
Your mileage may vary.
Agree – a buyer’s agent also has an economic interest in you overpaying as they will get a higher commission then. So the incentives aren’t really aligned even with a buyer’s agent unless they believe there is a lot of repeat business if they do a good job and adequately represent your interests or they will lose the next deal!
Buyers agent having incentive for you to overpay so they get $12 more is ridiculous. You don’t know math. An argument. Hold be said they have incentive to get your to overpay to speed up process not to make $12 more
The point here is the agent’s incentive is NOT for you to get a good deal or find the right house for you. Her incentive is to CLOSE AS FAST AS POSSIBLE, GET HER COMMISSION AND MOVE ON TO THE NEXT DEAL. This incentive is fundamentally at odds with your incentive to get the best price and best house for you.
Agents don’t really care what price you pay as long as it’s a fast close. That trumps all. Although bear in mind they DO make more money if you pay a higher price for the house.
I’ve been part of millions in RE deals… and expect I’ll be in hundreds of millions more into the future with some of my partners on the CRE side.
Commissions on the larger deals are much larger than “$12” @Kevin.
Sam used an example of $12M and someone paid $11M and the seller thought it was worth $9M. If a buyer is trying to buy a good agent may offer insights like hey it’s worth $9M let’s anchor at $8.5M and try to meet closer to $9M – an indifferent one would say yeah let’s offer $11M and see what happens. Ultimately it is worth whatever someone will pay; however, if you could have purchased it at a lower FMV why wouldn’t you?
Commission over $2M delta is $60k per agent. I see in the expensive markets (of which I live in one) people price many houses for $10M plus and some of these have already dropped them 1/3+ over past 18 months (not all of them). A lot just list it up and see if someone will pay the obscene price. So the agent just doesn’t have this huge incentive to help the buyer necessarily save money is what I’m saying.
Heck, I have an agent trying to represent us on some deals and 18 months ago he was telling me the market would never drop and I should just buy then. I laid out that the macro events of rising interest rates would bring deals so not interested then and so I’ve waited and I was correct (and the better deals are still to come). The agent didn’t offer anything other than hey it’s a great time to buy at these prices I wouldn’t worry about it even after I gave that info. Again, I will defer to doing the deals ourselves like we usually do.
And yes, Charles is correct, I’m highlighting the incentives aren’t necessarily aligned. Does that mean all agents are “bad” – no way. For me and my savviness level it just isn’t worth it.
Yes, buyer’s agents have incentives that may be different for their client. So why not just cut one one agent, if you are a savvy buyer, and just deal with one.
Hi Sam.
I think the seller has more hold on the double agent b/c they can pull the listing like you said.
Still As a seller, unless desperate, i would not agree for my agent to double end the deal. The reason is lets say a house is worth a round $2mil, maybe i can get $2.1mil. That extra $100k is meaningful to me but the additional 2.5% -5% or 2,500-5000$ additional commission is negligible to a dual agent who is zoned in on making their e.g 3%commission of $60k on a $2mil sale . The agent would just want to take the bulk of $ to be made and move on.
What do you think of the likelihood of this scenario? Maybe in a really bad market, there’s no chance to sell at $2.1k so dual agency is ok.
I think the agent would do that anyways if you got a $2 mil offer on a property worth around $2mil them being a double agent doesn’t change the fact they $100k commission to them is negligible.
I get what you are saying. But how does not going dual agency help you get $100,000 more with a buyer’s agent whose main goal is to either help the buyer pay less? Or the buyer’s agent might want to get the buyer to pay whatever so the buyer’s agent can earn a commission.
Even if the house is worth, let’s say $2 million, the buyer’s agent might be so sick of searching for houses for the buyer, that they somehow convince the buyer to pay $2.1 million even though they could have paid less. So that does help the seller if you can count on unscrupulous buyer’s agents.
This is the thing, the real estate agents have perverse incentives to close. So the less number of agents involved, the better for both buyer and seller.
Good article. Dual agency is nuts. It needs to go the way of the do-do bird. That said, the only way I would agree to this would be as a seller. Since I am paying the bill, I feel that I would get the benefit over the buyer in any murky area. May not always be true but that reason alone is enough that I would not agree to dual agency as a buyer.
I like how I’ve not convinced you to go dual agency as a buyer despite my cost savings. It’s not for everyone. For me, it was worth it and got easier over time.
The opportunity often arrives with an inexperienced or out of city agent who misprices, mistimes, or poorly markets.