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:
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!
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?
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