How Dual Agency Can Benefit Both Home Buyer And Seller

Dual agency or dual agent is a real estate term where one real estate agent represents both the seller and the buyer of a home. The dual agent is almost always the listing agent, who has been hired by the seller to sell their home.

In most cases, a potential homebuyer uses a buyer's agent to help them buy a home. However, if you are an experienced buyer, you may want to forgo using a buyer's agent and go dual agency to save money.

A dual agent must be very experienced and extremely savvy in managing both the seller and the buyer. In an ideal situation, the dual agent must be neutral and fight for both seller and buyer to get the best deal possible. Think about the dual agent as the neutral mediator in a negotiation. Further, a dual agent must be above board and not disclose confidential information to other parties either.

Let's learn more about how dual agency works. Personally, I've got the dual agency with the last three homes I've bought in 2014, 2019, and 2020. I've also been a real estate investor since 2003, when I bought my first condominium in San Francisco.

The Benefits Of Dual Agency

Although uncommon, dual agency can benefit both the seller and the buyer come to a beneficial real estate transaction agreement. Dual agency cuts out one real estate agent and most likely that real estate agent's commission.

1) Dual Agency Can Save The Seller Money

When it comes to selling a home, the standard selling commission is now 5%, down from 6%. In a traditional real estate transaction, the listing agent and the buyer’s agent each get 2.5% of the final selling price of the home. The real estate commission ultimately comes out of the seller's pocket.

By going the dual agency route, the listing agent and the buyer's agent are the same entity. Therefore, the standard 5% commission rate gets cut by up to half, or in this case, 2.5%. As a result, the seller gets to save on commission selling cost.

Let's say a seller has a $2 million home and has agreed to pay a 5% commission. The cost to sell equals $100,000, $50,000 to the listing agent and $50,000 to the buyer's agent. With dual agency, the listing agent pay agree to wave the 2.5% to the buyer's agent and only charge $50,000 in total commission to sell.

2) Dual Agency Can Make The Dual Agent More Money

In a realistic dual agency scenario, the 2.5% that was originally going to the buyer's agent likely won't be cut by a full 2.5%. Instead of the listing agent getting only 2.5%, the listing agent might get paid 3% or 3.5% to be a dual agent. This way, the listing agent makes more and the seller still gets to pay a lower commission.

Using the $2 million home sale example, the listing agent's commission might go from $50,000 to $60,000 – $75,000 by being a dual agent.

3) Dual Agency Can Help The Buyer Save

In other circumstances, a part of the 2.5% savings may go to the prospective buyer in the form of a lower offer price to help entice a transaction.

For example, a buyer might go directly with the listing agent to buy the home. In turn, the buyer might be able to pay 1% below asking price. If the home is $2 million, the buyer might be able to get it for $1,980,000, saving him $20,000. The remaining 1.5% of the real estate commission that would have gone to the buyer's agent can still be split between the seller and listing agent. In this scenario, everybody wins.

A very savvy buyer could push to save the entire 2.5% off the ask price. For a $2 million home, the buyer could offer $1,950,000 and potentially get it without any harm to the seller's bottom line.

In fact, depending on how much in capital gains tax a seller must pay, receiving $1,950,000 and paying a 2.5% commission might net more than receiving $2,000,000 and paying a 5% commission. With the $1,950,000 offer, the seller gets to pay a capital gains tax rate on $50,000 less in gains. If the seller has a 30% effective capital gains tax rate, that's $15,000 less in capital gains tax.

4) Dual Agent Can Streamline The Transaction Process

Given the dual agent represents both parties, information flow between the two should be more efficient. There is less phone tag and voicemails that need to be made. Further, coming to an agreement should be easier because the dual agent should know exactly what both parties want to get a transaction done.

Selling a property is much more stressful than buying a property. Every delay can feel agonizing. It's like asking out someone on a date and not hearing back for a day or two. A dual agent can streamline information flow and make things easier for the seller. You can read about my agonizing home selling experience for more details.

The Negatives Of Dual Agency

Although going the dual agency route can save or make the seller, listing agent, and buyer more money, there are also some negatives to be aware of.

1) Confidential Information Leakage

The dual agent should keep confidential information confidential so as to not give either seller or potential buyer a leg up. The dual agent has to act as an impartial mediator / negotiator. However, the lines of confidentiality can sometimes get blurred when representing both sides.

I once tried to buy a property directly with the listing agent. It was a mother / son team. The mother didn’t represent me, but her son did. Given the property was in high demand, there were five offers. 

The son gave me color on the competing offers, which was great for me, but not so great for the other potential buyers. I knew what the highest offer was and could have offered more if I wanted to. Ultimately, I did not because I thought the price was too high.

2) The Listing Agent Will Likely Favor The Seller

No matter how hard the dual agent tries to be impartial, they will likely favor the seller when push comes to shove. It can take a tremendous amount of courtship to win a listing, especially today where inventory is so low.

A listing agent needs to meet the seller and pitch their expertise, marketing game plan, and likely selling price. There might be multiple pitches over many months before finally winning the listing. For the seller, so much more is at stake, which is why the vetting process is more thorough than finding a buyer’s agent.

If you can't buy a property with a buyer's agent, no big deal. The only thing you and the agent lose is time. But if a listing agent cannot sell the property, then not only is there money loss but also loss of time and reputation.

By understanding the likely bias the dual agent will have for the seller, as a buyer, you will need to fight harder to get the best terms and price possible. An agent responsible only to one party is called a single agent, and their loyalty is much more apparent.

3) The Dual Agent Might Have Blindspots

One of the benefits of having a buyer's agent is the agent adds a more objective fresh set of eyes. Buying a home can often be very emotional. It's one of the main reasons why people overbid on a property, sometimes, way beyond what the market should support.

Having a buyer's agent helps the buyer negotiate and look for opportunities or red flags the buyer might miss. Further, there are many legal contracts to get through. Mistakes can be made. Some buyers even hire a real estate attorney to make sure the process goes smoothly, even if a real estate attorney is not required.

Fiduciary Responsibilities Of The Dual Agent

One of the main reasons why real estate agents refuse to be dual agents is due to lack of experience and navigating their fiduciary responsibilities.

A buyer's agent must act in the buyer's best interests. In turn, a seller's agent (listing agent) must act in the best interest of the seller. In such a scenario, how is a dual agent going to perfectly demonstrate their fiduciary responsibility to both seller and buyer? It's hard without prior experience.

The hardest step is for the listing agent to get the seller to agree to a dual agency. A seller or buyer can legally refuse to be represented by a dual agent.

A good listing agent can convince the seller a dual agency is in their best interest for the reasons highlighted above. All parties must understand the terms and give full and express consent to remain compliant with the law.

Should You Go The Dual Agency Route?

As an experienced real estate buyer since 2003, I will always try to go the dual agency route to try and save money. I understand a real estate contract and the documents that must be reviewed and signed before buying. Further, I've sold a home before and understand the other side as well.

By letting the listing agent represent me, I've saved roughly $$350,000 off the purchase price of three homes thanks to less commissions and better negotiations. As an economist by training, I feel that having to pay a buyer's agent a commission is economic waste. And I hate economic waste, especially if I know what I'm doing.

After you buy or sell a home, you will gain more experience and confidence for your next real estate transaction. Once you feel really confident that the benefits of dual agency outweigh the risks, you can give it a go. Remember, the dual agent also has a fiduciary responsibility to get you the best deal possible as well.

Invest In Real Estate For Passive Income

Coming up with a down payment and buying a home can be a grueling process. Just when you find a property you like, even if you have your finances ready, you might not be able to buy the property because others will likely bid on it as well.

Instead of buying a home with a mortgage, you may want to surgically invest in real estate instead. In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up.

Here are my two favorite real estate crowdfunding platforms.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.

I do think it's wise for everyone to at least get neutral real estate by owning their primary residence. Using a dual agent can help you save money. However, to be truly long real estate, you need to own real estate beyond your primary residence. This is where real estate crowdfunding, REITs, and real estate ETFs come in.