Who really benefits from a real estate dual-agent?
by Ray Akers, columnist
Buying a home through the listing agent sets up a dual-agency situation. A dual-agency can occur with two agents when both are working for the same real estate brokerage. A dual-agency can also occur when a single agent represents the seller and the buyer, as in the scenario you suggest.
A potential buyer who isn’t working with a buyer’s agent may request the seller’s agent to prepare and submit a purchase offer on their behalf. The agent will act as a dual agent. For obvious reasons, this creates a conflict of interest.
Dual-agency requires the agent to treat both the buyer and the seller honestly and fairly. The dual agent must divide his or her loyalties between two parties with divergent interests — sort of like a divorce attorney representing both husband and wife in a divorce.
Some agents will tell you dual-agency is more efficient and effective. Having just one agent as point-of-contact can expedite a sale. Obviously, the real estate dual-agent has a lot to gain from the transaction: The seller typically pays 5 to 6 percent of the sale price as commission, which is split between the listing broker and selling broker. Clearly, some agents will be motivated to represent both sides of the transaction and earn the entire commission.
In a dual-agency scenario, there is a concern the agent might encourage the seller to accept a lower price for a home to get the double commission. From the buyer’s perspective, a dual-agent is not allowed to reveal the seller’s “bottom-line” price, so you will never know if you got the best price. The dual agent is placed in a precarious position, attempting to balance the interests of the buyer, the seller and their own interest in a transaction. It’s unlikely the interests of all three parties will converge. Frankly, it’s probably impossible.
What studies show
Many states allow dual-agency relationships, in which the agent represents and has a fiduciary duty to both the buyer and seller. Washington state allows dual-agency.
From “The Law Of Real Estate Agency” pamphlet, “Duties of a Dual Agent: Notwithstanding any other provision of this chapter, a licensee may act as a dual agent only with the written consent of both parties to the transaction.”
Licensees are expressly advised “to take no action that is adverse or detrimental to either party’s interest in a transaction” and “not to disclose any confidential information from or about either party, except under subpoena or court order, even after the termination of the agency relationship.”
Dual agency can increase or reduce a home’s sale price, depending on the timing, says Bennie Waller, professor of finance and real estate at Longwood University in Virginia, who studied dual-agency in home sales.
Researchers analyzed sales in which one agent represented both buyer and seller. According to the Journal of Real Estate Research (June 2013), the study found:
•Dual-agency sales in the first 30 days of a listing were 18 percent higher, benefiting the seller.
•Dual-agency sales in the last 30-days of a listing were 6 percent lower, benefiting the buyer.
•Overall, dual-agency reduces a home’s sale price by 1.7 percent.
•Dual-agency sales are 55.1-percent quicker than non-dual-agency sales.
•About 32 percent of all transactions are dual-agency transactions.
In our tight housing market, with buyers facing bidding-wars, some buyers are incentivizing agents by offering them the opportunity to represent them as well as the seller. Buyers presume that this will motivate the agent to promote their offer. However, there is recent data that shows a buyer pays about $5,000 extra when buying a home with a dual-agent.
While a dual-agency arrangement may appear to give a buyer the edge in some circumstances, I advise a homebuyer to avoid dual-agency if at all possible. Dual-agency jeopardizes the rights of the buyer and the seller, and few agents are skilled enough to manage a dual-agency transaction without favoring one party over another.
My advice: Don’t try to become a real estate expert; hire one instead. Ask friends and family members for a referral to an agent with whom they’ve had a good experience. Having a skilled agent working for you will result in a better outcome.