“I’d like to see your listing at 123 Such and Such Street. Can you show me?” I get this call now and then. In fact I handle transactions for both buyer and seller a couple-few times a year. As a Realtor, it’s always a little exciting because of the prospect of “double siding” the transaction – that is, representing both buyer and seller, because I potentially get a double commission. But when is it really to the benefit of the buyer, or seller for that matter, to be in a dual agency?
California is one of the states that allows dual agency – where the agent can represent both buyer and seller in a transaction. This is allowed providing both principles are aware that the agent is working for both sides. If the agent fails to disclose this fact, it is called “divided agency” and is illegal. You can easily imagine the advantage one side would have if the other side was unaware of this relationship. However, just because dual agency is legal, is it a good thing? To that, I say, “That depends”.
First, dual agency can be very hard on a real estate agent. It’s a fine line to walk between equal representation between two parties. In this relationship the agent must maintain a fiduciary responsibility to buyer and seller, meaning that confidentiality, a duty to disclose, and fair dealing and in good faith, are requirements to both sides. He or she must provide their best counsel while at the same time not give anything away that they know about the other side, without express permission from the other side to do so. But how can an agent do this and back to the question, how can it be a benefit?
Much depends on the market. Let’s start with the obvious. In a boom or seller’s market, it’s a benefit to the buyer because they get an inside track to a hot property that only the listing agent may know about. The seller benefits because they get to sell quickly without all the hassle of showings. Does the buyer over pay or seller under sell? Perhaps, but you can fairly say this on any transaction. How does anyone ever know if the seller would take less or the buyer pay more?
In a balanced market, one which favors neither buyer nor seller the same explanation applies. However, during a buyer’s market the dynamic becomes much more difficult. A seller clearly benefits because they sell faster with less hassle. In fact this is often the criteria a seller will use in hiring the broker to represent them – does my agent have a potential buyer for my home? But the buyer’s situation is considerably different. They have to ask themselves, “Is the agent representing the seller really going to be willing to “grind” the seller on price?” and “Will they really represent my best interests if they have a stronger, longer term relationship with that seller than with me?” Herein lays the real question: when is it best to hire a Buyer’s Agent?
In my opinion, it is in this kind of market that a buyer should most likely consider separate representation. I am not saying dual agency can’t or doesn’t work in this situation, it can, but I suggest this works best when your agent “happens” to have the listing you want rather than a buyer’s direct contact with a bunch of listing agents directly. By definition that means you must have an agent representing you already. The idea that you can go “directly to the source” and get a better deal in this market is very suspect for all of the buyer questions I’ve already posed. Sure, the agent might work a deal; reduce or rebate some of their commission since they’re doing both sides, but you have to ask yourself this question: if I potentially can save 1/2 to 1% of the sales price by going direct, is that more or less than my own agent would get by stern, hard-nosed negotiations on my behalf? In other words, if I can save $4-8K on an $800K home, is that actually more money than my hired agent would otherwise help me negotiate for? You can see when you look at those relatively small numbers, that the answer is far from clear.
Let’s look at today’s market and see how the above might apply. First, what kind of market are we in? Most buyers would answer a buyer’s market, yet for many areas, this is not 100% accurate. Why? – because the competition for bargains on high quality homes is extremely high. Let me repeat: the competition for a bargain on a high quality home is extremely high. Are you trying to buy that REO with a view? – prepare for multiple offers. Same is true for that insanely priced short sale. Are you better served then by going direct? – perhaps, provided that agent can write your offer; (many REO agents will not or cannot participate in dual agency and many banks won’t pay a double commission to a short sale agent). With REO’s specifically, keep in mind that a buyer is just one sale side and that most REO agents will be far more loyal to the bank they represent on multiple transactions than the one-off buyer. In other words, don’t expect special treatment unless you’re family. As a result, I believe in most cases you are best served by finding an agent to represent you who has your best interests at heart from the get-go. Should they happen to get the listing on your dream home, at least then you will know them well and they you, and the stronger any relationship, the better you’ll be represented.
Published on 2011-04-02 08:48:56