We tell home buyers all the time not to walk into an Open House or a new construction model home all the time without being represented by a buyer’s agent, and here is why:
Just as you wouldn’t dream of using your soon-to-be-former-spouse’s attorney in your divorce proceedings, so should you not use the seller’s real estate agent when you purchase a home.
Sure, buying a home isn’t quite the adversarial process that a divorce is, but real estate agents, like divorce lawyers, are trained to be committed to the interests of only one party in a negotiation.
They have certain ethical principles they must abide by that, most of the time, preclude them from representing both parties. It is a clear conflict of interest.
And, the practice is either illegal or heavily regulated in eight states. Still, the current estimate is that in perhaps 10% to 20% “… of home sales, both parties have the same agent, according to Amy Fontinelle and Rachel Witkowski at Forbes.com.
So, why do some homebuyers use the seller’s agent and what are the ramifications?
An agent is someone who represents another – the principal — in a transaction with a third party. The relationship between agent and principal is known as “agency.”
The agency relationship can then be further classified as single agency, where the agent represents only one party to the transaction and dual agency, wherein the agent represents both parties.
The agency relationship brings with it certain fiduciary duties that the agent owes the client. In a dual agency situation, these duties are naturally limited.
For instance, an agent representing a seller has a duty to the client to do everything in her power to gain an advantage in the negotiations. A buyer’s agent must do everything to gain an advantage for the buyer. Thus, when an agent represents both parties, this particular duty is compromised – it presents a conflict of interest.
Although dual agency is legal in many states, it isn’t wise for the buyer to become involved in a relationship where the agent’s primary duty is to the opposing party.
A Better Deal
It’s a well-known fact in the real estate industry that the party that benefits the most in a dual agency deal is the listing agent. Instead of having to split his commission with the buyer’s agent, he gets to keep the whole thing, a practice known as the “double end.”
Many buyers feel that if they don’t bring an agent into the transaction they’ll get a better deal. After all, the listing agent is making twice what he normally would.
Think about this: if you were the listing agent would you give up that extra money? It just doesn’t happen that often, so, no, you won’t get a better deal if you use the seller’s agent.
In fact, you may just end up paying more, according to studies conducted by Longwood University’s Bennie Waller.
The researcher and real estate professor tells BankRate.com’s Michael Estrin that if the single-agent deal closes within 30 days of the home being listed, it brings in 10 to 18 percent more money.
That’s money out of the deal-seeking buyer’s pocket. If it closes later than that, the buyer may save 5 to 6 percent.
Since the seller pays the real estate commission, the buyer’s agent’s services come at no cost to the buyer. That alone makes it a no-brainer when it comes time to decide whether or not to use your own agent.
For the whopping price of zero dollars, your buyer’s agent is bound by law to provide you with the following fiduciary duties:
- Reasonable Care and Diligence
These are all protections that may be available to you only on a limited basis in a dual agency situation.
With your own agent you won’t have to worry that the listing agent will divulge to the seller information you don’t want known, such as if you are willing to go higher in price.
The agent may not divulge this information directly but perhaps through the “advice to the seller regarding counter-offers,” warns John O’Brien, a Chicago attorney, at MSN Money.
A buyer’s agent will also advise you if the list price is reasonable — based on recent sales data — help you present an attractive offer to purchase and negotiate counter offers.
The New Home Purchase
Homebuyers seeking a newly constructed home often fall prey to the dual agency trap. When they arrive at the community to view the models they are greeted by a nice real estate agent. There may be pressure to use this agent if you don’t have one of your own.
This isn’t to say that the agent will necessarily pressure you, but you may feel pressured to use the builder’s agent for the sake of convenience. Remember, however, that this agent represents the builder and her sole job is to get the highest and best price for the new homes.
If you’re uncertain if the agent you are calling is the listing agent for a home, ask. If you haven’t yet chosen an agent and don’t want to get into a dual agency situation, choose an agent from another brokerage.
Many agents don’t see a conflict of interest in their handling of both sides of a transaction, others would never dream of doing it. This doesn’t make one agent better than the other; it merely highlights two different approaches real estate agents take in their business practices. At The Fonash Shelton Group, we do not participate in Dual Agency transactions. When we work with you, we are working FOR you!