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Pros + Cons to Dual Agency

Writer's picture: Heather LuptonHeather Lupton

Updated: Oct 29, 2022


The type of dual agency I’m referring to occurs when the real estate agent represents both seller and buyer in a transaction. This sort of agency relationship must be disclosed to all parties involved before an offer is made. Dual agency is highly regulated to protect buyers and sellers from predatory practices.

PROS

  1. REDUCED COMMISSION: Potential for a reduced commission agreement. The seller might be able to save a sum of money on commission by allowing the agent to represent both sides.

  2. STREAMLINED COMMUNICATION: The transaction could be streamlined because there’s only one agent for communication.

  3. KNOWLEDGE: The listing agent likely has more knowledge about the property than a buyer’s agent.

CONS

  1. CONFLICT OF INTEREST: The agent has a responsibility to both the buyer and seller, which can be very difficult to navigate, especially with confidential information. For example, if you think that as a buyer you’ll receive “insider information” because you’re going directly to the listing agent, you’re sorely mistaken. The listing agent cannot disclose confidential information like how low of an offer the seller would accept.

  2. AGENT IS INCENTIVIZED: A dual agent might be more incentivized to close the deal quickly no matter what as they’re receiving commission for the entire transaction.

  3. INABILITY TO NEGOTIATE: Only a buyer’s agent can be expected to advise whether the listing price is reasonable, and if acting as a dual agent may be more likely to defend the list price. This proves problematic because the agent for the seller is charged with getting the seller the highest, best price. Conversely, the agent for the buyer is tasked with getting the “best deal” at the lowest price. You can see how this would be problematic. As for inspections, the listing agent will advocate on the seller’s behalf to ensure they do not have to pay excessive repair costs from inspections. The buyer’s agent would also advocate but for the highest pay out for repairs. You can see how this is difficult to do as an agent that represents both sides?

  4. LEGAL RECOURSE: Dual agency reduces your legal options in the event any problems arise. If litigation occurs, you only have one broker’s office to sue and thus only one insurance company if any damages are awarded.

THE TAKEAWAY…

Real estate agents have a fiduciary responsibility to act in the best interests of the clients they are working for. When an agent is representing a buyer, they must act in their best interests which can make it nearly impossible to properly represent both the buyer and seller throughout the negotiation process. Here’s an example…

  • Agent lists home for seller at $650,000 with agreement for dual agency.

  • The buyer, using the same agent as the seller agreeing to dual agency, offers lower than list price.

  • Since the buyer and seller have agreed to dual agency, it’s likely the agent’s commission has been reduced, saving the seller money.

  • Let’s look and numbers and facts:

  • List price is $650,000. Original realtor’s commission is a total of 5% ($32,500) or 2.5% ($16,250) each side for the buyer’s agent and the seller’s agent.

  • Offer from the buyer, represented the by listing agent in this dual agency scenario, equals $625,000 since in this situation the agent must represent the buyer in their best interests, and they wanted “a deal.”

  • Terms have been accepted by all parties and now the agent’s commission is 4% because the greatest seller advantage to dual agency in this situation a reduced commission payout to the agent.

  • Now we’re at a decrease of $25,000 on the purchase price for the seller and the buyer gets a deal.

  • Seller only has to pay $25,000 in commission to the one agent. Sound like a deal? You’re less in sales price but hey, you saved $7,500 in commission.

I’m not saying it isn’t possible, but isn’t knowing the motivation and facts about each party ripe for questioning whether the agent was able to maintain confidentiality for both clients throughout the process? Yes, the deal came together and that’s the point - to close the transaction for both parties – but can all parties be 150% confident their best interests were top of mind?

My personal business practice is to never allow a shred of doubt as to whose concerns I had in mind. If I told you we could list your property at $650,000 with explaining the year-to-date percent of list price received in Hamilton, MT for 12/2020 through 12/2021 was 99% (equates to $643,500) then brought a buyer who offered $625,000, how would you feel as a seller? As a buyer, you would think you got a cherry of a price!

Long story short, a buyer’s agent commission costs you nothing as a buyer. I can’t tell you what to do, but I can educate you. Take the time to think about whether dual agency is an advantage or disadvantage to your particular real estate transaction.

Hope this helps! If you have more questions, feel free to reach out.

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