“I’ll get the best deal if I work with the listing agent.” This is a mindset that some buyers have as they consider purchasing a home with dual agency. If real estate were like boxing, it’s similar to the corner person for one boxer trying to strategize for both boxers – during the match. This imperfect analogy illustrates that there are some real pitfalls to a dual agency strategy. In fairness, the “I’ll just use the listing agent” strategy can also work in a buyer’s favor. Join me as I give a quick crash course on dual agency, agency roles, and the pros and cons to having the listing agent represent you on a real estate purchase when you’re the buyer.
Dual Agency and the Types of Real Estate Agency
Agency roles (and the laws surrounding them), vary from state to state. Dual agency in California is legal when it is properly disclosed, both parties consent to the arrangement, and the agent(s) don’t disclose confidential information to the other party. In some other states it is not legal under any circumstances. As a real estate agent in San Diego, California, I can’t give legal advice – so please consult with an attorney familiar with the laws in your state (even if it’s California), rather than relying on what you read here.
Single Agency vs Dual Agency
There are two main types of agency when it comes to real estate: single agency (where an agent/broker exclusively represents your interest), and dual agency (where either one agent represents both buyer and seller, or, one agent represents the seller and one represents the buyer but both agents are with the same brokerage). In terms of dual agency, I will mostly be focused on when the listing agent is representing both buyer and seller, although some of the analysis applies to dual agency where two agents are with the same brokerage. In the sections below, I will indicate my opinion about whether dual agency is a Pro or a Con to a buyer, or both.
Commissions – Usually Pro, Sometimes Con
The idea that working directly with the listing agent is often driven by the buyer’s sense that they will save money in the process. That assumption is a bit flawed to begin with because aside from commissions, negotiations can have a huge effect on price. Commissions don’t exist in a vacuum, they are only one factor in how you make out financially in the deal (more on that later). Usually, the buyer assumes that the listing agent will cut their commission, leading to a better deal for the buyer. If you are not familiar with how commissions work and how they are negotiated, check out my article on understanding real estate commissions and then hop back over here. The assumption of a reduced commission is not always accurate, and even when there is a reduced commission, it doesn’t always benefit the buyer in the big picture. That’s especially true since the commission is negotiated between the agent and the seller and is taken from the seller’s proceeds.
As a listing agent, whenever I face a potential dual agency scenario, I do not push for or advocate representing both sides. In fact, I usually suggest to the buyer that although they can work with me, if they have an experienced and trustworthy agent they already know, that they are welcome to submit their offer through them. I don’t typically adjust my commission percentage when I am representing both sides. Doing so would offer an undisclosed and unfair advantage to one buyer over another (eg. if a buyer I was representing on my listing offered $800,000 and another buyer with their own agent offered the same amount, the seller would net more from the buyer I was representing). The “variable rate commission” is a potential pro for you as a buyer, but also creates some real ethical concerns if the variable commission was not agreed to in advance and disclosed to other potential buyers. In scenarios where the commission is reduced and there are competing offers, this can sometimes tilt the deal in the favor of the buyer represented by the listing agent. Before you get too excited by that potential pro, let’s cover some other pros and cons of dual agency.
The Home’s Price, Is It a Bargain or a Rip-off? – Con
As an agent working for a buyer, one of my roles is to advise them on my opinion of the property value. This opinion is based on my knowledge of the market in general, local market conditions, comparable sales, the property condition, etc. In dual agency, the listing agent at minimum had a conversation about pricing with the seller. In some cases, the listing agent may have been instrumental in determining the list price. Regardless of their role, it’s challenging to imagine a listing agent in a dual agency scenario telling the buyer the property may be grossly overpriced. Yet it is not uncommon for sellers to list at unrealistic prices. As a buyer, that’s sometimes exactly the kind of frank input you need to avoid overpaying for a property. When you’re a buyer working with your own dedicated agent, you are much more likely to get sound, unbiased input on the property value. That unbiased perspective is critical to an informed and successful negotiation.
Loyalty and Human Nature – Con
In dual agency, theoretically the agent shouldn’t share the buyer’s negotiating position and other confidential information with the seller and vice versa. However, by the time you come along as a buyer, the listing agent has likely spent many months working with the seller, and they likely have a very established relationship with them. In some cases, the relationship between the seller and the agent spans years or decades. Human nature being what it is, I would say that most listing agents are far more likely to look out for the seller’s interests than your interests as a buyer they may barely know. This isn’t necessarily malicious or even conscious, however it is one of the subtle dynamics that can come into play with a listing agent representing you as a buyer as well.
Negotiations – Pro & Con
Tied to the issue of loyalty, is how effectively and aggressively the listing agent will advocate for you as a buyer. Most people assume that because the agent stands to make two commissions instead of one, they are going to do everything they can to keep the deal together. That can be an advantage, or a huge liability. Assuming it’s the right house for you as a buyer, that can be a pro of dual agency. The agent also will have insight into what the seller is looking for in an offer, and structure the offer advantageously for you as the buyer. The flip side of this potential pro is that the listing agent is probably not going to aggressively push your negotiating position and some agents might gloss over important disclosure items over fear of them derailing the deal.
When I am exclusively representing a buyer, I will do everything I can to discover information relevant to my buyer’s negotiating position and then share ALL of that information with the buyer. However in dual agency, any ethical agent is going to be very limited in what they can say about the seller’s position and how negotiable the seller might be. As a buyer, you’re potentially left with less information to inform your negotiations. With a less tight lipped agent, they might give you some insight into where the seller stands, but then you should also be wondering what they have told the seller about your position as the buyer. To go back to the boxing analogy, an agent handling dual agency is like a boxer with one hand tied behind his or her back. Dual agency limits how effectively an agent can advocate for either side.
Due Diligence – Con
Any real estate transaction involves more than just negotiations on price. As a buyer, your agent should be looking out for your interests in terms of advising a thorough and professional home inspection, exploring potential title problems, and looking out for you in the due diligence and request for repairs process. They should also be taking in the big picture about how the property fits with what you as a buyer are looking for. Part of my job representing buyers sometimes involves advising them to carefully consider whether or not the property they are pursuing is actually a good match for their wants, needs, and lifestyle in general. It’s easy to get enticed by a specific property, and if an agent is representing the seller and the buyer, they are probably less likely to caution you on other factors that you as a buyer should be weighing in your decision making.
Agent to Agent Communication and Conflict Avoidance – Pro
Assuming you have zeroed in on a property that’s a great fit for you, then both parties should be aligned in striving for a successful closing. Despite that fact, the personalities of agents or simple logistics can sometimes get in the way of that process. In dual agency, a single agent knows everything that is going on in the escrow, and they aren’t likely to miscommunicate with themselves. With two agents involved, even with agents that get along great, there is always room for miscommunication to sneak in and make an otherwise smooth escrow turn bumpy. In extreme cases, miscommunication or conflict between agents (and/or their respective clients) can escalate to the point of derailing the deal. Dual agency doesn’t eliminate the potential for conflict (there are still a buyer and seller involved), but it does greatly reduce it – so this is one aspect where dual agency can be a clear advantage to a buyer.
Vetting Your Agent – Con
Stepping back a bit, let’s imagine you are buying a property. This may be the largest transaction of your life and can have huge financial implications as well as a dramatic impact on your lifestyle. This transaction involves hundreds of thousands or even millions of dollars. In this scenario do you want to work with a real estate agent you have carefully vetted, or one that just happens to be the listing agent on a property you’re interested in? Yes, it’s possible the listing agent happens to be an amazing agent. However most buyers that stumble into a dual agency scenario are too caught up in that specific property to do their due diligence in investigating the agent. If you don’t already have an agent and you haven’t zeroed in on a property yet, now is a great time to talk with friends for referrals, read agent reviews and even interview so you have a rock solid agent before you find your dream home.
Dual Agency vs. Single Agency – Concluding Thoughts
Buyers that are experienced in real estate are often the first to seek buyer representation from the listing agent. Some actively pursue dual agency as the ideal. I have worked with savvy buyers that I know I provided great value to (even those that originally intended to work with the listing agent). I can think of many deals where my my single agency representation has likely saved clients sums into five and even six figures. There have also been cases where I have cautioned buyers with information that led them to ultimately choose not to pursue a particular property.
When you have an agent whose sole loyalty is looking out for your interests, you are far more likely to have them really go to bat for you in negotiating a favorable deal. If I were no longer an agent but was buying a home, I would want there to be no doubt about my agent’s loyalties. I would also want them free to fully advocate for me and disclose anything they are able to discover throughout the process (and not be that boxer with one hand tied behind them). While there might be circumstances where I’d be tempted with dual agency, I personally would choose to have my own agent represent me as a buyer in most cases. The stakes are high in real estate, and I would want to know that I have someone in my corner looking out for me, and not looking out for the other side at the same time.
However, Real estate is a dynamic field with no two deals that are exactly the same. Sometimes dual agency may be the most prudent course for you as a buyer to secure a particular property. Similar can be said for sellers as well – sometimes the listing agent is in an ideal position with a strong buyer. In those cases, my hope is that pros and cons of dual agency shared here will make you a more informed and savvy buyer, and that this guidance helps lead you to a successful outcome!
If you or someone you know might be buying or selling real estate in San Diego, regardless of location or price point, please let me know. I can also assist in connecting buyers and sellers outside San Diego with outstanding Sotheby’s International Realty agents via our 800+ offices in over 60 countries. Please read my client reviews, and don’t hesitate to call, text or email me with any real estate questions or to schedule a no-obligation consultation.