All about Dual Agency
In a home sale, there are two agents: the listing agent who represents the sellers and the selling agent (the buyer’s agent) who represents the buyers. If your listing agent found the buyers, he or she could represent both parties and would be a “dual agent.”
To entice you to list with them, it's common for agents to offer a discount incentive if they become a dual agent. “It's a 6% commission but if I produce the buyers, I'm only going to charge you 4%.” This sounds rather tempting since another agent only offered you a 5½% commission no matter who produced the buyer.
However, the chances of your listing agent also representing the buyers are fairly slim.
How it can create a negative incentive:
In a sale with a commission of 6%, the listing agency would normally get 3% and the selling agency (representing the buyers) would get the other 3%.
Suppose agent Melvin offers to sell your home for a commission of 5 ½%, made up of a 3% payout and 2 ½% to him. In addition, he'll only charge you a total of 3½% if he sells it himself. Sounds great. Let’s say he finds good candidates to buy your home. If he sells them your home, he’ll get 3 ½%. Sounds good, but there’s a catch.
Melvin can sell them another home and he’ll get 3% commission from that sale. Then, when another agent brings in buyers for your home, under your 5½% commission arrangement, Melvin will get his 2-½% commission. This 2 ½% along with the 3% commission from selling his buyers another home will give Melvin a lot more than the if he had sold your home himself!
This 3 ½% discount arrangement he offered you has actually given him an incentive to sell other properties to his buyers. Although the sale of your home isn’t a sure thing, Melvin can sell his clients other listings since he figures another agent will find a buyer for your home.
When the agent proposes this discount, tell him that you'd rather have a lower upfront discount that he would also be elgible to benefit from. So, instead of a 5 1//2% commission (with 3 1/2% if he brings in the buyer), make it 4 1/2% (or 5%), no matter who produces the buyer. That's still a nice chunk of change for any listing agent on one transaction.
You want someone to represent you during negotiations. If your agent also represents the buyer, the expert you’re relying on basically disappears. In dual agency, neither side can expect to get advice and recommendations from their agent. Not good.
Click here to learn more about the relationship limitations of dual agency.
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