Commission savings

E - Dual Agents: What if your agent also represents the buyers?

Dual agency:

In an ordinary 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 thus be a “dual or agent.” Click here to learn more about the relationship limitations of dual agency.

To entice you to list with them, it's common for agents to offer a discount incentive if they both list and sell your home. “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, this is not the ideal situation that many owners think it is.

Poor odds:

The chances of your listing agent also representing the buyers aren’t good. Estimates of agents’ success in selling their own listings range between three to 10%. Of course, the odds are better than any of the other agents in the MLS since your agent will have a sign in your yard, will be advertising your home and doing open houses–all functions designed to attract buyers.

How it can create a negative incentive:

This discount offered by your listing agent can actually hurt you. In a typical 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 your agent, Melvin, offers to sell your home for a commission of 5 ½%, made up of a 3% payout and 2 ½% to him. But he offers you a further discount. He'll only charge you a total of 3½% if he sells it himself. Sounds great, so you list with Melvin. Let’s say he finds buyers who would be good candidates to buy your home. If he sells them your home, he’ll get 3 ½%. This 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, the 5½% commission would be in effect and Melvin will get his 2-½% listing commission. This 2 ½ % commission along with the 3% commission from selling his buyers another home will give Melvin a lot more (5 ½%) than the 3 ½ % 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 has little to lose by selling his clients other listings since he figures another agent will find a buyer for your home.

This commission arrangement discourages the agent most likely to sell your home–your agent!

To avoid this possibility, 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 (or 3 1/2% if he brings in the buyer), make it 4 1/2%, no matter who produces the buyer. That's still a nice chunk of change for any listing agent on one transaction.

Be aware that dual agency is not allowed in all states. Otherwise, agents should offer this discount when the potential exists. At the same time, they should be offered a decent financial incentive to sell your home so as not to be tempted to sell other homes to their clients. 

Disadvantage of a dual agent:

One of the primary reasons for hiring an agent is so that you will have someone represent you when negotiating the offer and home inspection. When your agent also represents the buyers, the expert you’re relying on to help you basically disappears. In a dual agency situation, obviously, both sides can’t get the best deal, nor can they look to the agent for advice and recommendations. So, educate yourself with our NEGOTIATE section and come out ahead.