Home sellers often contract with agents to list their houses. Those contracts specify that the agents represent the best interest of the seller. After all, it’s the seller who pays the commission, which is traditionally 6% of the sale price.
Buyers who are shown houses by an agent might not realize the agent actually works for the seller. Unless the buyer has a separate contract with an agent who is looking out for the buyer’s best interests, the agent’s first loyalty is to the seller. (For more information on agents who represent buyers, check with the National Association of Exclusive Buyers Agents.)
Definition of a dual agent
The traditional 6% commission paid by the seller is usually split evenly between the seller’s agent and the buyer’s agent.
But sometimes, agents try to collect the entire commission through an arrangement called “dual agency.” This means that the agent represents both the buyer and the seller in the sale. This can create potential problems.
Conflict of interest
Does that sound like a conflict of interest? It does to many in the industry. "Dual agency" is controversial even within the National Association of Realtors because one of the biggest advantages of signing an agent to represent you is that you have an experienced agent advising you. But as a spectrum of business models crowds into the real estate market, agents and brokers are offering a variety of client representation. The old rules don’t always apply, and that means agents sometimes try to offset a reduced commission for either selling or buying by asking the other party for their side of the commission, too.
The pressure agents are putting on clients to agree to dual agency is such a growing problem that it was addressed recently by the state Office of General Counsel in New York. The department's alert recommends both buyers and sellers resist pressure from agents to compromise the "duty of loyalty."
The department's consumer advisory warns that once you agree to dual agency, you must assume that everything you say to the agent will be repeated to the other party. You lose confidentiality and you lose the right to insist the agent negotiate a deal that’s best for you – because the agent is also negotiating a deal that’s good for the other side.
When dual agency may not be a problem
If you are already friendly with the other party – say, for instance, you are buying a house from a longtime neighbor – you might feel that you don't need an agent strictly on your side. Dual agency might not represent a dramatic conflict of interest. A request for dual agency is also an opportunity to negotiate the agent's commission, especially if the agent is asking to keep both sides of the traditional 6% total commission.
Find out if you are dealing with dual agency
The best time to discuss dual agency is before the agent brings it up. Research the topic and decide if you are open to it at all and under what circumstances. Talk with other recent sellers to see how they handled requests for dual agency.
Also, check with your state’s licensing board to see if former clients have filed complaints against agents for dual agency, so you can avoid those agents and their brokers.
When it comes to buying a house, you should always check with your realtor first to make sure you know whose interests he or she is representing.
Of course there are other things you should consider when looking to buy a home. Check out these first time home buyer tips for more insight into the home buying process.