Don’t Fall Into This Real Estate Trap
Having one real estate agent represent the buyer and the seller of a property is like using the same attorney to represent both parties in a lawsuit
Dual representation, also called dual agency, occurs when the same real estate agent represents both the seller and the buyer of a property. While the definition of “dual agency” varies by state four U.S. states flat out forbid it. In Pennsylvania “dual agency” is permitted and defined as when the same agent represents the buyer and the seller in a transaction. When two agents from the same company are involved, to avoid a conflict of interest and protect the consumers the agents can be designated to represent the different parties. This is called designated agency
Many consumer advocates call single agent dual agency “the biggest scam in real estate.” But the reasons make sense only if you understand how real estate transactions are conducted.
Real estate agents make money only when they collect a commission at the point a house sale is completed. Until then, an agent doesn’t make anything and in fact incurs expenses on your behalf. If you are a seller, the agent is spending money marketing your home, placing ads, creating or updating a website, taking photos, putting up signage and holding an open house. If you are a buyer, the agent is spending time and money showing you properties, searching the multiple listing service to find houses to show you and so on. Both listing and buyer’s agents generally must maintain office space and pay a portion of their commissions to a broker who runs the brokerage.
When a house is listed, the seller signs a contract agreeing to pay a commission to be split between the listing and buyer’s agents.
What agent wouldn’t prefer to represent both at once and claim the full commission instead of just part of it? And therein lies the problem.
When a real estate agent becomes a dual agent, the agent represents both parties in the transaction. This is akin to an attorney trying to represent the plaintiff and defendant at the same time in a lawsuit — which isn’t allowed because of the conflict of competing interests.
A seller wants to receive the most money possible for their house, and a buyer wants to pay not a penny more than necessary. Those are competing interests and real estate agents are supposed to be in their client’s corner. They are being hired to provide sound advice.
With only one agent for both buyer and seller the agent can’t really give proper guidance to either party. If the buyer likes a home and asks a dual agent how much to offer, the agent can’t give advice exclusively in the buyer’s best interests.
If the seller asks how much to counteroffer, the agent cannot be impartial. Nobody wins because neither buyer nor seller has real representation. The agent can’t ethically serve both sides simultaneously. There is no real upside to sharing an agent because the agent can’t share confidential information from either side. In addition, the agent, looking at that fatter check when the deal closes, could be over incentivized to seal the deal at all costs even if it is to the disadvantage of one or both parties.
What’s missing are the checks and balances of having two agents protecting solely their client’s interests. Don’t agree to anything else.
If you have questions about representation I am always available to help.