by Glenn Kelman | February 14, 2012
A surprising number of U.S. listings – about 1 in 10 — are sold by a real estate agent who also represents the buyer. How, we wondered, does this work out for the seller who originally hired the real estate agent?
Dual Agency Costs the Seller $4,789 On Average
To answer that question, Redfin’s real estate analyst Tim Ellis dug up every sale from January 1, 2011 – December 1, 2011 across 22 counties in nine different states — over 230,000 records in all. The results were remarkably consistent:
In every county we measured, the discount off list price was much larger when the seller’s agent also represented the buyer.
The average discount off list price was worse by 1.6 points with dual-agency sales, which is the industry term for a transaction where the listing agent represents both sides:
For a $300,000 home, dual agency cost the seller $4,789. The consistency across all 22 counties surprised us almost as much as the magnitude of the disparity in outcomes:
Avg. Sale to List Ratio
Avg. Sale to List Ratio
||Difference in Dollars for $300,000 Home
||Percent of Sales
That Were Dual Agency
|Baltimore City County
|Clark County (Nevada)
|District of Columbia
|Fairfax City County
|Los Angeles County
|San Diego County
|San Francisco County
|San Mateo County
|Suffolk County, MA
Many brokers treat dual agency as a choice the buyer makes, at his own risk, assuming the seller would never have reason to complain about how a buyer is represented. But in fact the damage done is to the original client of the dual agent, the seller.
Is the Difference Because Dual Agency is More Common Among Foreclosures? Nope.
We wondered if the results were correlated with distressed sales, since banks seemed less likely to notice dual agency than a typical home-seller.
But it turns out the prevalence of dual agency is actually higher among traditional home-sellers, not banks. And the outcomes were the same: both traditional home-sellers and banks got significantly worse prices when the buyer did not have his own agent.
Is Dual Agency Even Legal? Mostly, Yes
Concern for the seller is why at least eight states have attempted to outlaw dual agency.
In Alaska, an agent can act as a Neutral Licensee, providing a limited set of services to buyer and seller without representing either side. In Colorado, an agent who starts off as an agent for the seller can meet a buyer and become, with the seller’s permission, a Transaction Broker. A Transaction Broker carries out the deal on behalf of both parties but with no fiduciary obligations to either side.
Florida, Kansas, Oklahoma also allow Transaction Brokers. Texas allows an agent to act as an intermediary between buyer and seller, not fully representing either, and Vermont allows Limited Agency, in which the agent represents both parties but with very narrow responsibilities to either.
In Maryland, one agent cannot represent both parties, but an agent can represent the seller while still collecting the commission reserved for the buyer’s agent, so long as he doesn’t provide the buyer any advice. In Maryland in particular, it is the seller who loses at the negotiating table in these situations, more than 2% on average of the total home value.
So all of these arrangements are not, regardless of what you call them, usually in the seller’s best interests. The official responsibilities of a transaction broker, neutral licensee, or limited agent differ from the original duties of an agent, but no one else performs the essential duty of the seller’s agent, which is to sell the house for the best possible terms.
For this analysis, we considered any transaction an example of dual agency if the Multiple Listing Service used by agents to record transactions listed the same agent as representing buyer and seller. In a separate analysis, we’ll take up designated agency, in which buyer and seller are represented by two different agents working at the same brokerage.
But Don’t You Also Save Money by Paying Only One Agent? Yep (But Not Enough)
But wait! Is dual agency all bad?
The advantage of one agent bringing together both sides is, of course, efficiency, since you avoid having to pay two agents. Some listing agents will collect the full commission normally due the buyer’s agent as well as their own listing commission, eliminating any efficiencies or savings.
But some will refund a portion of the fee offered to a buyer’s agent. A seller can save 1% or even 1.5% of the total value of the home in commissions; in an extreme case this is almost worth as much as the 1.6% a seller will on average give up at the negotiating table.
But if you’re the seller, the commission savings probably isn’t worth worrying about a conflict of interest with your agent. Even if you get a good price, you’ll need that agent’s advocacy beyond the initial negotiation: when the inspection turns up problems the buyer wants you to fix, or when you need an extra two weeks to move out.
If your agent also has a relationship with the buyer, and a stake in your working with that buyer over others, it becomes harder for the agent to function as an impartial guide to the deal best for you. It may be harder for you to feel like someone’s really watching out for you and you alone.
This is why almost no real estate agent would argue that dual agency or its equivalent is better for the home-seller; the only debate is about the extent to which it does or does not damage the seller.
Where Is Dual Agency Most Common?
What was most surprising to us was how often dual agency and its equivalent occurs. It isn’t just the occasional menage-a-trois: in Baltimore, the seller’s agent is listed as the buyer’s agent in 15% of all sales. In Queens, it’s 34%. Across the 22 counties we surveyed, it was 9%:
By contrast, among Redfin’s 10,000+ clients, dual agency or its equivalent has never happened. We also don’t allow dual agency among our partners.
How to Have Your Cake and Eat It Too
So what does this mean for you as a seller who isn’t using Redfin? Should you turn away a buyer, just because your agent also wants to represent him? Of course not, especially in an age when less than half of all listings sell.
If your agent meets a buyer, he can refer the buyer to another agent or — if you want to avoid paying two commissions – a lawyer, so that both sides have an advocate.
No agent would put a sale in jeopardy by refusing to refer the buyer to someone who can represent his interests. No buyer will hesitate to buy a house simply because the buyer has to get his own agent or attorney.
An even simpler solution is to head this issue off at the pass; the language allowing dual agency is optional in most listing agreements, so your agent can easily use a form that precludes dual agency.
You can also raise the issue in a listing consultation, asking how the agent will handle a situation in which he himself meets a buyer. In my experience, the best agents at traditional brokerages dislike dual agency, though attitudes also vary by market.
Regardless of the prevailing attitude among agents, at a time when 100,000 people will soon be signing listing agreements, one of the simplest ways to ensure you get the best terms is to ask that your agent is committed exclusively to you.
A Series on Data-Driven Best Practices for Home-Sellers
This essay is part of a series that takes a scientific approach to selling homes for more money, faster, with less risk. As listing agents ourselves, we use what we learn to help our clients make better decisions. We also share that with other agents and consumers.
Recently we’ve discussed what season to list your home (surprisingly, winter), which day of the week it should debut (Friday), and whether professional photography is worth it (absolutely).
This has turned out to be very handy information: the vast majority of listings come to market too late, in spring and summer; only 19% debut on a Friday; only 15% feature professional photography.
If there are other analyses you’d like to see us undertake, leave a request below and we’ll dig into it soon.
[Note: This post was updated to reflect a correction in our calculation of what percentage of sales were dual-agency in each market. The sale to list ratios were unaffected.]
via Will I Make More Money if My Listing Agent Also Represents the Buyer? – Research Center | Redfin.