Buying a home is a precious event. The home you choose is going to shape your daily routines and memories for years to come. The process of finding and purchasing a home can be an exhausting one. For this reason, it is best to find a Realtor to help guide you through the process and protect your interests from start to finish.
There are typically 2 types of Realtors in a real estate transaction:
1.) The Listing Agent: works directly with the sellers; and
2.) The Buyer’s Agent: works directly with the buyers.
Both are representing the interests of their respective party.
Some homebuyers make the mistake of asking the listing agent to show them the home that they are interested in. I’ll explain why this is a bad idea throughout the rest of this article. Sometimes these buyers will also enter into a real estate contract with the Realtor who is representing the seller as well. This is called “Dual Agency”; when one real estate agent represents both sides of a transaction.
Some buyers feel that working directly with the listing agent gives them an upper hand during negotiations. Some believe that by not using a Buyers agent, they will get a better deal on the home. Others feel that they can receive valuable insider information by having direct access to the listing agent. All of these ideas are far from the truth.
Let’s cover 5 common pitfalls that occur when a home buyer decides to work directly with the listing agent, without being represented by their own Realtor.
Conflict of Interest
Can a listing agent promise unbiased service to a buyer when representing both sides of a real estate transaction? Let’s think about this for a second before answering the question.
This is how a typical seller/listing agent relationship starts: First, a sellers decides they want to sell their house, so they contact a listing agent to discuss it. The listing agent meets with the sellers and pitches why they are the best listing agent in town. The sellers may meet with 5 or 6 Realtors before they choose the one who they connect with the most.
Once the seller has chosen an agent they feel will best represent them in the sale of their house, the listing agent and seller then work through the process of getting their house ready for sale. They will talk through decluttering, staging, etc. until the house is in show condition and ready for the market. This can take a few weeks, or a few months, depending on the scope of work involved.
This whole process requires a strong relationship between the listing agent and the sellers. That is a very important part of this conversation. Once the house in on the market, a buyer may see a sign in the yard to contact the listing agent for a showing. This buyer and the seller usually have no prior relationship.
The buyer views the home with the listing agent and they fall in love with it. Now the buyer turns to the listing agent and says, “I want to buy it. So, what’s next?”. The listing agent is now presented with a possible opportunity to get paid double their normal rate for representing the sellers alone. Many agents can’t handle the temptation of all that extra money and will do or say anything to make this deal work to get both commissions, once the dual agency contract is signed.
If the buyer enters into a sales contract, who do you think is going to get the most attention throughout this transaction based on what we learned above? It’s pretty obvious. Who has the agent spent the most time with so far? The sellers!
This is where the “conflict of interest” comes into the equation. When a listing agent has already been in a fiduciary relationship with a seller, can they really detach from that relationship and properly represent the buyer interests to their fullest potential? It’s a huge risk to trust that they can.
So, now let’s answer this questions: Can a listing agent promise unbiased service to a buyer when representing both sides of a real estate transaction? I wouldn’t bet on it!
The Power of Money
Money makes people do crazy things. Greed is subconscious and no one is immune to it.
Let’s just say that in the scenario above, you were the buyer and you happened to know the listing agent through a previous interaction. You may be feeling that this agent is different and could possibly handle both sides of the transaction in a trustworthy way, without a conflict of interest.
So, you decide to sign an agreement to have that listing agent represent you as well as the sellers. You make an offer and ask the listing agent to present it to the sellers to get their response back. The sellers can counteroffer, accept, or reject your initial offer. The sellers receive your offer and then tell their listing agent, “We’ll give you $5,000 more in commission if you can get the buyer to come up $10,000 on their offer.”
Do you trust that this agent would be able to turn down that offer? In the average real estate transaction, the seller pays all of the Realtor fees. The seller has the most financial influence over the Realtor, therefore they stand the best chance of getting what they want. It’s risky to deny this fact. The power of money is in the sellers favor when you enter into a dual agency situation. This is a major handicap for the home buyers in a dual agency relationship with the listing agent!
The Spin On Information
Now, let’s say that you are still the buyer in the scenario above and you have decided to trust that the sellers won’t be able to persuade your agent with extra commission money. You have worked out a deal with the sellers and you are now under contract. The next step would be to hire a home inspector to make sure there are no serious issues with the house.
The listing agent may give you a list of home inspectors, but most people would want to find their own inspector if they are in a dual agency situation. So you find a home inspector and schedule your potential new home to be inspected. You get the report back and there are multiple issues throughout the report that concern you (which is very common).
So you go back to the listing agent and you present them with the inspection report and your concerns about the home. But you notice that the listing agent seems to down play many of the issues on the report. Every time you mention a major concern, they might interject with, “that’s just a typical problem that comes with buying a used home”. It’s hard to know what to do now because you have trusted them this far.
As you end the conversation, you don’t know how to feel because they are the real estate professional and you are not. Are you getting a “spin” on the information to help the listing agent get the deal closed? Are you truly getting the best advise possible in this scenario? This is not a situation that I would ever want to find myself in.
As more complex situations seem to present themselves, you may start to become skeptical of your agents advice. This can cause doubts and uncertainties to appear, even if the agent is performing to the best of their abilities for both parties.
Let’s just say that you decide to trust the agent in all of the scenarios above. You even agree to only ask for a few things to be repaired by the sellers and both sides agree on a resolution. Then you receive the Home Owners Association documents. (This scenario could also include the Seller’s Disclosure, Survey, Appraisal, Disclosures, etc.)
As you review these documents, you realize that the covenants of the neighborhood say that you cannot park any cars in the driveway overnight. You then ask the listing agent if this is going to be a problem, because you regularly have out of town guests come and stay with you who would need to park outside. The listing agent advises you that they know the neighborhood well and people park their cars in the driveway overnight all the time without HOA enforcement.
How would you respond in this scenario? So far you have trusted this agent to properly represent you (as well as the sellers), to not be persuaded by extra money during the negotiations, to not put a “spin” on the information they present to you, and now this new advice on the HOA parking dilemma seems sketchy.
Once skepticism enters into a dual agency Realtor relationship, it becomes like a house of cards on every other decision that you have made up to this point. The whole deal starts to feel tainted and it’s hard to find your way back to that warm fuzzy feeling you first felt when you wanted to buy the home in the first place.
Could all of this have been avoided by hiring your own buyer’s agent? Most likely, yes. The seller typically pays for the buyer’s agent fees, so why would you put yourself in this situation if it isn’t even saving you any money? If you think you can negotiate a lower selling price by not using a buyers agent, you should know that the statistics show that a good Buyers agent can negotiate a much lower sales price than a buyer ever could. You get the best service, and the best price, by using a Buyer's agent.
The Legality of Dual Agency
A big question on Dual Agency is, “How legal is it?” Well, it’s legal in all 50 States, but some limit the fiduciary responsibility by labeling the Realtor as a “Transaction Broker” to both parties, when entering into a dual agency relationship. Certain states realize that it’s nearly impossible for a human to honestly represent both parties in a real transaction, so the Agent must change their status to simply a “transaction broker” status.
So what is a Transaction Broker in Colorado? A transaction broker is a real estate agent who has taken more of a referee role for their clients and less of a coaching role. They do not carry the same fiduciary responsibility as a buyer agency agreement.
If you were the buyer in all of the scenarios mentioned above throughout this article and your deal fell apart because the dual agent messed some thing up, how much legal authority do your carry into court being represented by a transaction broker? How much more legal protection do you have being represented by a buyer’s agency agreement with your own Realtor?
When you have your own buyer’s agent who represents you through a buyer agency agreement, the advice given to you throughout the transaction is considered to be trustworthy. If you follow bad advice from your personal buyer’s agent, judges and juries are much more understanding. If you follow bad advice from a dual agent transaction broker agreement, you may end up with less sympathy from a judge or jury.
The fact that dual agency is technically "legal" causes some to feel like it must be safe. Just because dual agency is legal does not mean that it is beneficial for anyone, other than the agent getting paid a dual commission.
I remember buying my first home and thinking, “Wow, the Realtor made a lot of money on that deal”. After being in the business for many years, I now know how much work Realtors do behind the scenes and how little of that money actually goes into their bank account. There are many tense details involved in a real estate transaction. When things go bad, they seem to escalate quickly.
There may be a few times when a dual agency agreement make sense, but most of the time it's a bad decision with too many pitfalls. Do your research and make sure you know what you are getting into if you do decide to move forward as a buyer using the listing agent.
In our company, Great Colorado Homes, we do not allow dual agency with any of our agents. In our opinion, it’s unethical and does not serve our clients, or the real estate industry well at all.
Hi! I'm Andrew Fortune, the founder of Great Colorado Homes and the creator of much of the content on this website. Thanks for taking the time to read this article. Please feel free to share this article with someone who might benefit from it. I appreciate your time here on this site and am always open to suggestions and ideas from our readers. Feel free to leave a comment in the box below.
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