The transfer of real estate can be a confusing process, especially if you are a first-time homebuyer, or trying to sell your home after living in it for many years.
There almost seems to be a whole new language used when discussing real estate. Because of this, it is in the best interest of those wishing to participate to become familiar with some commonly used terms.
Two important phrases you might often hear and need to understand are “dual agency” and “designated agency.”
What's the Difference between a Dual Real Estate Agency vs. a Designated Real Estate Agency?
What do these terms mean? And which kind of agency should you use?
Here’s everything you need to know:
What’s a Dual Real Estate Agency?
In most US states, with a dual agency, the same real estate agent represents both the buyer and the seller of a particular property.
An example of the exception to this rule is that in California, an agent that represents both the buyer and the seller of a home is called a designated agency.
What are the Drawbacks of a Dual Agency?
Dual agencies are a rare occurrence in real estate.
This is because the job of a real estate agent is to look out for the best interests of his clients. When you are buying a home, this means securing the best property and negotiating the lowest price possible. A good buyer’s agent will also push for the seller to cover most of the repairs found during inspections and the closing costs.
However, the opposite is true for a seller’s agent. His duty is to get his client the highest possible price for his home and ensure that the buyer pays for the repairs that come up during inspections, as well as most of the closing costs.
So you can see the major conflict of interest that is usually present in dual agency deals. There is no possible way that the realtor can serve the needs of both of his clients.
This is because even if he is able to convince his client’s to meet in the middle and not show any favoritism to one side, one client will still get a bad deal.
How is that possible? It's the real estate agent's job to know what a property is truly worth. Meeting in the middle could make the buyer overpay or the seller to lose out on the amount the property is actually worth.
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Are There Any Benefits of a Dual Agency Transaction?
The one major plus to using a dual agency transaction to sell a home is that you can potentially save big on realtor’s commission fees.
The current average for realtor’s fees is between 5% and 7% of the property’s final sales price. Let’s say your realtor is working on a 6% commission and representing you as the seller and your potential buyer.
If you list your home for $500,000, the commission would be $30,000, netting you $470,000 for your home. However, as the commission is typically then split between the buyer’s agent and the seller’s agent, if they are the same person, it’s possible to negotiate the commission down to half.
So in this example, the commission would be 3%, or $15,000, leaving you with $485,000 for your home.
As you can see, this transaction only benefits the seller as the buyer still pays $500,000 regardless.
What’s a Designated Real Estate Agency?
A designated agency is a more common type of real estate representation. This is when the seller of the home and any of its potential buyers have their own agents, but both of the agents come from the same firm.
There is still the potential for a conflict of interest in a designated agency deal, although it is not as present and alarming as in a dual agency.
This potential conflict stems from the idea that since both the buyer’s and seller’s agents will be splitting their commission with the same brokerage firm, they will act in the best interests of the firm, rather than the clients.
However, if you are working with an agent from a nationally accredited and reputable brokerage firm, you should not expect to run into this problem, especially if the two agents have little to no experience together before.
If this is the case, then whether you are the buyer or the seller, you should expect your realtor to look out for your best interests and reach a financial result that is both acceptable and beneficial for you.
Are There Other Options?
The most common way to buy or sell a home is for you to work with an agent from one broker, and the party on the other side of the transaction to work with an agent from a different broker.
If this is the case, there is absolutely no potential for conflict of interest even if the two agents have worked together before. This is because their finances and motivations are completely separate.
How Do I Discover Dual or Designated Agencies?
You usually have to ask, especially if you are hoping to avoid any potential conflicts of interests.
To discover a dual agency, it’s worth it to explicitly ask your realtor if they are also representing the seller of the home you are interested in purchasing, or the buyer if you are the one who is selling.
To find out about a designated agency, you can also speak to your realtor, or, if you know the name of the other party’s representation, you can simply do a quick online search to find out which brokerage he works for.
Disclosure is always paramount. Most states have laws that require it. A good agent will always let you know about these situations before you even need to ask and be willing to answer all of your questions and assuage any of your concerns.
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