Realtors settlement may lead to more agents serving buyer and seller
Realtors settlement may lead to more agents serving buyer and seller
Aug. 17 has been circled on many a real estate agent’s calendar this year. That’s when big changes are coming to how those agents make their money. It’s part of a settlement between the National Association of Realtors and home sellers who sued the group, along with major brokerages, for conspiring to inflate commissions.
The changes are aimed at bringing more transparency to the process, but as usual with this sort of thing, there may be unintended consequences.
In a typical real estate transaction, there’s a listing agent, who works on behalf of the seller, and a buyer’s agent, who works for the buyer. But now some expect to see more agents representing both the buyer and seller in deals, a practice known as dual agency.
“I think that dual agency is going to skyrocket as a result of this,” said Bennie Waller, a faculty fellow at the University of Alabama who has studied the practice.
To understand why, it’s helpful to review how real estate commissions have traditionally worked. Home sellers typically cover the commission for both their own agent and the agent representing whoever buys their home. It typically amounts to 5% to 6% of the sale price, split between the agents.
But starting Saturday, it’s no longer assumed that sellers will pay the buyer’s agent. They can, but many likely won’t. Waller said that means buyers will have to come up with thousands of dollars out of pocket for their agent’s commission, “in addition to all the other closing costs that they have to bring to the table.”
Buyers who can’t afford that may choose to tour properties on their own and work directly with the listing agent if they make an offer. The listing agent then becomes a dual agent, and Waller said they may accept a lower fee because they’re also getting paid by the seller. That creates a potential conflict of interest.
“The buyer, of course, wants the lowest price; the seller wants the highest price,” he said. “Dual agency is like a husband and wife being represented by the same attorney in a divorce. It just doesn’t make good sense.”
In fact, dual agency is illegal in several states. The National Association of Realtors, which sets professional standards for its members, doesn’t take a stand on the issue. But Nate Johnson, a real estate agent in St. Louis and the association’s vice president of advocacy, said he’s not a fan.
“Especially with first-time homebuyers, they’ve never bought a home before, so they don’t really know what they don’t know,” he said. “I believe that it’s in everyone’s best interest to have their own representation.”
Say there’s a problem with the sewer line. The listing agent might not fight as hard for a fix if they’re representing both sides. Hudson Santana, who leads a team of agents at Keller Williams in the Boston area, said his team doesn’t do dual agency, but he expects many listing agents will.
“If I have a listing and you’re coming directly to me, I’m going to be tempted to say, ‘Hey, I can represent both parties’ because I’m going to make more money,” he said. “It doesn’t mean that you’re going to get a better deal or that my client’s going to get a better deal. It just means I’m going to get a better deal because I’m going to make more money.”
Even if buyers save on commission, they might pay more overall, Santana said, “either by paying more money for the house or by buying a product that has some sort of issue that they weren’t aware of.”
Sellers may lose out too. Bennie Waller’s research has found that properties sold through a dual agent tend to sell faster, but for less money.
Others say dual agency can work, if done ethically. Connie Antoniou sells luxury properties at a golf club in suburban Chicago. She estimated that she acts as a dual agent in 20% to 25% of her deals.
“I’m the No. 1 agent there and have been for years,” she said. “So they oftentimes will call me direct because they feel that I might be the go-to person for the community.”
Both parties have to agree to dual agency, and in her state she can’t negotiate for or advise either one or share nonpublic information. Remember the divorce analogy? Antoniou pointed out that many couples turn to mediation, where a neutral third party assists both parties in coming to a resolution.
“I look at dual agency very similarly to mediation,” she said. “If everything’s being disclosed and everybody is upfront and above board on everything, I think it’s great.”
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