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Are single-agent home sales risky? Study finds buyers, sellers harmed without own agents

Study finds buyers, sellers harmed without own agents
Mortgage Rates
Posted at 5:00 AM, May 31, 2021
and last updated 2021-05-31 10:11:32-04

Some of the big winners in the metro Phoenix hot housing market are real estate agents.

Commissions are up because sale prices are growing.

But a recent report by the Consumer Federation of America (CFA) has a warning about how some homes are being sold.

The study found buyers and sellers can be harmed if only one real estate agent is involved.

"The interest of the buyers and sellers conflict. The seller wants the highest price. The buyer wants the lowest price for the house," says Stephen Brobeck.

Brobeck is a Senior Fellow with CFA.

He says buyers and sellers are best served with each having an agent represent them and their interests.

Brobeck calls the one-agent practice "double-dipping" and says it can only be "justified" when the agent substantially reduces their commission fee and acts as an impartial facilitator agreed to by both parties.

Otherwise, he says buyers and sellers are at risk.

The study finds buyers are at risk if they find a home listing, contact the agent and work with them as a customer and not a client.

Listing agents represent the seller and without the buyer having an agent, there is no one negotiating for them.

Brobeck says sellers take risks if their agent asks to be a dual agent for both parties.

He says the agent then no longer has a fiduciary duty to take care of the sellers' needs alone.

"The agent can no longer push the highest price for the house, can no longer give advice that is against the material interest of the buyer," Brobeck says.

"They're not going to protect the interest of either party. They're just going to try and affect a sale," he says.

Brobeck also says "double dipper" single agents are overpaid if they collect the full 5%-6% commission typically paid by the seller and split between agents.

"In many cases, they're doing half the work," he says.

"Many agents would take issue with the allegation that working as a dual agent is less work," says Michelle Lind, CEO of the Arizona Association of Realtors.

Lind says dual agency, or one agent acting for both parties, is legal in Arizona with prior written consent.

"Dual agency may or may not be appropriate for all consumers... However, there are instances in which buyers and sellers may choose to be represented by the same brokerage firm or agent and consumers deserve the right to make that informed decision for themselves," Lind says.

She says their association "has put protections in place to ensure that buyers and sellers make informed decisions."

The CFA study says if you're buying or selling and are concerned, protect yourself by researching agents through recent sales and online profiles.

Click here to read the full Consumer Federation of America report.

Here's the full statement from the Arizona Association of Realtors CEO Michelle Lind:

"I have read the Consumer Federation of America Report, but have not had the opportunity to evaluate the methodology used to create the report or its accuracy. However, I can comment on limited representation (dual agency) in Arizona.

Clearly defining agency relationships in a real estate transaction is important for both the clients and the brokers. Clients deserve to know who is representing them and acting in their best interests. Brokers must be clear about who they represent in a transaction to determine what duties are owed to which party. Therefore, the Arizona REALTORS® has the widely used Real Estate Agency Disclosure and Election Form to address the different agency relationships.

Dual agency occurs when one broker individually, or two salespeople within the same brokerage firm, represent both the buyer and the seller in a real estate transaction. Dual agency is legal with prior written consent and the Arizona REALTORS® has put protections in place to ensure that buyers and sellers make informed decisions as to whether dual agency is in their best interests.

In most residential resale transactions in which a broker acts as a dual agent, the broker obtains the consent of the parties on the Arizona REALTORS® Consent to Limited Representation form (a copy of which is attached). This form is helpful in explaining dual agency and its consequences to the buyer and the seller prior to obtaining the parties informed consent to the relationship. Dual agency may or may not be appropriate for all consumers. No party is obligated to agree to dual agency if they believe that it is not in their best interest. However, there are instances in which buyers and sellers may choose to be represented by the same brokerage firm or agent and consumers deserve the right to make that informed decision for themselves.

Even when acting as a dual agent, agents must still:
Exercise reasonable skill and care in the performance of the agent’s duties.
Deal honestly with both buyer and seller.
Disclose in writing to both buyer and seller:
Any information that the seller is or may be unable to perform;
Any information that the buyer is or may be unable to perform;
Any material defect existing in the property being transferred; and
The possible existence of a lien or encumbrance on the property being transferred.

In regard to alleged “double dipping,” it is a common misconception that there is a standard percentage commission within the industry. In truth, there is no standard fee. Real estate brokerages must independently determine commission rates and real estate commissions are negotiable. Because consumers have a multitude of choices in service and fee models, they also have choices regarding payment for real estate services.

Finally, many agents would take issue with the allegation that working as a dual agent is less work. A real estate agent provides numerous different services to buyers and sellers and in a dual agency situation all of those services still need to be performed."