Listing Agents, Buyer Agents, Dual Agents and Designated Agents
When a homeowner lists their house for sale, they hire a LISTING AGENT. This Realtor is contractually, legally and ethically bound to promote and protect the Seller's interests. That means obtaining the highest possible price, closing on the Seller's schedule with the fewest concessions, repairs or credits to the Buyer. Listing Agents have a fiduciary duty to Sellers.
For the Listing Agent to fairly represent a Buyer, they would have to ignore their duties to the Seller. Representing both sides of the transaction also means the Listing Agent is likely to receive as much as twice the amount of commission.
With increasing frequency, Buyers are finding it is worthwhile to have someone in their corner.
BUYER AGENTS are committed to their client's best interests, working to level the playing field for the other half of the transaction. After all, it is the Buyer who brings the money to the table...you PAY for agency whether you benefit from it or not. Does it make sense to pay someone to work against you? As your advocate, the Buyer Agent will turn all the cards face up, point out subtle advantages and disadvantages and help guide you to see things that might otherwise escape your notice. Buyer Agents have a fiduciary duty their Buyer Clients.
Why go alone?
Dual Agency
Here is how the WRA describes Multiple Representation or Dual Agency:
Multiple Representation - In multiple representation (without designated agency), or “dual agency,” as we used to call it, the agents working with the buyer and seller take on a neutral role in negotiations. Each agent working with the parties prepares contract proposals as directed by the client, but may not provide either party with advice about how to gain advantage over the other. While a multiple representation relationship may limit the services provided to a particular client, it does increase the likelihood of the right buyer and seller finding each other. Without party consents to a multiple representation relationship, the company is not able to show its buyer clients the listings of its seller clients.
Why shouldn’t I call the number on the sign in the yard?
When a Seller lists their house for sale with a Realtor, that Realtor is the Listing Agent and a Listing Contract is signed. That Seller rightfully expects their Realtor to work to get the highest price with the best possible terms, after all, that is what they are paying for. One of the most basic items on the Listing Agents To Do List is to place a sign in the yard with their phone number, encouraging would-be Buyers to inquire about the house.
This is a mistake.
The Buyer has now unwittingly given up their right to their own representative, one who would work to get them the lowest price at the best possible terms. And the Buyer gets to pay for the Seller’s advocate who will now “double dip” on the commission when the sale closes. The Buyer brings the money so it could be argued that the Buyer is paying the commission. Why would the Buyer pay for an Agent who is legally and ethically obligated to get as much money as possible for the Seller? An Agent (and Broker) who stands to get twice as much money when the deal closes? So now the Buyer wants to ask questions like “what is the lowest price the Seller will accept?” Ethically, the Listing Agent cannot work to get the Buyer a lower price or better terms as that promise was already made to the Seller, in writing. The Sellers interests come before all others, including the Broker and the Agent. A Buyer might think that by eliminating the Buyer’s Agent, they can save the commission that would otherwise be paid. A good idea except that too was already addressed in the Listing Contract. Is the potential for a 3% discount enough to give up everything else that a Buyer’s Agent will do for you?
Dual Agency: serving two masters, pleasing neither.
Quoted from above:
"the agents working with the buyer and seller take on a neutral role in negotiations"
A NEUTRAL ROLE?
The Realtor that was formerly your Advocate and Buyer's Agent, negotiating on your behalf with your best interests first and foremost is now reduced to a messenger. Since the commission is part of the cost of the house you are buying, that is a very expensive messenger. The Seller can't be much happier: they are paying for advocacy, a negotiator, a representative and they too are getting a messenger.
Designated Agency
This is how the Wisconsin Realtors Association describes Designated Agency:
Designated Agency - In a designated agency relationship, the broker may assign two agents to work with the parties: one to represent the seller as a seller’s agent, and one to represent the buyer as a buyer’s agent. Each agent provides full negotiation services to the respective client, offering advice and opinions to assist that client even if that advice favors the interests of that client over the broker’s other client. Each agent also keeps the confidential information of each client private. Both parties must consent in writing to create designated agency.
Imagine you are in the market for a new home, have found a Realtor you are comfortable working with and even gone as far as to sign a Buyer’s Agency agreement. Your Buyer’s Agent works for you under the supervision of his Broker and they both get paid when the agent sells a house. Other agents at the same firm have contracts with their clients and those clients rightfully believe that their contract protects them and their interests, that their agent is truly THEIR agent.
So what happens when one of those other contracts is a LISTING CONTRACT for a house that you are interested in? Your Buyer Agent works for the same Broker as the Listing Agent. The Broker is essentially on both sides of that transaction with one agent working for the Buyer and the other working for the Seller and is in line to collect double the amount of commission: one from the Buyer side and another from the Seller side.
This is the conflict that Designated Agency creates. What if a problem arises? What if the problem is significant enough that you want to kill the whole transaction, involve lawyers and require each side to present their version of the series of events? Which side will the Broker be on then? Yours? Theirs? The Broker’s? Does the possibility of collecting twice the commission cloud the issue of who’s interests come first?