What is Dual Agency and When is it Ok?

What is Dual Agency?

Dual agency is a situation to describe when a real estate agent works with both the buyer and the seller. Most people familiar with the housing market know that a buyer’s agent works for the buyer, a listing agent for the seller, but there’s a third category that’s much more mysterious: the dual agent.

Dual agents, also known as transaction brokers, work for both the buyer and the seller, combining both roles into one. Buyers might stumble across this scenario when they fall in love with a home where the agent they’ve hired to represent them also happens to represent the seller. It’s rare, but it happens, especially in smaller markets where there aren’t a whole lot of properties to go around.

Dual agency can also mean that the buyer and seller have separate agents at the same real estate firm, which most often happens with large brokerages with lots of listings. This is better known as Designated Dual Agency.

Certain states (but not all) permit dual agency as long as it’s disclosed to both buyers and sellers. But is dual agency a good idea? Well, yes and no. There are both advantages and disadvantages to buying a house through dual agency. Here are the pros and cons.

Benefits of dual agency

Dual agency can certainly streamline the home-buying process. Think about it: If both buyer and seller have their own separate agents, there will be four people’s schedules that must be consulted before the property can be shown. Cut one agent out, and it makes scheduling 25% easier. Or thereabouts.

Another potential perk of a dual agent is it can save you on the commission—the money home sellers pay their agent for all their hard work (typically 6% of the sales price of a home), which is then split with the corresponding buyer’s agent for all their hard work. A dual agent, however, keeps the whole kit and caboodle. (Good for them!) As a result, dual agents may be more open than usual to lowering that commission a bit.

Downsides of dual agency

A dual agent is supposed to be neutral, helping clients on both sides of the deal equally. But staying truly neutral can be difficult. For instance, since an agent’s commission is a percentage of a home’s sales price, it’s inherently in an agent’s best interest to get a high selling price, because he’ll make more money. That’s good for the seller, but not so much for the buyer.

Also, since a dual agent works for both buyer and seller, he must tread carefully not to betray the confidence of either party. So, he might stay mum about juicy tidbits that you might have more easily learned if you’d had your own agent in your corner.

For instance: A listing agent might know his clients are desperate to sell. If the buyer’s agent finds that out, he can inform his clients of their added negotiation power. A dual agent, on the other hand, might be compelled to keep mum about all personal matters.

When to use a dual agent

In states that allow this practice, agents are required by law to inform clients if they’re facing a dual agency scenario—and they can’t move forward without all parties’ informed consent. What’s more, both buyers and sellers have the right to opt out and use another agent so both parties have their own representation.

There are situations where using a dual agent makes sense. An example would be if you and your neighbor struck up a deal to sell your home and have already negotiated the terms, price, etc. You might want to use a transactional Realtor (dual agent) to assist both parties toward the closing. (This is also a case where you may want to ask for a lower commission, since so much of the deal is already ironed out.)

The A Team

Credit at Closing vs. Repairs

When your listing receives an accepted offer, expect the buyer to enlist the services of a home inspector before the contract is complete. Even a brand-new home isn’t perfect. Buyers often use home inspections to negotiate during the buying process.

Home Inspection Purpose
A home inspection is designed to ensure there aren’t any significant defects in the home. A buyer wants to know if the roof is in good condition, the air conditioning and heating system work well and there are no noticeable leaks or other potentially costly issues. However, the inspection is not designed to give the buyer more power in the negotiations of the agreed upon selling price or enlist the seller to fix a long punch list of items. Expect to make accommodations for unsatisfactory items but a seller shouldn’t be fixing every tiny detail.

Credits vs. Repairs
If something does come up that needs to be repaired, it is often best to aim for a credit at closing versus repairing the item. Repair work can be costly, time consuming and come with unexpected issues. Doing what you can to avoid repairing items is in your best interest as an agent. A credit for the expected cost of the repair is a valid way to address the concern. For example, offer a credit toward a new roof instead of having the roof replaced by the homeowner. Potential issues that can arise from repairs include:

  • Buyers have their own ideas of what the repair should look like
  • Buyers can nitpick the entire process
  • Potential closing delay
  • Often longer than expected repair timelines

Home Repair Negotiation
Negotiations are a part of any home selling process. A happy buyer makes selling the home easier on everyone and leads to more referrals for you. As a good realtor you are there to help guide your clients every step of the way.

The A Team

Investment: Rent or Flip

There are a wide variety of ways to invest in real estate; one can make money in any of these options, one can also lose their money. To be successful in real estate investing, it’s critical that you identify what skills you have and your tolerance for risk. Then choose a type of investment that works for you and repeat that model.

Investors can make great profits by both flipping properties as well as holding them as rentals. The difference really boils down to a few considerations. First, what kind of income are you seeking? Active or Passive? Actively buying, fixing and flipping properties is quick cash that requires careful timing and effort. Rental properties on the other hand offer passive long-term income which accumulates over time. Additionally the property value increases during this time. The downside is that one must invest time in property maintenance and tenant management.

The second concern is risk. Flipping a property is not traditional investing where one buys and holds an investment. Flipping is really speculation. When buying a flipper, one must carefully gauge the cost of refurbishment, remodeling and the cost of the holding time into the price valuation, then carefully market the home and realize the profit. Any number of variances can go wrong which could cause the value to drop and profits to reduce or even disappear, such as a delay in remodeling or a slow real estate market.

Both types of investments can bring nice profits. Determining what’s best for you and your talents is important in choosing the best option for your financial goal.

The A Team

How Rising Interest Rates Affect Purchasing Power

You probably instinctively realize that rising interest rates will affect home buyers. The interest rate you pay can make a big difference in the size of the home loan you will qualify for as well as the price of the home you’ll be able to buy. Mortgage brokers use the monthly mortgage payment to determine how much you can afford to pay. Of course the larger the payment, the harder it is to qualify.

Interest Rate And Its Effect On Affordability
All mortgage payments include principal and interest as part of the total cost. Lenders use this payment to determine how much you can borrow for the home loan. Commonly, you can have 31-35% of your total monthly gross income as a loan payment. It follows that you want the principal portion of your home mortgage payment to be as high as it can be so you qualify for a more expensive home.

Risks Of Waiting To Buy
We are still seeing all-time low rates but more increases are predicted. A home mortgage is the best hedge against inflation. By purchasing a home now, you lock in your monthly housing cost, which as we’ve already seen is the largest monthly expense for most families.

Interest rates are one of the biggest factors that affect your ability to finance a home purchase. Along with your credit score and employment history, the amount of interest you pay on the loan has a big impact on affordability.

The A Team