California is one of the states where “dual agency” is permitted in real estate transactions (where one agent represents both buyer and seller). Other states require that their own agent represent each side of a residential purchase.
Frequently, I am asked by buyers to represent them in making offers on my listings; particularly ones that they feel would be getting multiple offers. They hoped it would be to their advantage because they thought I would be able and willing to influence the sellers to favor their offer, and also because they reasoned that with only one agent involved the seller could benefit from some potential reduction in commissions paid. Two recent prospective buyers had been given the impression by other listing agents that it would be in their best interest to work with them as buying agents too, and would give them a distinct advantage if there were multiple offers. For the record, it is not my personal preference to represent a buyer when our seller is receiving multiple offers.
In discussing these ideas with one of the prospective buyers, it became clear to me that he had no concept of the potential drawbacks of what he was proposing. For example, since I already had a fiduciary responsibility to the seller, my job was to get the seller the best contract price, terms and conditions. As a result, while I might succeed in accomplishing the objective of getting them the house they wanted, it could be that they would end up paying far more than a highly effective, skilled negotiator strictly on their side may have done. His thought was simply that I could give a discount on the commissions we would receive, which in turn would get him the house and at a slightly lower cost. In a case where there are multiple offers, there are some ethics issues that might also arise.
Another potential drawback to the buyer can result when the agent has to honestly explain to the seller something known about the buyer’s situation that may affect the seller’s perception regarding that particular buyer.
Of course many agents can do an excellent job wearing two hats in a transaction, and generally have a result that both the seller and buyer feel good about. Often, though, either the seller or buyer or both begin to feel inadequately represented during escrow. I recall one sale where the agent represented both sides and some unexpected issues came up in the inspections. The agent suggested only a general building inspection be done, and by an inspector he worked with a lot. The buyer’s parents happened to come by to see the home that their children were buying, and they suggested their son have the sewer line and chimneys inspected also. Though the agent quickly agreed that was a good idea, the buyer began wondering why it hadn’t been suggested before then. Issues were discovered from both of these inspections totaling nearly $20,000.
The buyer felt the seller must pay to correct all these issues, the seller felt the agent wasn’t doing a good job in reminding the buyer that the house was being sold in its “as-is” condition, and the agent was stuck in the middle of trying to effectively communicate with both of the clients. Ultimately they all did come to a compromise agreement, but no one was entirely happy with the way it all turned out.
There are alternative ways to handle the dual agency challenges, especially in situations where there are multiple offers. The prospective buyer may be well advised to discuss with the listing agent what alternatives there are.
Michael Edlen has had nearly 1000 transactions over 25 years, and has been involved in hundreds of multiple offer negotiations. He may be reached at 310.230.7373 or [email protected]