Q: Should I buy a house that my real estate agent is also selling? Is there a conflict of interest?
A: Your question is actually about dual agency, which generally refers to a situation where the person representing you is also representing the seller. In your situation, your real estate agent is the listing agent and is also your buyer’s agent. In this case, your agent is considered to be a dual agent; and because an agent can’t hold a fiduciary duty to you and the seller in the same transaction, your agent’s role in the transaction is diminished.
It is difficult and confusing to have an agent suddenly become the gatekeeper on the other side of a transaction, and there have been cases argued in the courts about where the agent’s loyalties should lie in this situation. Some customers feel their broker should have a duty of loyalty only to them, especially if the home buyer or seller has worked with a broker or real estate salesperson for quite some time.
Over time, real estate agents learn a lot about the likes, dislikes, personal information and even financial ability of their customers. They often know the maximum price they can afford and what trade-offs they will make for their new home.
With all that information, you might say it is hard for the real estate agent to stay neutral when faced with a dual agency situation. We agree. Neutrality (what the National Association of Realtors calls “nonagency”) is an illusion. In the best case scenario, the dual agent does not divulge any personal information about the buyer to the seller and does not truly assist or help you in the purchase of a home that the broker has as a listing.
Isn’t there a remaining conflict of interest? A lot of people agree. In a dual-agency situation, your buyer broker cannot give you the advice he would have otherwise provided if he was not the listing broker. He might not even be able to say to you that the house is wrong for you. He cannot tell you the house is priced too high, and he cannot give you the advice you might have become accustomed to in other offers you might have placed.
So, if you cannot get the advice you need, what are you getting? Well, in dual-agency situations, you get a facilitator or middle person who will not give you help or advice in your purchase. Most frequently, we see real estate agents refer the buyers to a different broker or salesperson. This way, the buyers have a broker or salesperson looking out for the buyer, and the owner of the home has a listing agent watching out for the seller.
And, for this you will pay the full commission.
Unfortunately, frequently buyers and sellers are left with a bad taste when they have worked with a broker for a long time only to be left to be helped by someone new right when they need their trusted broker the most. Many brokers have their buyers and sellers agree to a dual-agency situation early on in their documentation, but when the dual agency actually arises, it seems neither the seller nor the buyer is prepared for what comes next. Sellers do not like knowing the listing broker who has handled their transaction suddenly stops giving advice, and buyers do not like being left alone to figure out what to do when negotiating the offer to purchase.
And while conflicts remain, it does not mean you will not buy the right house or sell for the same amount of cash you would have otherwise received. Dual agency does not mean everything gets blown up; it just means there are new complexities.
So, deal with them upfront. Before hiring your agent or listing broker, understand what the broker or salesperson will do for you if you find yourself in a dual-agency situation. Talk with the agent about what rejecting dual agency would mean and discuss your expectations for the agent to continue to represent you in the transaction.
If you are buying, the agent can find a different agent in the office to represent the seller. If the agent is unwilling to do that (maybe he or she has an even longer-term relationship with the seller), then require the agent to find you another agent to help you close the deal. A final option is to simply take a pass on the home. (Easier said than done in tight markets, we know.)
Finally, if you decide to proceed in a dual agency situation, get yourself some backup. Hire a real estate attorney to look out for your best interests, and, if you live in an area where real estate attorneys are not used for residential deals, you should find someone knowledgeable about the market to help you out. Otherwise, you have to think about this home as if you were buying it on your own without any help from an agent or broker.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.