Last week I wrote about how some researchers had measured the cost of dual agency transactions. They were able to determine that home sellers lost roughly 1.4% of the purchase price even when dual agency was disclosed. However, there are also some additional impacts on the home buyer and the seller and it all has to do with the real estate commission. Therefore, we need to first examine a nuance in real estate commissions that many home buyers and sellers are not aware of.
Variable Rate Commissions
The default commission arrangement under a listing agreement is for the listing agent to get the entire commission under all circumstances - even if the buyer has no real estate agent or chooses to enter into a dual agency agreement with the listing agent. However, some agents offer and some home sellers ask for what is known as a variable rate commission. Technically a variable rate commission is defined as a commission which is lower if the buyer is represented by the listing agent's brokerage. The logic is that since there is no cooperating brokerage to pay the listing brokerage can charge less.
However, we sometimes offer a slight variation of this, which I assume others are doing as well: a lower commission if the buyer becomes interested in the home without a realtor, regardless of whether or not they subsequently end up represented by the listing agent's brokerage. So they could end up in a dual agency situation or they could end up represented by someone else from the same brokerage or they could have no agent.
So what happens to the real estate commission in a dual agency situation? I've actually written about this as part of a post about the real reasons you need your own real estate agent to buy a home. If there is no variable rate commission in place then the listing agent is entitled to keep the entire commission and many do. Neither the buyer nor the seller save any money as a result of the fact that they are in a dual agency arrangement. However, if a variable rate commission is in place then the seller will likely benefit from a reduced commission.
Some home buyers are OK with the seller or the agent pocketing the commission savings because they trust that they will receive indirect benefits. They believe that a listing agent that pockets the money will be sufficiently corrupted to help them get a better deal. This notion is somewhat supported by the Hawaii research I wrote about in my last post. They might also believe that if the seller pockets the savings then the seller will take that into consideration in evaluating their offer and potentially agree to a lower price.
Of course, none of these benefits are guaranteed to the home buyer who proceeds with dual agency - at least not to the extent imagined by the buyer. However, alternatively, they can easily work with realtors that offer commission rebates and get a nice chunk of the co-op commission themselves. By doing that that they will pocket some of the savings with certainty and whether or not a variable rate commission is in place.
In other words, when it comes to the disposition of commission dollars the only people who win from dual agency are 1) the realtor under some circumstances 2) the seller under some circumstances and 3) the home buyer in their dreams but maybe not in reality.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.