In this red-hot housing market, homebuyers need all the help they can get. The Consumer Federation of America (CFA) says buyers should always be represented by their own real estate agent and not rely on the seller’s agent.
In real estate, the seller normally pays a 6% commission on the sale of the property. The seller’s and buyer’s agents split the commission evenly.
But when a buyer is unrepresented, the seller’s agent receives the full 6% commission, a practice the CFA refers to as “double-dipping.” In a new report, the group says it’s a conflict of interest that potentially leads to higher costs for the buyer.
“Double-dipping can only be justified when agents greatly reduce their commission and function as a facilitator with the full knowledge and approval of both buyer and seller,” said Stephen Brobeck, a CFA senior fellow and the report’s author. “The report highlights the consumer risks and costs of dual agency, which should be prohibited.”
In fact, Brobeck says dual agency is effectively banned in eight states. He also says a number of real estate agents are on the record criticizing the practice.
Real estate agents who help a buyer find and secure a home are referred to as “buyer’s agents.” In almost all cases, the agent receives no compensation from the buyer but shares the commission paid by the seller. So there is no cost to the buyer in being represented by an agent.
A buyer’s agent will help the potential buyer analyze the market, find suitable properties, and arrive at a competitive price. Once a sales contract is ratified, a buyer’s agent can help the buyer secure financing and -- working closely with the seller’s agent -- make sure the deal makes it all the way to closing.
In today’s hyper-competitive market, there are other good reasons for a buyer to be represented by an agent. A majority of properties now receive multiple offers, resulting in a bidding war. A knowledgeable professional who knows the market can make the difference between getting the house or losing out.
The CFA report shows that there are strong financial reasons for each party to be represented. It claims that agents representing both parties are overcompensated by several billion dollars a year. It also claims that buyers don’t get the best price in single-agent sales.