The Darwinian Doctor This post will explain the difference between a buyer agent and a seller agent in real estate. What do they do and do you need one?
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About 90% of people use a real estate agent to buy a new home or for their home sale. But do you need to use a buyer agent or a seller agent? It depends on a number of factors (and it matters more than you think).
In my experience as a real estate investor and a homeowner, I’ve bought and sold dozens of units of real estate. In every instance, I’ve used a real estate broker to represent my interests. When I’ve purchased property, I’ve used a buyer agent. When I’ve sold property, I’ve used a seller agent.
In a couple of instances, these agents were actually the same person. (Can you guess how I felt after those deals closed?)
You can read about the growth of my real estate company here: Anno Darwinii Archives
What have I learned from my experience? I’m going to tell you!
But first, some definitions.
What is a Seller Agent?
A seller’s agent (also known as a listing agent or selling agent), is a real estate professional who prepares and lists a property for sale. They represent the party who is trying to sell their property. They have a legal responsibility to represent the best interests of the seller.
A good listing agent will try to secure the most competitive offer for the property for sale. This might mean the highest price, the most qualified buyers, or ideally a combination of these factors.
In return for their services, the seller’s agent will typically be paid a portion of the sales price, called a commission. This can range from 2-3% of the sale price. The commision system is supposed to align the goals of the seller and the seller agent: to both get the highest sale sale price and to close the real estate transaction successfully.
In this arrangement, it’s typical for a single agent to have the exclusive right to sell the property. This right is granted to them by the listing agreement and ensures the seller agent will be compensated for their hard work.
This list is just a taste of what the listing broker will do to earn their commission:
- Generating a comparative market analysis
- Advising the seller on the best asking price
- Inputting the property information to the Multiple Listing Service
- Setting the dates for the open houses and attending them
- Negotiating with the seller agent
What is a Buyer Agent?
On the other side of the equation, a buyer’s agent is a real estate agent that represents the potential home buyers. Like the seller agent, they have a duty to represent the specific needs of their clients — in this case the buyers.
A good buyer’s agent will consider their buyer’s interests in all aspects of the negotiation. They won’t simply try to close a deal. They will try to find the best deal for their buyer clients. This could mean the best price, but it could also mean finding a property that best matches the desired location or building condition in the local real estate market.
A subtle difference is that a real estate investor or even a primary home buyer might use multiple buyer agents in their search for a property. Once a buyer agent helps you get a property under contract, though, the relationship typically becomes exclusive.
The buyer agent commission is typically half of the total commision from the sale of the property. It’s typically paid by the seller, and it’s also usually around 2-3% of the total purchase price.
In return for the buyer’s agent commission, these are some of the duties of the buyer’s real estate agent:
- Sending property listings to the buyer that match the desired criteria
- Talking to the seller agent to find out details about the property
- Accompanying the buyer to the open house
- Advising the buyer during the entirety of the home-buying process
- Negotiating the purchase on behalf of the buyer
- Arranging for home inspectors and helping to interpret the home inspection
- Helping to find a mortgage lender (if needed)
- Helping the buyer to identify any red flags
Why do you need an agent at all?
You might be tempted to just represent yourself in a real estate transaction to avoid realtor commissions, which can be sizeable. As I mentioned above, these commissions can range from 2-3% each for both the buyers’ agent and the seller’s agent. In total, the commision can therefore equal 4-6% of the sale price.
While that might not seem like a lot, this can add up to serious cash with the expensive homes you’ll see in places like Los Angeles or New York City.
Read more: Is owning a home a good investment? 10 years of home ownership in LA, analyzed
For a $2 million home sale, a 6% total commission is $120,000! This commision is typically fully covered by the original property owner who is selling their home. Since the money is split equally between the buyers’ agents and the sellers’ agent, both agents are incentivized to close the deal.
Unless you’re an experienced real estate professional or real estate attorney, the regulations and laws surrounding the purchase or sale of real estate can be incredibly confusing. Purchase or sale contracts can be dozens of pages long, and there are a million places for an unscrupulous agent to slip in some unusual clauses to tip the balance in favor of their client.
As you read above, the duties of both the buyer and seller agent are many and varied. I’ve often said that a good real estate agent is worth their weight in gold. They have a fiduciary responsibility to represent you and get you the best terms. And with home prices at all time highs, it can be quite costly to make a mistake.
Even after purchasing about $8 million of investment property over the last few years, I still greatly value my real estate broker to look out for my best interests in a purchase.
What about dual agency?
Dual agency refers to the situation where a single agent represents both the buyer and the seller for a real estate transaction. A dual agent will handle communication so the buyer and seller don’t have to directly negotiate with each other. Technically, the agent has a fiduciary duty to both parties, which means they are still doing their best to yield the best possible deal for both the seller and buyer.
It also can be called dual agency when two brokers from the same real estate firm represent the seller and potential buyers.
But there’s a reason why dual agency is illegal in eight states: Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas and Vermont.
There is an inherent conflict of interest in dual agency. Since a single agent will receive the entirety of the commission fee, a dual agent is extra incentivized to close the deal. To do so, the dual agent might advise the home seller to lower the home’s listing price. Or the dual agent might advise the prospective buyers to go above their desired price range or ignore flaws discovered during the property inspection.
My experience
As I mentioned above, I’ve purchased about 28 units of real estate over the past few years. This has involved more than a dozen real estate deals facilitated by either a buyer or seller agent. I’ve greatly valued the agent in all of these transactions.
I felt that having our own agent was an essential part of each deal. In addition to all the duties I listed above, I enjoyed having a good agent to help me answer important questions, like where to look for a property or how to access off-market properties.
My only bad experiences have been with dual agency. I think there’s a good reason that it’s illegal in some states, and would advise against using a dual agent in your home search if possible. I purchased two homes via dual agency. In each of the purchases, I felt concern during the negotiation that the conflict of interest was (even unconsciously) influencing the advice I was getting. And after closing, I wondered if I would have been able to secure a lower purchase price if I had an independent buyer’s agent operating on my behalf.
After I secured ownership and started renovations in each home, we discovered hidden flaws in both properties that were costly to fix. I’ve also closed on other properties that had hidden flaws, but in those instances I had no reason to doubt the quality of the service I’d been given.
Dual agency in a hot market
I’ll say one more thing about dual agency. In a hot market, it might give you an edge over other buyers. When the real estate industry is on fire and there are a dozen buyers for every property listing, it can be hard to catch the attention of the seller agent. If you don’t already have a buyer’s agent, you can let the seller agent know that you are not yet represented. If the seller agent has the potential to make a double commission by selling the property to you, it may influence them to recommend you as a buyer to the sellers.
This factor may not be that important right now, with the real estate market on life support due to the Federal Reserve’s efforts to combat inflation, but it’s good to know for the future.
Conclusion
I hope you now understand the difference and responsibilities of the buyer agent vs the seller agent. They both play different roles and in my opinion are vital to the homebuying process for most of us. Dual agency is a double edged sword and in general I recommend against it in any type of property transaction.
Good luck!
— The Darwinian Doctor
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1 comment
As someone with extensive experience in real estate, I appreciate your insights on the importance of buyer and seller agents. It’s crucial to have a dedicated agent representing your interests throughout the process. Your explanation of the roles and responsibilities of both types of agents is concise and informative. I completely agree that dual agency can pose conflicts of interest, and your personal experiences highlight the potential drawbacks.