A little known secret about the real estate industry* (*outside the industry) is that real estate agents love to ‘double end’ a real estate sale. ‘Double ending’ is the practice whereby agents keep the entire 6% commission rather than splitting it with a buyer’s agent. In fact, most practicing real estate agents rely on the fact that they will sell their own listings a least a few times each year and earn double the amount of money that they would normally make when splitting the commission with a buyer’s agent. It’s what helps make ends meet in an industry where the average agent, according to salary.com, makes about $35,715 a year.
Why it’s such a secret is that if the truth about this practice got out to the public consciousness and into mass media conversation, most people would be appalled by the fact that supposed ‘professionals’, with fidcuiary responsiblities if you will, are being paid for a service that is inherently flawed and completely unjustifiable. Here’s why…
First of all, it’s difficult, if not impossible, to provide professional services as someone’s ‘agent’ on a commission basis. By law, when someone says they’re going to be your ‘agent’, that means they are going to represent your interests as if they were you – put your interests above the interests of everyone else including themselves. The real estate agent is in effect promising to the seller, I’m going to make my best efforts to get you the highest price and the best possible terms. etc. even if it means they might make a little less, take longer to sell the property or even have to invest more into advertising and marketing the property. However, when you tell someone they’re only going to be paid (be able to put food on their families tables, pay their utilities, mortgage, car payment etc.) when they actually make a sale, you often put them in the untenable position of 1) having to violate their agency/fiduciary responsibility or 2) neglect their responsibilities to their families. So a credibility gaps began to creep into the real estate industry as soon as real estate professionals began to call themselves ‘agents’. Human nature is at odds with their professional responsiblity.
The gap widens further in the ‘double end’ situation. When an unrepresented buyer comes along, these folks initially have no ‘agent’. They may be shown the property by the seller’s agent and the seller’s agent wanting to a) sell the property and b) make twice the amount of money, will offer to prepare a purchase offer for them representing both the buyers and the sellers. At this point, the agent has become a ‘dual agent’. This mythical hybrid (allowed only in the real estate profession because of some pretty effective lobbying of legislators by Realtor organizations) means that now the real estate agent is ‘faithfully’ representing the interests of two opposing parties to a transaction. Hysterically perhaps, they are now attempting to obtain the best price and terms for BOTH parties, buyer and seller! It would be similar to an attorney representing both sides of a divorce proceeding, or even being the prosecutor and the public defender at the same time in a murder trial.
Some states have even tried to dance around the implicit conflict of interests by creating another mythical creature called ‘designated representative’. Still a form of dual agency, this is a practice whereby agents within the same brokerage firm will represent the opposing parties to a transaction. This is a tightrope for the agency whereby the seller and buyer are supposed to believe that two agents within the same office aren’t sharing information about the other party’s motivation, financial capacity, etc. in order to ‘make the deal’ so that everyone can get paid.
What seems so obvious to impartial observers is that the system is inherently flawed. Why don’t real estate agents do as other professionals, like attorneys, do and charge for their time or on a ‘flat fee’ basis rather than continuing to foist this implausible system, fraught with confilct on the public? The answer seems to be enertia. There are still over a million agents in the U.S. most of whom have only known one way of providing real estate services – the traditional, commission-based agency method that’s been handed down from time immemorial. Changing direction of such a large ship is an enormous task that would obviously take time, (if not intervention by a federal agency like the Federal Trade Commission and Department of Justice as well as an informed public to pressure legislators to outlaw the practice of ‘dual agency’.) But until we do, consumers will, as annual surveys suggest, continue to view real estate professionals as trustworthy as they used car salesmen.**
Editor’s Note: (**Maybe that’s more insulting to the used car salesmen than it is to real estate agents. At least the used car salesmen aren’t calling themselves ‘agents’.)
