Newbie introduction plus dual agency question

[Paul M.]

Hi Bigger Pockets community in SLC.

I'm a newbie investor in the area. 

I've had a chance to meet a few people at the SLREIA lunch, REI Expo, and at an MJARE open house. I'm also joining UVREIA and UtahREIA and plan to attend as many events as my day-job and family demands will allow. I have to say, it's great that there are so many options to meet folks and learn about the industry here. It has been fun to get started here.

At the events, I've been able to talk with a few folks about partnerships, purchasing wholesale, etc.  One option I also want to explore is a regular retail purchase.  My primary goals are long term appreciation and tax benefit.  Cash flow generally needs to be positive but isn't the primary objective.

Isn't it the case that Utah allows for dual agency so long as there is written disclosure and agreement by both the buyer and seller?  If so, can this be used to get a discount off a retail purchase (e.g. if the dual-agent agrees to take a lower commission on the buyer's side)? 

I was thinking of offering the listing agent to be a dual-agent instead of me bringing my own buyers agent.  I searched BP and found that others had this idea as well but that there was some controversy around it.  Clearly dual-agency in general comes with a set of risks and potential conflicts of interest.  I'm curious if this has been done successfully in Utah.

To me, it seems like a listing agent would prefer to dual-represent and get a larger overall commission vs have the buyer bring his/her own agent (and get a smaller overall commission as a result).  However, I don't have any experience with this.  Appreciate any advice folks have.

[William Hochstedler]

Hi @Paul M.  Welcome to BP!

I hope you don't feel like you're just getting push back from agents with this post, but it's something that can cause a great deal of frustration for them, so you need to be careful.  I have seen this approach through my agents and will reiterate much of what @Steven Bond said.

Although dual or limited agency means representation of both sides of the transaction, it still is the seller that is paying this commission.  The arrangement between the seller and agent has already been negotiated and, in many cases, the discussion of limited agency has already been discussed.  Therefore, by coming in suggesting a lower commission for dual representation, you are presuming an understanding of that contractual relationship to which you are not a party.  So in effect, this request is no different than walking up to an agent and asking for them to reach into their wallets and contribute to your closing costs.

It also presumes that net to seller is the primary motivator for the seller.  I have seen a seller refuse to entertain an offer from a buyer who used this tactic because he felt that the buyer was negotiating with his money to short change his agent.

I'm not sure that representing both sides is literally twice the work because the property has already been located.  But it is absolutely twice the liability and there are many duties that the agent must perform to ensure the buyer is adequately represented during the transaction.  By suggesting the agent lower the commission, you are effectively saying "I am a great buyer.  If you represent me, the transaction will be easy as pie."  The problem here is that you started by putting the agent's compensation on the table and may have already sullied the relationship.

If you negotiate commissions on the front end and you are really close, there is no skin left on the bone to concede. A few dollars difference late into the deal could kill it because there's no more room. It is at this stage when you want to explore a commission reduction.  It's pretty easy to make an agent look like the bad guy if the buyer and the seller have both made concessions and the agent is holding out for top dollar.

Finally, if you get your price, why do you care where it comes from?  A motivated seller may take a lower offer without a commission reduction.  By discussing the commission up front, the agent may interpret this as I want a better price and I want you to pay for it.

On the flip side, there can be advantages to working with the listing agent.  If you and the seller are close to a meeting of the minds, the dual agent has a great incentive to make the deal work and has more commission to contribute to the transaction if that would seal the deal.  

Also, in a multiple offer situation, being represented by the listing agent gives you a huge advantage.

As Steve said, this is a relationship business.  Locating a property that you want to make an offer on is a great opportunity to find an agent that you can add to your team.  You are bringing a potential commission to the table.  If you don't have a good agent on your team, use this opportunity to find one.  It's possible that the listing agent is that person.

So I would recommend, above all, to use this opportunity to find an agent that you can build a lasting relationship with going forward.  

And second if you do use the listing agent, not mention commissions at the beginning of the conversation.  Absolutely be aggressive knowing that there might be a few dollars from the commission, but don't be explicit about it.  Just write an offer based on your best price.

Good luck!