How to Avoid the Dual Agency Trap When Hiring a Realtor

How-to guide on hiring a real estate agentBuying a house is not for the faint of heart.

The exhaustive process of selecting the one

The amount of money at stake in a SINGLE transaction…

The negotiation process where your offer may be met with anxiety-inducing silence...

...Not to mention the intensive due diligence process. And hiring the right people - trusting that they represent your best interest.

Never thought I’d say this...

But what a difference having a trusted experienced buyer’s real estate agent on your side makes.

Let’s start in the beginning…

Selecting our Buyer’s Real Estate Agent

First, I signed up with FeeDuck to get the best possible rate - but soon discovered they have no real estate agents available in Moncton…

Related: Are Real Estate Agents Worth It? (And How To Get One For Less)

Then Stephen remembered one of the agents, Larry, he interviewed a few years ago back when we were looking to sell our first house. We ended up hiring another realtor who was an up and comer and clearly ambitious as we thought we’d sell our house quicker with him.

But what Larry mentioned about the conflict of interest most agents have because of dual agency representation, specifically for the buyer, struck a chord.

What is Dual Agency Representation?

Dual agency happens in either of the following situations:

  1. The exact same agent represents BOTH the buyer and the seller of the property
  2. The agent representing the buyer works for the same firm as the seller’s agent

With the first scenario - the agent representing both the buyer and the seller in the same transaction - stands to get the full commission on the property sale. In New Brunswick that’s 5% or more of the sale price, where normally they would get half of that.

The second scenario may not be as dubious as the first one, but it still needs a healthy dose of skepticism. As a buyer, you can raise your eyebrow if you notice your agent keeps hinting that the property (listed by his buddy from same firm) is the ONE for you.

With dual agency, the most obvious conflict of interest lies with the fact that the agent will always have monetary bias:

  • against recommending the best (highest) price for the seller, and
  • against advising the best (lowest) price for the buyer during negotiations

3 Steps to Select A Good Agent

We ended up hiring an incredible buyer’s agent. And I don’t think it was by luck that we found him. In fact, here are some steps we took to ensure we’d find a good Realtor:

#1. Referral

Since Larry was unable to represent us at this time, he recommended another agent who’d be ready to be an exclusive buyer’s agent for us so we could avoid the dual agency trap. He also mentioned another buyer’s agent - so we had two names to start with.

Additional research like asking family and friends for referrals, doing some google searches, and using internet forums and message boards to get other people’s opinions would also help.

#2. Interview

I called up potential agents and asked some questions. I wanted to know about their experience and work qualifications. Here are some questions I asked:

  • How long have you been in real estate?
  • What are your thoughts about dual agency?
  • What is your commission structure?
  • What is your typical process for working with your new clients?
  • Can you provide 3-4 references of clients you’ve worked with in the past and their contact information?

#3. References

The key to a good interview is probing for details to support their statements.

If someone gives you a blanket statement saying someone is “knowledgeable and helpful” - you probe for details. Follow up by asking: in what way? Where did they show knowledge and how exactly did they help you?

Here are some of the questions I asked:

  • How do you know the agent and for how long?
  • Can you describe the agent’s performance?
  • Can you describe their work ethic?
  • Can you comment on your agent’s trustworthiness? Did you think they had your best interest at heart?
  • What was it like to work with your agent?
  • Would you hire your agent again?
  • Would you recommend them without any reservation to family and friends?
  • Is there anything else I should know about?

Finally, write everything down.

Our mind plays a trick on us thinking that we’ll remember everything later on - but we DON'T. It’s easy to forget. And sometimes facts get all mushy when we rely solely on our memory - so writing things down helps to get things straight.

4 Ways to Minimize your Risk of a Bad House Purchase

The buyer carries a lot of risk when purchasing a home. The price alone of this one single transaction carries HUGE financial implications.

Related: What it feels like to become a first time home owner

If only there’s that crystal ball to look into the future and be 100% certain all decisions we make now are absolutely the right ones to make...BUT it doesn’t work that way, does it?

We can’t completely eliminate the risk of a bad decision, but here’s what we can do to minimize our risk:

#1. Prepare your house checklist

Before you start shopping for houses, prepare your house checklist of what you need, what you want, and what are your deal breakers. This checklist from CMHC is super helpful.

With every house viewing, have your checklist with you and take notes. I also found it helpful to take pictures during house viewings to remind us of the details for later.

#2. Hire an exclusive buyer’s agent

This is no surprise: most things in life ain’t free. If you’re ready to spend hundreds of thousands in one SINGLE purchase - having a qualified buyer’s agent on your side goes a long way.

Make sure you define the relationship - which means NO dual agency representation.

#3. Do thorough due diligence

Don’t skimp on due diligence. Ask the tough questions early on, so there’s no (or little) surprises later on. Document the answers you get. Pay attention to the details. Watch out for inconsistencies and red flags. Research unanswered questions. Watch out for wishy washy wording and avoidance of your questions.

Conduct your tests including inspection, radon, and water quality. These tests may sound over the top but it’s better than going in blind.

#4. Walk away if you need to

Be prepared to walk away when alarm bells go off.

Part of the process of buying a house is asking the seller to complete a Residential Property Disclosure Statement. We can only hope that the seller provides honest and complete answers - but there’s also the question of timing…

From the buyer’s perspective, it would be more efficient to have a completed property disclosure before making an offer.

BUT, from the seller’s perspective, the chances that a sale will STILL go through even if a red flag comes up in the disclosure is increased when a buyer makes an offer and then receives the disclosure AFTER.

No matter how logical or pragmatic we think we are - we can’t shake the fact that emotions play a significant role in our decision-making…

The thing is, after we’ve signed that offer, our commitment level skyrockets to see that transaction through until the end. Because of our need to be CONSISTENT. Same tactic used when they ask you test drive a car, those who do have a REAL hard time walking away from buying it.

That’s why it’s so important that you WRITE things down in the beginning - including your deal-breakers - so you can review your list towards the end and then make an informed well-rounded decision. Your list is your commitment to be consistent with YOUR own standards.

Walking away if your list of deal-breakers has been violated decreases your chance of making a stupid decision that’ll cost you down the road.

Final Thoughts

Real estate agents get a bad reputation (and maybe some deserve it). But our buyer’s agent, Leo Doiron, swayed my opinion. Here’s why:

  • He agreed to no dual agency without hesitation.
  • He was very prompt responding to emails and phone calls with answers.
  • With 16 years in real estate, he knows what to look for in a property and brought many potential issues to our attention.
  • He’s very well connected in the community - he was able to tell us about builder reputations, neighbourhoods, and even details of a few of the homeowners.
  • If he doesn’t have the answers, he’s got someone in his contact list that does and calls them on the spot to get the answer for you - often before we even asked.
  • His three references provided candid, detailed, and overall favourable feedback about him.

Buying a house comes with a LONG list of things to do.

Emotions and stress levels can go through the roof...so surrounding yourself with qualified advisors you can trust is essential.

But the most important thing is to DO your homework, have your eyes wide open, listen to your instincts - and then trust yourself to get it done.

Tell me…

What’s been your experience working with a real estate agent? And have you heard of dual agency before now?

Disclosure: Some links in this article may be affiliate links. We're letting you know because it's the right thing to do. Here’s a more detailed disclosure on how HTS makes money.

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Comments

Amy
Amy's picture

I agree completely - we ended up in this situation with the purchase of our first home. Always get someone who is looking out for you.

September 20, 2016 @ 10:08 am
Jenny
Jenny's picture

Never heard of dual agency, and I have bought and sold several houses over the years. I agree 100 per cent to walk away at the hint of trouble. In 2012, I purchased a house that "had had a termite problem that had been totally remedied." Well, it hadn't. I found termites 35 days after moving in. I sold it in 2014 with full and complete disclosure. After spending $40K in legal fees, we are about to settle for maybe $120K. But I lost the appreciation on the house in the meantime. I sold it for $315K. The owners put in $70K to "fix it" and sold it recently for $560K. Let me experience be a lesson to others.

September 20, 2016 @ 3:31 pm
Stephen Weyman
Stephen Weyman's picture

You're right, this can't be emphasized enough. If you spot red flags, you need to do some serious investigation and possibly even walk away depending on how big it is. For example with the house we're buying, there was a red flag about the roof and hardwood floor being replaced through insurance because of a fault in the original shingles that were put on the house.

We had our inspector look in the attic and take pictures. Everything looked brand new up there with no signs of moisture or mold at all. We were comfortable moving forward because we checked this out carefully and even called the roofer who did the job fixing the roof to ask him lots of questions.

September 21, 2016 @ 9:16 am
Myrna
Myrna's picture

Hi Stephen, thanks for this very informative article. My husband and I were purchasing our first house and our mortgage broker gave us great advice beforehand about always doing an inspection before finalizing an offer.
We found an agent in an area we wanted to retire to and he seemed very knowledgeable, having lived in the area for decades. He did of course push the houses he was selling, but I thought that was a normal thing and there were a couple we were interested in. We did find another house in the area under a different agency and decided to buy this one. The owner had died and a relative was handling the sale. Our agent wasn't thrilled but he did get with the seller agent and afterwards told us to close with him and they would work out the commission together. Thought that was odd, but we did.

Anyways, long story short both agents turned out to be problematic, with the seller's agent trying to get a cash sale to avoid dealing with CMHC and then let it slip after we put our deposit down the executor did NOT have the title yet to the property, but would have it in a day or two. We did put in the contract we wanted to do a final inspection before finalizing the sale. We did this and found someone moving in, complete with furniture, personal items and walls prepped for painting! Our agent refused to go in to the house or call the other agent. I had to call and demand our deposit back, which we did get reimbursed the full amount.

Our agent did nothing to stand up for us. Afterwards he started pushing his properties again and refused to show us any other properties we were interested in. So thanks for the checklist of questions, going to be using this from now on before we deal with any more realtors.

And it would be great to do an article on what to watch out for or expect when a house is up for sale where the owner is deceased and it is being handled by an executor.

September 23, 2016 @ 4:15 pm
Stephen Weyman
Stephen Weyman's picture

So sorry you had to go through that Myrna - that's terrible. Can't believe he refused to show you other properties other than his own after all of that. He definitely needed to be fired at that point though - good riddance.

September 24, 2016 @ 9:27 pm
Leo Ly @ isaved5k.com's picture

Hi Myrna,

It really disappoints me to hear that the public is being mistreated by a fellow agent. I just want to share a few industry rules that can assist the public:

Rules
1) As a client, you can always terminate your relationship with your realtor if that realtor is not meeting your needs. Especially if you requested to view other properties and your realtor is not facilitating.
2) You can declined to be in a dual agency representation if you are not comfortable with the agreement, which means your realtor is only representing your sole interest. (If your realtor refuses, then that realtor is not working in your best interest).
3) Do not give your deposit money to individuals or agency that do not have a trust account. You are putting your money at risk.

Hope that helps.

- Leo

January 08, 2017 @ 9:06 pm

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