Newbie introduction plus dual agency question

11 Replies

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.

@Paul M. Welcome!

I've purchased a few times as an unrepresented buyer. This gives the selling agent the option of lowering the overall commissions without requiring them to do the work on both sides. I found most agents open to this though a few were reluctant. This could be a good option if you have enough experience to represent yourself. 

Thanks, @Brian H

Welcome to the BP community.  I've been licensed in real estate for over 8 years and get this question quite often.  Let me give you the advice that works really well with me.  The theory is spot on but the practice of this process is usually what messes it up.  

(Agents perspective) What you are asking is for an agent to do twice the work for less compensation and also to keep a seller happy.  As I typically don't do limited representation except for on my investment development deals where it's all numbers I always ask the buyer to purchase Unrepresented so my seller knows I fully represent their interests.  

One thing to consider is that the seller is also trying to squeeze his best interests in the deal and the commission arrangement is between listing agent and seller so when they see dual representation or Unrepresented they initially are thinking discount too if the agent hasn't crossed this bridge already upon getting the listing.  So when you approach this start by getting a great working relationship with the listing agent that is a cooperative and not combative relationship.  Make your first offer $5-$10k less than what you are comfortable getting it at always remaining positive and interested in the property but very protective and humble about the end price you want to get.  What you are doing with this process is buying good faith with all parties and when the seller counters too high you have a heart to heart with the agent and simply ask.  " I respect you are working really hard for this to work for all parties and I want everyone to walk away from this deal as excited as I am.  Is this the best price we can get because I am still $x,xxx away from being able to make this work. Is there anything you can do?." (Note commissions was never brought up.  Only a plea to help to make the deal work)

Other option is to go through the time and expense of getting and maintaining a license.  All the best and hope this helps.  It's a game of psychology and relationships.  Not numbers.  

Happy investing!

Paul. Yep. Legal with disclosures and signed written agreement. Steven has great advice from an agent's perspective. It's about win-win negotiations. There are some great negotiating coaches in Utah that often teach courses in this. Just keep an eye out.


Jeff

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!

Awesome clarification William. My thumbs got tired and I cut my post short. You are spot on!

Hi @Paul M. , welcome to BP!

Great responses here. My take on it, based on my personal experience and the way I approach it, is that I'm going to do my own due diligence on the property first, then come up with a purchase price offer. During the evaluation process, I'll keep in touch with the listing agent. I'll ask questions before and after I evaluate the property to get a feel for how I'm going to proceed. If I think the listing agent will try to push my offer through at my price, then I'm going to suggest for them to represent me and not care what their commission may be. 

I know going in, that they're going to look out for the seller's best interest than my own, so I know I'll be doing most of the leg work myself, which I am prepared to do anyway. If I feel that I can do a better job representing myself, then I'll submit the offer myself. 

If I didn't have the experience and knowledge, I don't know if I would approach it the same way. A new investor can't trust that they would get the same representation and a better deal if the listing agent agreed to represent them too. That can come back to bite them because, as I mentioned, the listing agent is looking out for the seller's best interest above all. Also, the listing agent wants to get the deal done, so being new to this environment, how would a new investor know what information or disclosures are being left out or over-looked, and from my experience, it's happened. You have to be assertive, proactive, and most importantly verify the numbers and documents. As a new investor, I would get my own representation and still make my purchase offer no matter how low it is. I would also have my rep walk me through the whole transaction and explain the process, and ask a lot of questions. 

Hope this was helpful. Good luck!

Kindest regards,

Tim    

Thanks, everyone for taking the time to give the detailed responses.

This is super helpful -- good food for thought, including a few things I hadn't fully considered when I asked the question such as the added liability the listing agent would take on in this scenario.  This helps me start to understand things from the perspective of the listing agent.

BTW, I hope I didn't come off as disrespectful to the agents by my question.  If so, I apologize.  That wasn't my intention.

@Paul M. I wouldn't see it as a disrespect at all and it's  VERY valid conversation.  Agents typically want to be "of value" in their transactions so going about it for the sake of the relationship, then the deal you'll find you'll often get what you're after.  Have fun and again welcome to the community!

@Paul M.

Welcome to Bigger Pockets. BP is full of resources. You will find resources here from blogs to pod casts and forums. You can also send messages to members. This is one of my favorite features of Bigger Pockets especially for asking specific questions.

Welcome to the site @Paul M.

Theoretically a listing agent's duty to the seller is to get them the very best deal at all times. Coming in without your own agent should not make the listing agent fight harder for your offer. Does it always work out like this in reality? It should but it probably does not.   

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