By: Ryan Ponce On: November 5, 2019 In: Advice Comments: 0

What Does A Typical Transaction Look Like?

In most transactions, you have a home at the center of the transaction, with a buyer and a seller on each side. Real estate agency roles often get confusing, so I wanted to shine some light on the topic.

A seller would have their agent, who is referred to as the listing agent. The listing agent works for a company, or brokerage. The buyer would also have representation, which is referred to as a selling agent who also works for a brokerage. This can get confusing so many people just call the buyer’s representative a “buyer’s agent”.

The way compensation works is that the seller is responsible for paying the listing broker. The listing broker then splits a predetermined fee with the selling brokerage. For example, if the seller is paying a total commission of 5.50%, the listing brokerage might take 3.0% and pay an amount of 2.5% to the selling brokerage. This commission is disclosed through the multiple listing service. Keep in mind, all marketing expenses are paid out of pocket by the listing agent, which is why they typically get a higher percentage. This is all outlined in the listing agreement between the listing brokerage and the seller. After the listing and selling brokerages get paid, they pay the amount due to the actual agent.

Dual Agency refers to when both the Listing Agent and the Selling Agent (Buyer’s Agent) work for the same brokerage. Both the buyer and the seller are seen as the client of the brokerage so technically they have the same representation.

In reality, the actual agents are the ones who handle all communication and negotiations. The brokerage is their support system. Buyers and sellers are typically making a decision on who to use based on the knowledge, experience, trustworthiness and overall ability of the agent.

When you hear the phrase “Double Ended”, it refers to when both the buyer and seller were represented by the same agent. This is very different from Dual Agency, as the same agent is handling all communication.

I avoid this scenario as much as possible. As a listing agent, my goal is to represent the seller. I have a fiduciary responsibility to the seller, which typically means to negotiate the best price and terms. I have a duty to give advice that will help them best accomplish their goals, negotiate in their favor, and look out for their best interests.

As an agent representing a buyer, my goal would be the complete opposite. First, I am responsible for finding the right property for that particular buyer. Next, I have a fiduciary responsibility to them to help them accomplish their goals. Majority of buyers not only want the property they fall in love with, but when possible they want it at a price and terms that are favorable to them. On the buy side, sometimes this isn’t as important, but I still have a duty to act on their behalf and look out for their best interests.

Given these two roles, I do not see how it is possible to negotiate on behalf of two different clients that are, in essence, negotiating against each other. Luckily, this scenario doesn’t happen very often. When it does arise, typically it happens when I am the listing agent and a buyer comes to me directly. In this situation, I will hand the buyer off to a knowledgeable agent within our team. Their responsibility would be to negotiate on behalf of their client, the buyer, and we do not discuss inside information.

I often have conversations with buyers who are set on only speaking to the listing agent directly, without their own representation. I have never understood this thought process. Usually, buyers believe they are saving the seller money by not having to pay a buyers agent, so in return they are getting a better deal.

In reality, a listing agreement is used between a seller and their agent. In that listing agreement, the commission is outlined. For this example I will use 5.5%. The seller is agreeing to pay the listing brokerage 5.5% of the sales price. That percentage is predetermined. If the buyer is represented by another agent/brokerage, the commission is then shared between the Listing Brokerage and the Selling Brokerage. In the case that the buyer is not represented, the standard contract does not adjust the commission. The Listing Agent would receive the full 5.5%. Therefore, buying without representation does not save the seller any money.

The buyer would be foregoing their representation, but typically do not benefit. They are now relying on their own knowledge of the process and neighborhoods. Working with an agent that has knowledge of the area you are looking in could save you both time and money in the long run. It is just about finding the right fit.

And Always Remember, It Matters Who You Work With!

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Ryan Ponce - REALTOR®
DRE# 01902950
(619) 228-6790