Real Estate

‘Double-Dipping Agents’ Overcharge Consumers Billions In Commissions

Some one million homebuyers and sellers pay several billion dollars more per year in commissions than they should due to “double-dipping” agents, according to a new report from the Consumer Federation of America.

The consumer watchdog defined a double-dipping agent or dual agent as a single agent who represents both buyer and seller in a transaction and retains the entire real estate commission, typically 5-6 percent.

CFA examined about 6,000 home-sale transactions listed on a multiple listing service in 2021 in 12 major cities and several small cities nationwide and determined that an average of 9.4 percent of those deals were double-ended.

Because double-ending seemed to be higher in rural areas and smaller cities, CFA estimated that 10 percent of home sales are double-ended nationwide.

“Since agents have been participating in the sale of about five million existing homes annually over the past several years, our estimate of a 10 percent rate of double-ended sales would mean that each year, about one million individual sellers and buyers face the risks and potential costs of double-dipping,” the report said.

“Our research suggests that low- and moderate-income consumers, who disproportionately purchase low-priced homes, are most likely to work with a double-dipping agent.

“Our research also suggests that buyers and sellers in areas with the least active home markets are also more likely to work with double-dippers. The risks consumers face involve overpayment of commissions and unfair treatment resulting from agent conflicts of interest.”

Dual agency is a controversial practice in the real estate industry due to the conflicts of interest involved. The report did not cover transactions in which different agents from the same brokerage represented the buyer and seller, often called “designated agency.” CFA said it would cover those deals in a future report.

“The prospect of a double-ended sale can influence agents working with both sellers and buyers to steer their clients,” this week’s report said.

“Buyer agents show clients their own listings first and disparage other properties of interest to these clients, thus potentially limiting the choice of properties by their client. Listing agents delay listing or showing their properties to clients of buyer agents while searching for their own unrepresented buyers, thus potentially depriving their clients of a quicker sale and/or a higher sale price.”

A major drawback for buyers and sellers to double-ended sales is the loss of a fiduciary, including the ability of the agent to advise them on any matter of interest to the other party, such as price and concession negotiations and property disclosures, according to the report.

Stephen Brobeck

“Double-dipping can only be justified when agents greatly reduce their commission and function as a facilitator with the full knowledge and approval of both buyer and seller,” said Stephen Brobeck, a CFA senior fellow and the report’s author, in a statement.

While some double-dipping agents defend keeping the entire commission by saying they do double the work, they rarely do, according to CFA’s report.

“In fact, some agents have suggested that it is easier to work with both seller and buyer than with only one party and their agent,” the report said. “While there is more paperwork in working with the two parties, there is also much less hassle showing homes, coordinating with another busy agent, and negotiating a sale price.

“Double-dipping agents, while legally required to maintain neutrality, are in a position where they can influence both seller and buyer to agree on a sale price. Research has shown that they can and do use ploys such as strategic pricing and disclosure of confidential information to facilitate a sale.”

CFA found that double-dipping rates varied greatly from city to city with rates higher in cities with low sale prices and lower in cities with fewer days on market. Among the 12 cities, Charlotte, North Carolina’s double-ended sales rate was the lowest, 2.6 percent, while Birmingham, Alabama’s was the highest at 14.8 percent.

At the same time, the rate in small town McAlester, Oklahoma was 36 percent compared to 9 percent in Oklahoma City and the rate in little Laurinburg, North Carolina was 30 percent.

Source: CFA

 

According to the report, of the home sales examined, 932 of the homes sold for under $150,000 and those were twice as likely to be sold double-ended than more expensive homes: 16.5 percent compared to 8.1 percent.

“The lack of seller leverage over their agents, and the greater difficulty of sellers to qualify for financing, may help explain the difference,” CFA said. “But sale price only explains a portion of the overall variation since the double-dipping (DD) rates for all other home price levels were very similar.”

Source: CFA

While one oft-cited incentive for agents to “pocket” listings is the desire to double-end the commission, CFA’s data provided little support for that hypothesis, finding that double-end rates for homes that sold above $600,000 were actually a bit lower than the average double-end rate. However, because CFA’s study only included transactions found on MLSs and pocket listings are less likely than other sales to be listed on MLSs, it’s possible that such listings were not captured in the samples studied.

Source: CFA

 

CFA also found a statistically significant correlation between median days on the market in the twelve cities and rates of double-ended sales — the longer homes were on the market, the more likely they were to be double-ended.

“In an area of quicker sales, listing agents would seem to be more likely to search quickly for a buyer and less likely to delay the sales process in a search for unrepresented buyers,” CFA said.

“The four ‘hottest’ markets studied — Oakland, Tucson, Portland, and Charlotte — were four of the five markets with the lowest [double-dipping] rates.”

Source: CFA

“The three cities with the lowest double-end rates represent three of the four cities with median days on the market of fewer than 30,” the report added. “At the other end, the only three cities with median days over 50 have very high double-end rates. While the correlation is not perfect, it does strongly suggest that time to sell is an important factor influencing double-ended rates.”

CFA found that most national real estate brokerages had a double-end rate within one percentage point of the overall 9.4 percent average, suggesting that most do not strongly encourage or discourage douple-dipping, the report said. Compass had a rate of 4.2 percent, which CFA attributed to the fact that nearly half of the Compass sales in the sample (104 of 214) were in Oakland, a hot market with a low double-end rate.

Source: CFA

Among regional brokerages, CFA found that two — Residential Properties in Providence, Rhode Island, and Realty South in Birmingham — had double-end rates exceeding 20 percent.

“These companies may give agents more opportunity to double-dip by, for example, not insisting that these agents promptly internally circulate or MLS-post new listings,” the report said.

“In contrast, the low double-end rate of Long Realty in Tucson may be related to their very high in-house rate of double-ended sales (31.4 percent). Might this company encourage or require agents to immediately circulate information about new listings to other Long realtors?”

CFA said outright that it does not recommend a ban on double-dipping because it would prevent an agent from acting as a facilitator (also called a transaction broker) at the request of both buyer and seller. However, the report suggested that such an agent “should receive a far lower commission, in part because they have no fiduciary obligations.” The report concedes that “most agents are unlikely to accept these conditions.”

CFA’s report does advocate for a ban on dual agency in all 50 states and Washington, D.C. “Dual agency is an oxymoron,” CFA said. “One agent cannot represent the material interests of both seller and buyer, especially related to sale price. As well as misleading consumers about agent representation, dual agency aggravates the conflicts of interest inherent in double-dipping.”

The report also suggested that an agent serving as a fiduciary should be prohibited from changing their status to dual agent or transaction broker in the middle of the sale process and that sellers who are asked by their agents for this change should refuse the request unless the seller hires an attorney and the agent agrees to a reduced commission.

“While often allowing a quicker sale (after listing), this shift greatly disadvantages the seller,” CFA said.

CFA also advised consumers to, when searching for an agent, research that agent’s transaction history on sites such as Zillow and realtor.com to figure out if the agent is a “frequent double-dipper.”

“This double-dipping is an indication that the agent values finding unrepresented buyers (or less commonly, sellers) more highly than serving the interests of their clients,” the report said.

Buyers should also be aware of the risks of working as a customer, rather than a client, of the listing agent, according to the report. “For a buyer, it is better to work with a dual agent to both seller and buyer than as a customer to a fiduciary agent of the seller,” CFA said. “Regardless, these buyers should employ an attorney to represent their interests.”

Lastly, CFA expressed support for the multiple major lawsuits seeking to de-couple listing broker and buyer broker commissions.

“If buyers and sellers were each required to compensate their agents, they would be less willing to pay commissions of 5-6 percent commissions to double-dippers,” the report said.

Email Andrea V. Brambila.

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