About one million sellers and buyers in home sales with a single agent are charged excessive commissions totaling several billion dollars annually, a report from the Consumer Federation of America shows.
The report also examines the risks and costs home sellers or buyers are exposed to because of the conflicts of interest of these double-dipping agents. Double-dipping agents get the entire commission, usually 5-6 percent of the sale price.
“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.
Double dipping is banned in eight states.
In addition, the report documents criticism of double-dipping by real estate agents, recommends policy changes to reduce consumer risks and costs, and provides advice to home buyers and sellers about how to deal with double-dipping agents.
The study is based prior research and the recent sales of more than 6,000 homes in 12 major cities and several small cities.
Double-dipping rates vary widely and often unexpectedly
In the 12 major cities studied – Boston; Providence, Rhode Island; Charlotte, North Carolina; Orlando; Birmingham; Cleveland; Chicago; Minneapolis area; Oklahoma City; Tucson; Oakland; and Portland, Oregon – the rates ranged from 2.6 percent in Charlotte to 14.8 in Birmingham.
Double-dipping rates in smaller cities were often much higher – for example, 36 percent in McAlester, Oklahoma, compared to 9 percent in Oklahoma City.
The report estimates a national double-dipping rate of about 10 percent.
In examining factors in rates among the large cities, the research identified two influential variables:
- Low sale prices: The 932 homes that sold for under $150,000 were twice as likely to be double-dipped than were more expensive homes – 16.5 percent vs. 8.1 percent.
- Days on the market: The four “hottest” markets studied – Oakland, Tucson, Portland, and Charlotte – were four of the five markets with the lowest double-dipping rates.
Other factors appear to be less influential in double-dipping rate variation or not influential at all:
- High sale prices: The double-dipping rate for homes of at least $600,000 and those for at least $1 million were a little below the overall double-dipping rate.
- Real estate agency priorities: Double-dipping rates for most of the largest national agencies – Keller Williams, RE/MAX, Coldwell Banker, eXp, Century 21, and Howard Hanna – were similar to the overall double-dipping rate. And for most other large national agencies – Compass, Sotheby’s, Berkshire Hathaway, and Redfin – the rate was about half of the overall rate.
Double-dippers overcharge consumers and expose them to risks and costs because of conflicts of interest
The report estimates that double-dipping agents, who sometimes have less work to do on a sale than when there is a second agent involved, are overcompensated by several billion dollars annually. The excessive double-dipping charges are added to home prices, so are paid by about 500,000 home buyers in double-dipping sales.
Most conflicts of interest originate with listing agents. They’re able to find unrepresented buyers among their own buyer clients, at open houses, or through use by buyers of home listings on websites such as Zillow and Realtor.com and buyer-initiated contacts with the listing agents of homes the buyers find attractive.
Sellers can be harmed in several ways in a double-dipped sale.
If agents are determined to find an unrepresented buyer, they often delay placing the home listing on the local multiple listing service then make it difficult for buyer agents to show the property. When listing agents do find an unrepresented buyer, in all states but the eight that effectively prohibit dual representation, they usually try to persuade the seller to accept a change in the agent’s status from fiduciary – complete loyalty – to dual agent – an oxymoron.
If successful, the listing agent then can no longer advance the best interests of their seller client, including negotiating a high sale price or even giving out advice that may affect the interests of the buyer.
Buyers suffer the greatest harm by not having an agent who can negotiate down the sale price. Their risks are greatest if they agree to be only a customer, not a client, of the listing agent.
Listing agents who work with a buyer customer are obligated to advance the interests of the seller, including increasing the sale price, taking the seller’s side on any disputes, and refraining from giving the buyer any advice that affects the material interests of the seller.
If a buyer contacts a listing agent about a specific property, the buyer can and should expect that agent to promote that property. But if the buyer seeks the assistance of an agent to help search among all listed properties, that agent is likely to promote their own listings, especially if any of those properties bears a resemblance to the type sought by the buyer or if the agent is just determined to double-dip.
This steering effectively limits the pool of properties available to the buyer and increases the chances the buyer will end up with a less desirable home.
In addition, the prospect of double-dipping encourages some agents to be deceptive and manipulative, said Brobeck.
“This encouragement of unethical practices is the most important reason that so many real estate agents reject and criticize double-dipping,” he said.
CFA recommends policy reforms to curb the risks and costs of double-dipping
CFA doesn’t recommend a ban on double-dipping, Brobeck said. Although it would reduce risks and costs, it would impose other costs, such as the inability of an agent facilitator to work with both parties at a reduced commission.
But CFA does recommend the following restrictions:
- Prohibiting dual representation. One agent can’t represent the interests of both seller and buyer, especially related to sale price.
- Prohibiting a fiduciary agent changing their status to dual agent in the middle of the sale process.
- Supporting major lawsuits that challenge the coupling of listing agent and buyer agent commissions.
CFA offers suggestions to home buyers and sellers related to double-dipping
- Avoid double-dipping sales except when one agent functions as an impartial facilitator and charges a lower commission.
- Research whether an agent is a frequent double-dipper. Consumers can find this out by reviewing recent sales on agent profiles found on websites such as Zillow and Realtor.com.
- Make it clear who the agent is to represent the consumer throughout the sales process, then refuse to accept an agent request to change their role from fiduciary agent to dual agent.
- Recognize the risks of working as a customer, not a client, of the listing agent.