Tag Archives: Principal Brokers Network

Dual Agency Explained

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Trulia quoted me in What Is Dual Agency? (And Why You Should Beware). It opens,

Home sellers and homebuyers are two sides of a complementary transaction. Should they each have their own agent, or is one agent enough? The answer: It depends.

You’ve probably heard the phrase “You can’t have your cake and eat it too.” But if you’ve ever puzzled over it’s meaning, here’s a hint: If you eat your cake now, you won’t have any left over to look forward to eating later. In other words, sometimes a person is forced to make a choice between two good options. In the real estate world, dual agency breaks the cake rule: If your real estate agent also represents the sellers of the home you want to buy, you don’t necessarily need to ditch them. In many cases, you can keep your agent and get the house too — if you want to, that is.

Whether you’re buying a home in Providence, RI, or Tampa, FL, it’s typical for one agent to represent the seller and another agent to represent the buyer. With dual agency, one agent works for both the buyer and seller — and keeps the full commission. Dual agency also occurs when agents from the same brokerage represent each party. But like enjoying a huge slice of cake and in return getting a bellyache, there are definitely pros and cons to agreeing to dual agency.

Pro: Streamlined communication

Because one real estate agent or brokerage represents the buyer and the seller, the agent doesn’t need to wait every time communication needs to happen between the parties. Streamlined communication often creates a smoother transaction. “You are in charge of both sides, including paperwork, scheduling, and deadlines,” says Mindy Jensen, a Colorado agent and community manager of BiggerPockets.com. “We’ve all been involved in a sale with an agent who didn’t respond in a timely manner, missed deadlines, and in general did not perform their duties as they should have. For us control freaks, dual agency can seem like a great thing.”

Con: No advice

Because a dual agent is working in a potential conflict-of-interest situation — one client (the seller) wants to get as high a price as possible, while the other client (the buyer) wants to pay as little as possible — the agent can’t take sides or give advice. Bruce Ailion, an Atlanta, GA, real estate agent and attorney, compares dual agency to having one attorney representing both husband and wife in a divorce. “The parties’ interests are adverse and are best represented by independent professionals,” he says.

The agent in a dual agency situation becomes, instead of a coach, more of a referee. “The agent cannot disclose confidential information to either party and has to act in a neutral position during the transaction,” says Emily Matles, a New York, NY, agent with Douglas Elliman. Matthew Berger, another New York, NY, agent with Douglas Elliman, says: “When the listing agent steps into the role of dual agent, they cannot give advice to the seller nor the buyer.” On the other hand, when you have an independent agent, “You are more likely to get the benefits of being a principal getting fiduciary benefits,” Ailion says.

Pro: There must be full disclosure

Whether you’re a seller or a buyer, there’s nothing to fear about dual agency: If you don’t consent to the practice, it won’t happen. “The dual-agent broker must ensure that both parties know of the arrangement and consent to it,” says David Reiss, professor of law at Brooklyn Law School. His advice: “Home sellers should review the terms of the listing agreement before they sign it to see if dual agency is being contemplated.”

Co-signing: Smart or Stupid?

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Realtor.com quoted me in Co-signing a Mortgage: Smart or Stupid? It opens,

There’s no doubt about it: Buying a home these days is hard. Even if you’re lucky enough to be a homeowner yourself, that doesn’t mean your kids or assorted loved ones can easily follow in your footsteps—at least, not without help.

One way that “help” can occur for home buyers who don’t qualify for a mortgage? Getting someone else—like you, dear reader—to co-sign. In a nutshell, that means that if they can’t pay their monthly dues, the lender will expect you to cough up the cash instead.

 It’s a noble idea, helping someone buy a home. But also, of course, a scary one. It’s no surprise that many co-signers are parents doing what parents do: putting their own financial well-being aside to help their children move into a home.

But let’s be clear here: The risks are huge. Some of them are obvious, but there are plenty more that you may not have even considered. So if you’re considering co-signing, it’s best you know exactly what you’re getting into, and how to protect your finances in case things don’t go well. Here are the main caveats and considerations to keep in mind.

Identify if your borrowers (and you) are good candidates

We’re not saying co-signing is a terrible idea across the board. There are plenty of legit reasons why those near and dear to you may have trouble getting the loan on their own—say, because they’re self-employed, which makes banks leery. But if your kid can’t get a loan because he just can’t seem to pay his AmEx card on time, well, that’s a different story. Judge your own risk accordingly.

Co-signers should also consider whether they’re good candidates to be taking on more financial commitments. Generally, you should consider co-signing only if you meet a few requirements. For example, “You own your home free and clear and don’t require much credit or have a need for it,” says Mary Anne Daly, senior mortgage adviser with San Francisco–based Sindeo.

Consider the pitfalls

If your borrower has a less-than-stellar history of paying back creditors or holding down a job, proceed with caution. Extreme caution.

“Unfortunately, I’ve seen parents dig further into their savings to pay the mortgage when their child can’t make the payment,” says Ryan Halset, a Realtor® with Seattle-based Boardwalk Real Estate. And if you can’t pay, it will tarnish your credit history and future odds of borrowing money.

“Your chance of getting a loan yourself in the future could be in jeopardy,” says Janine Acquafredda, an associate broker with Brooklyn-based House N Key Realty. “Not to mention the risk of ruining relationships if things go sour.” But maybe that last part’s a given.

Think like a lender

Hard as it might be, try to keep your personal relationship with the home buyer from coloring your decision. Even if it’s your child or a longtime pal, it shouldn’t (entirely) trump the warning signs.

“Before you commit, think like a lender and look at the borrower’s income, work history, and existing debt to determine if the borrower is worthy and not a potential liability to your good credit,” says Frank Tarala, owner of Sterling Heights, MI–based Principal Brokers Network.

Saying no may be tough, but it could save you tons of heartache down the road. David Reiss, professor of law and academic program director for the Center for Urban Business Entrepreneurship, recounts a situation where parents stepped in as co-signers just before the financial crisis hit. The home’s value plunged by more than half. The borrower then left the area—and his home—in search of a new gig and couldn’t make both the mortgage payments and the rent on his new apartment.

“The parents, retirees living on a modest pension in their own home, found themselves dealing with the default of their son’s mortgage with no financial resources available as a buffer,” Reiss says. “This situation has devolved into a nightmare of defaults and attempted short sales with no end in sight.”