By Ross Wilson
In this seventh in the series about real estate commission rates, allow me to address what is referred to as double-ending, or representing both seller and buyer in a sales transaction. It’s certainly fraught with risk, but is it too risky to participate in this practice?
It’s commonly perceived that the charging of a double commission is unreasonable. But let’s look at it another way. Technically, it may seem like a double fee, but it’s actually two separate commissions on a single property. Remember in a previous column, when I discussed dividing a full commission into two parts – half for the listing agent and half for the buyer brokerage? Well, let’s bring that concept into this discussion.
Opposition to the whole concept of dual agency exists and it is currently under review by governments in B.C. and Ontario. Amongst other concerns, it’s been suggested that when representing the interests of multiple parties in a transaction, our services are degraded. Therefore, they argue, because we provide less service, our fee should be lower.
I disagree. Nevertheless, realty agents unfortunately often discount their contractually agreed fee when double-ending, not necessarily because they want to, but because they feel obligated since a full commission is a lot of money. Or they do so to win the listing or are coerced into doing so during a listing competition. Or during an offer presentation, an unscrupulous seller or buyer demands it. But think again about risk.
Naturally, with any agency, there’s always risk, but it multiplies with multiple agency. More opposing clients and more potential conflict equates with higher risk. In a single agency, you normally assume the risk of what might ultimately prove to be a futile attempt to win the listing or generate income. And of course, there’s always the risk of liability due to technical error. Also, on rare occasions, there’s the risk of not being paid. With dual agency, you can double that risk and then some.
If a multiple-agency transaction is skilfully and conscientiously organized, more agent expertise is required – not less. To effectively execute the riskier role of dual agent and discharge your professional fiduciary responsibilities correctly, you must do more work, provide more disclosure, carefully and cautiously communicate and mediate between and expertly advise more client parties and create and manage more documents than if a co-operating brokerage is involved. Plainly expressed, doubling the number of parties equates with doubling the complexity. Consequently, under such circumstance, the full fee as agreed in the listing contract is quite justifiable.
An ethical challenge exists with respect to the discounting of fees for a “double-ender”. Let’s say the total commission payable by the seller is $20,000. You present an offer to your sellers who say they’ll accept it if you reduce your commission to $15,000. They complain that your commission is still a lot of money, especially if it’s only been on the market a couple of weeks. If you comply, the seller is happy, the buyer is happy, but you – not so much. You just lost $5,000.
Now, let’s be realistic. If you had not introduced your buyer to that listing (which you’re ethically compelled to do) and instead, sold your buyer another agent’s listing of the same value, and in the meantime, another agent sold your listing, you’d have generated the full $20,000 commission; half from your sold listing and half from the sale of another brokerage’s listing. Clearly, this is a practical disincentive to do your best for your seller client. To collect your full fee, either you not show your own listing or your buyer must make up the $5,000 in lost commission under the buyer representation agreement. Complicated? Yup. It gets even more so when the buyer demands a “kick-back” of commission for agreeing to work with you as the listing agent. Or the buyer expects to buy the property at a lower price because they think, rightly or not, that you’re earning a double commission and will reduce your fee to “make the deal happen”. But the seller wants the entire benefit of a lower commission for themselves.
Everybody wants a piece of your fee. Since when did the agent become a third-party contractor to the agreement of purchase and sale? For all practical purposes, that’s exactly what happens when you throw in your fee. Under common law, this isn’t permitted.
I mean, think about it. You’re participating as a party to the contract by contributing your fee to the price negotiation – but without the accompanying equity interest. It’s not much different from you paying part of the purchase price to the seller or giving money to the buyer for their down payment – but without the benefit of a lien or titled equity interest. In exchange for your financial donation, maybe you should demand a collateral mortgage be registered on title in the amount of your fee reduction and see what happens.
I can hear the howling as the parties fervently object to such an “unreasonable” proposal. Kicking in is a slippery slope indeed. To enjoy a solid business, I suggest you avoid it whenever possible. If the sale is meant to be, then it will be – and without your sacrificial contribution.
In the next column, I’ll continue this discussion from a slightly different perspective, that of mediation verses advocacy.