When you decide to sell your luxury Chicago home, condo or townhouse, there are a seemingly endless number of forms to complete in addition to the actual contract with the selling brokerage firm. While it is of course important to pay close attention to each and every line, the contract itself contains an important paragraph that can easily be overlooked: dual agency. This is an area that I always go over very carefully with sellers, making certain that they completely understand the nuances of a dual agency situation.
What is dual agency?
Whether you’re buying or selling real estate in Chicago, commission rates typically run about 5% or 6% of the purchase price—that is, what the brokerage firm gets paid by the seller for getting your home sold.
It’s important to understand how this process works, or how the commission actually gets dispensed once a sale is finalized. Usually, one brokerage firm is representing the seller, and another is representing the buyer. So in the end, the commission is split between the buyer and seller’s brokerage firm. Then the brokerage firm from that splits the 2½% or 3% with the real estate broker (me).
But there’s an interesting change that can happen in real estate transactions: dual agency. This is when the same agent works with both the buyer and the seller. The Wall St. Journal recently highlighted this trend, reporting that about 32% of all transactions are dual-agency transactions.
How does one agent come to work with both parties in a real estate deal? An agent in Chicago could possibly bring a client to his or her own deal if he or she gets a call about a property they’ve listed on their website or in an advertisement. So the agent who listed the property is also the one bringing a potential buyer to the deal.
Sellers and Dual Agency
When a seller is signing a contract with a real estate agent, they should always ask what the commission will be. This is even more important in a strong market, when the possibility of a dual agency is greater. The contract should actually outline the commission if the transaction becomes a dual agency.
In a regular transaction, there are two brokerage firms, represented by two agents. Once the deal is completed, the commission (that 5% or 6%) is then split between the two companies. In a dual agency, the entire commission goes to the listing brokerage firm, who then splits it with their broker. The two of them make out very well by virtually obtaining double the fees they ordinarily would.
Many brokers do not address the issue of the commission in a dual agency situation, but I definitely make a point of discussing it at length. I also discuss the nuances of the situation, with pros and cons, so there is total transparency between my client and me. And in the end, I usually include in the contract a reduced commission if a dual agency occurs.
If you’re a seller, the bottom line is that you should negotiate the dual agency commission up front—about 1% to 2% off the commission for an original transaction. Since the dual agency would amount to a larger commission, I believe the seller should benefit from it as well.
For more information or to talk about selling real estate and dual agency in Chicago, contact me at (312) 498-5080 or email me at [email protected]