When a buyer purchases a home directly through the listing agent, rather than through their own buyer’s agent, they enter into an arrangement known in the industry as “double-ending.” The term refers to the fact that there are two “ends” or halves of a commission on a real estate deal. One end normally goes to the listing agent and the other to the buyer’s agent. But if there isn’t a buyer’s agent involved both ends simply go to the listing agent. This is good for the listing agent because they get twice as much pay for the same amount of work, but it is often bad for buyers. By agreeing to this arrangement, a buyer is agreeing to be unrepresented in the transaction. In other words, while the seller can count on a professional advisor to look out for their best interests, the buyer cannot. The buyer is on their own. It’s easy to see how this can turn out badly.
Buyers have the choice of having their own representative and, given this, people often ask me why anyone would choose not to work with one. Why would a buyer agree to agent double-ending? There are five main reasons, and all of them are potentially problematic.
#1 – They May Not Know They Have the Option of Buyer Representation
Although it is against the rules, an unscrupulous listing agent might “forget” to inform a buyer that they have the option of working with their own representative (for free, no less) until the negotiation is more or less over, by which time a buyer’s agent usually can’t protect the buyer’s best interests. This was a big problem in the 1990s, and it’s why the Canadian Real Estate Association created a rule stating that representation options must be explained to buyers at the earliest possible opportunity.
#2 – They May Think They Are Saving Money
Sometimes a listing agent will offer to reduce the commission as long as the buyer chooses to not involve a buyer’s agent. This is a serious violation of the real estate listing contract and will land the agent in hot water if their real estate board finds out about it, but the other reason it’s problematic is that the buyer is giving up the benefits of representation for a very small reduction in sale price. They don’t consider the possibility that they may have agreed to pay too much for the home in the first place, regardless of commission amounts, because they didn’t have a knowledgeable agent negotiating on their behalf. They also don’t consider costs that can arise after the sale price is agreed to – if issues arise as a result of the home inspection or other closing procedures, the agent will have no choice but to fight to get the best deal for the seller, and costs to the buyer could pile up quickly.
#3 – The “Guilt Trip”
It is not unheard of for an unethical listing agent to make a buyer feel like they are doing something wrong or unfair by choosing to work with a buyer’s agent. The listing agent might argue that they have put in a lot of work – showing the home, hosting open houses, etc. – and therefore they deserve to earn both ends. But these actions are not favours to the buyer, they are duties owed to the seller, so they should not be the basis for a guilt trip. But with a little bit of pressure, a kind-hearted buyer might be persuaded to forego representation. In so doing they are making a choice that is better for the listing agent and far worse for themselves. This goes back to problem #1 – buyers know less about these matters than the agents with whom they are working. They don’t know their rights, so they can often be convinced that what is normal and fair is abnormal and unfair. And in the end the unethical agent gets double the pay.
#4 – They May Prefer Being Unrepresented to Working with a New Agent
Sometimes a buyer has been working with a buyer’s agent for a very long time, and they have built up a very strong comfort level and mutual familiarity with that agent. If they decide they want to buy a home that happens to be listed by their own agent, this immediately creates a conflict of interest for the agent, so the buyer has to choose between working with another agent or being unrepresented in the transaction*. In these situations, our team members go to great lengths to encourage the buyer to work with another agent, but sometimes the buyer simply can’t be persuaded. At the end of the day, as long as the agent has ensured that the buyer understands their options and the possible downsides of being unrepresented, but has chosen to proceed without representation regardless, agents can proceed with the arrangement with the knowledge that they have acted ethically.
#5 – They May Truly Have No Better Option
In smaller communities, or in a case where the real estate involved is very specialized, there might only be one licensed agent who is qualified to be involved in the transaction. In these cases, our Century 21 Prospect Realty team members strongly encourage buyers to seek representation from a lawyer, and we go to great lengths to explain to them the services that we can and cannot offer them. For example, a listing agent in this situation cannot offer loyalty, confidentiality and full disclosure of all relevant facts to the buyer, because they have already made these same commitments to the seller.
Scenarios 1 through 3 above above are made worse by both the private nature of real estate transactions and the fact that most people don’t buy homes frequently enough to become experts at it. If there is no other agent involved in the transaction and the listing agent chooses to act unscrupulously, it is very unlikely that anyone will ever find out, including the buyer. And that’s exactly why regulation is so important in the real estate industry – both by governments and by trade associations like the Canadian Real Estate Association. There too though, we are at a disadvantage in the Northwest Territories. Our government guidelines date from three decades ago and the members of our profession are not subject to auditing or even simple monitoring to ensure ethical behaviour. And as for the Canadian Real Estate Association, the professional association to which most but not all NWT real estate agents belong, until very recently they did not provide a practical manner for smaller boards like the Yellowknife Real Estate Board to police their own members’ behaviour. There is a change that is being rolled out nationwide this summer that will hopefully change things, and that will be the subject of a future blog post.
In the absence of adequate regulation, we at Century 21 Prospect Realty fall back on two things; as Broker of Record for our company I write blog posts like this to try and educate the public about buyer agency and the dangers of double-ending, so that fewer people can be taken advantage of, and as a team we work together to monitor our own behaviour to ensure that we hold ourselves to a higher standard than the ones imposed upon us by the Government of the Northwest Territories and the Canadian Real Estate Association. Ethical conduct is hardwired into our corporate culture – into our company’s DNA.
If you are thinking of buying a home and would like to connect with a Buyer’s Agent, our team of experts is here to help. Follow this link to learn more about our team members, or feel free to call me anytime at (867) 446-9800.
*In #4 above I did not include the other option, which is an agency relationship referred to in the provinces as “transaction brokerage” or “limited dual agency.” This is a complex arrangement whereby the agent works with both sides while fully representing neither of them. Because it’s so complex and because we have so little regulation in the NWT, I believe it is a very dangerous practice that is prone to abuse (it is banned in some provinces) and we will not practice it at our brokerage, despite the fact that it is technically legal to do so.