What is designated agency in real estate?
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In real estate transactions, you typically have two agents: one representing the seller and one representing the buyer. These two agents negotiate with one another, each with the goal of getting the best possible outcome for their client. The seller’s agent wants to sell the house at the highest price, while the buyer’s agent works to negotiate for the best deal.
When the two agents work for different brokerages (i.e., real estate companies), this relationship is pretty straightforward. But what if your dream home just got listed by a brokerage you’ve already hired to help you find a house? Or what if you listed your home with an agent and a colleague at their brokerage has a potential buyer?
In this case, you might find yourself facing a designated agency situation.
What is designated agency in real estate?
In real estate, designated agency refers to a specific agent who’s designated by their brokerage to represent a party in the transaction. Usually, one agent from that brokerage will already be representing the buyer or seller. If an ideal opportunity comes along within the same brokerage (i.e., a compatible buyer or seller), the brokerage can designate an agent to represent the other party in the transaction.
In short, designated agency means agents from the same company represent the buyer and seller.
How does designated agency work?
Let’s say you listed your home with Agent X who works for Brokerage Company A. A week later, Tom Homebuyer visits Brokerage Company A to help him find a home. In learning about his preferences, the brokerage realizes your house might be a perfect fit.
Still, though, Tom Homebuyer deserves to have an agent to represent him and negotiate on his behalf. To provide that while keeping the business in house, Brokerage Company A may designate one of their own agents — let’s say Agent Y — to represent Tom Homebuyer.
Now you and Tom Homebuyer find yourself in a designated agency situation where both involved agents work under the same brokerage.
What is a designated agent?
In short, a designated agent is someone who a brokerage appoints to represent either a homebuyer or seller in an effort to keep a real estate transaction in house.
What is dual agency?
Dual agency means that rather than two agents from the same company working with the buyer and seller, one agent represents both parties. That single agent has dual agency.
Be advised that different states call this arrangement different things. In California, dual agency may mean designated agency (i.e., two separate agents are involved, each representing their own party). It’s best to ask your brokerage about the details of the arrangement to have clarity. Why? Because while designated agency can come with some risks, dual agency is never a good idea.
The conflict of interest in dual agency
With dual agency, a single agent represents everyone involved in the transaction. They can’t negotiate against themselves, which means neither the buyer nor the seller gets the benefit of the negotiation process.
Worse yet, buyer’s and seller’s agents usually split the real estate commission. With dual agency, the single agent gets to pocket the whole amount. They have a vested interest in seeing the deal close quickly so they can get that money, in some cases regardless of whether it benefits the buyer or seller.
What are the benefits of designated agency?
Clearly, whether you’re buying or selling, designated agency serves you much better than dual agency. It can also streamline the transaction and get you to the closing table faster. When both agents work for the same company, they have a more direct line to one another.
Plus, designated agency can allow you to tap into an opportunity that might otherwise be off the table. If you’re shopping for a home and you’ve signed an agreement with a specific brokerage, designated agency is your only option for shopping the listings they have.
The benefits of working with a designated agent
If you’re working with a trustworthy brokerage, a designated agent may also make it easier for you to find the right real estate representative. Because this arrangement usually arises because there’s a specific house or buyer in mind for you, the brokerage should pair you with someone who has the skillset required to help you succeed in the situation at hand.
What are the risks of designated agency?
That said, this arrangement isn’t without risks. Specifically, if the brokerage isn’t reputable, they may set up a designated agency to benefit their agents, not the buyer and seller.
At the end of the day, a real estate transaction is likely one of the biggest you’ll undertake in your life. You both need and deserve to have an agent in your corner who truly has your best interests in mind. If a brokerage recommends a designated agency arrangement, make sure you interview the agent they would like to designate. Look into their reviews and ask for referrals before you agree to this setup.
How to find a designated agent
Generally, this isn’t something you’ll seek out yourself. Instead, this situation usually arises because the brokerage has taken certain steps to keep the real estate transaction in-house.
Just like finding an agent on your own, though, you should take your own steps to vet the designated agent before you agree to this arrangement. Your real estate attorney can best advise you on designated or dual agent situations.