2009 Sep 15th

Double Trouble?

We’ve had several posts and discussions about a listing agent selling his or her listing to his own buyer. It’s questionable if an agent can be loyal to a seller and perform his fiduciary duty to get the highest possible price for the property when working with his own buyer.  Unlike other states, dual agency is perfectly legal and ethical according to the real estate rules and regs in new Jersey.  But what about this situation?  

Agents typically work with multiple buyers at once.  A property is on the market for sale.  Two or three of the agent’s buyers all wish to make an offer on the same unit at the same time.  They will be bidding against each other and the agent knows all of the bids.  This situation is not considered dual agency since there is no agency relationship.  (This assumes the buyer did not sign any type of buyers agreement – a rare occurrence in Hoboken).   According to NJ rules, the agent is merely a transaction broker whose goal is to get the deal done fairly.

 The NAR Code of Ethics says:  When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly.

What does that mean?  Does the agent have to tell each of the buyers about the other offers?  Is it up to the agent or up to the seller?   What do you think?

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  1. HobokenBuyer

    I’m surprized nobody’s chimed in on this one yet, probably because the answer is too obvious.

    If someone doesn’t know the meaning of “honesty” they probably shouldn’t be a R/E agent.

    Don’t tell lies. Let them know there are other offers and that you represent them. I don’t see a conflict unless the agent is favoring one party over the other.

    Perhaps this situation would make the agent a little uncomfortable, but honesty is always the best policy.

  2. Jim

    Great Article and very useful for the reader who does not know a lot about this topic.

    Best,
    Jim
    http://firstbostonrealty.com

  3. lori

    What if as a condition to listing on the MLS, all sellers had to agree that all offers would be public, disclosed, in the open? Wouldn’t that help the consumer? I know sellers sometimes think they can ‘trick’ the buyer into bidding against him or herself so they spend more than they would otherwise have to but is that the way we want to do business?

    If Sotheby’s & Christies can have open bids at auction, why can’t realtors?

  4. Eric

    You mean force agents to disclose or publicize all bids on all properties? That would hurt more than help. It would hurt sellers who want to get the best price in a bidding war. The whole benefit of a bidding war for the seller is to have multiple buyers making offers without knowing whether their offer will be the best. For the same reasons, it would hurt a buyer by letting everyone else know exactly how much to bid to outbid him.

  5. lori

    No – force sellers to disclose the bids (it is never up to the agent). Sure you have some sellers who try to ‘trick’ buyers into bidding against themselves but that strategy often backfires. I’ve seen many instances where the buyers all get annoyed by the process and they all walk away, leaving the seller with nada. Even more so in this market where buyers have so many options.

    Why does it hurt a buyer? If I were a buyer and knew someone was willing to pay X then I know where I stand and what I need to pay to get the property. If secret bids are such a great idea why aren’t the stock market, retail stores, auctions, plane tickets, etc. done that way? There is nothing so special about selling real estate that requires the cloak and dagger negotiations. Better for it to be out in the open, as far as I am concerned.

  6. homeboken

    Lori – I couldn’t agree more. I contend that an open bid/ask market system would add so much volume to real estate that “would be” sellers would be over-joyed.

    When considering large purchases, people have an idea about what they value the purchase at, but they need affirmation. Think about when you shop for a car, have you ever walked into the dealer and paid the sticker price right away? No, you do research ahead of time, you visit multiple dealers etc. The rationale is that a buyer doesn’t want to be deemed a “sucker” that over-pays.

    Here’s the rub – If you disclosed all offeres on a property, many current sellers would be DEVASTED. The cloak and dagger system allows Owners to live in denial. (caveat, I know lots of people owned real estate for decades, blah blah blah). The “new owners” who I deep to have purchased their first home or their first trade-up home, in the last 5 years, would be ruined financially.

    Think about the recent auction of condo’s in Hoboken. Every unit that was going to be sold absolute, was sold. That is the market working.

  7. Andy

    Open bidding is exactly what we need. Sellers who hide the bids and try to trick buyers into paying too much is not an efficient marketplace and breeds mistrust. I can tell you IMO that one realtor I dealt with gave me the worst gut reaction I could tell this guy was lying through his teeth just to get a better bid out of me. If you’re going to try to trick a buyer into paying more at least be a better liar.

    Price discovery and open bidding has worked for almost every marketplace except real estate. Time for a change IMO.

  8. Cheryl

    Why would an agent not list on mls and refuse to let buyer’s agents show the condo. I saw a listing on craigslist and told my agent about it, she called the listing agent, and was told that she would not get a commission. Why would a listing agent do this? It seems that the condo won’t get as much traffic since not on mls and personally I don’t trust a dual agent. I want my agent with me to give me her own advice. I’m thinking that the dual agent may want to misrepresent the condo…and mislead the buyer..since the buyer won’t know any better….for example, this place is next to a bar that has a dj. When I asked the dual agent about it, he said that it’s not a big deal. He isn’t going to tell us that it’s on a busy street, can be loud, not good for resale, etc. Am I correct in my though process?

  9. homeboken

    Cheryl – Are you asking a rhetorical question? If you are really looking for the answer here it is:

    $$$$$$$$$$$$$$$$$$$$$$$$$

    Dual listing = double the comission.

    Have you seen the mouth-breathers that have realtor liceneses in Hoboken? The herd is thinning, and they will do whatever they can to keep some cash coming in. If that means they screw the buyer and seller but get to put an xtra 3% in their pocket, they will do that.

    Lori & Howard are the exception in this town, not the norm.

  10. Cheryl

    So many people look at things absolute and don’t think out of the box. So you don’t list a property and you spend all of your time showing it and doing all of the work. You don’t get as much traffic because you don’t have 100+ agents showing it…it takes longer..maybe 6 months of a lot of your time….in the meantime you could have listed it and had other people do the leg work and probably made even more money. Whoa..what did i just say? You could have listed it and sold it faster without doing as much work. You could have shown your clients more places, gotten more clients in the process, and closed on a few condos resulting in 3%, 3%, 3% in commission….play smarter, work less, make more money…and oh be more ethical which will result in more clients in the future.

  11. Andy

    Cheryl, welcome to Hoboken. Very few people actually think things through here. Homeboken is right the ranks are thinning and we can all be relieved to some extent. But some of these realtors have zero experience or ethics for that matter. They would rather hoard that coveted listing all to themselves relying on the fact that some seller didn’t read that contract very carefully and pray that they get the full 6% all to themselves. Most of these people are making a quarter of what they made last year or the year before if anything at all.

  12. Keahi Pelayo

    I have been a dual agent and I feel like I am in a precarious position.
    Aloha,
    Keahi

  13. Cheryl

    Why do you feel precariously? Precarious means uncertain…what does your statement mean????

  14. Hmmm

    I think the open system would work better. I put in couple of offers on couple of places that was on the market for more than 8 months (price changed less than 5%), in both cases, there are 2 to 3 other bidders that just showed up magically at the same time. In both instances, I backed out almost immediately sensing lack of honesty from the seller/ agent. In a open system, like a stock/option/bond market, a standard set of information for the offer would be displayed for all to see (price, all cash/part cash part financing, time to close, other incentives, etc) then seller have the option to pick and choose or stay put.

    This in my opinion is the best system for both buyer and seller. Look at Ebay auctions as examples, some items are hot sell for more than market, items that are cold don’t get any bids until the seller lower the price or stop selling all together.

    I played Monopoly among friends that actually took it more seriously and had a blast. There is a lot of market timing, bargaining ability, strategies, personal relationship, and luck involved, just like the real estate game in real life. The ones that don’t have any of the above loses and the ones that do typically stays in the game until luck overtakes you and the fittest survive.

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