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?

Posted by Lori Turoff | Currently 14 Comments »

2009 Aug 3rd

Is “Procuring Cause” Cause for Trouble?

Going To Look at Some Open Houses This Weekend? Beware!

We all know the drill.  You’re not ready to commit to really start house hunting but you want to get a feel for the Hoboken condo market, so you decide to go to some open houses.  As you walk in, the hosting agent asks you  to “sign in”.  Not wanting to give your info for fear of being hounded by the agent and inundated with emails, you make up a name or email or just scribble illegibly.  No problem with any of that, but what happens when you see a place you really like?

On several occasions recently, I’ve had a potential buyer contact me because they found a property at an open house they were thinking about buying. You might think that, as a real estate agent, such a call would make me happy.  Wrong.  Too often, the buyer went to an open house, spoke at length with the hosting or listing agent, and maybe even told that agent that they wanted to make an offer.  Sometimes the buyer mentions that they have their own agent, sometimes they don’t.  Then the buyer calls me.  So what’s the problem?  It’s called procuring cause.  

Reasonable people can disagree about what is the procuring cause of a sale.  Would the buyers not have made an offer had they not seen the property at the open house?  Or did the buyers’ own agent convince them by providing advice, comps and/or by showing them other similar-but-inferior properties that the property was a good deal and worthy of making an actual offer?  The answer may be “it depends.”

Procuring cause is the sine qua non of the sale.  But for the efforts of the procuring agent, the sale would not have happened.  Whether an agent is the procuring cause of a sale must be factually determined on a case-by-case basis.  Many factors impact a determination of procuring cause, but no one factor is by itself determinative. 

Not surprisingly, the listing agent wants to sell her own listing (and get both halfs of the commission) so she is going to claim that the buyer is “her customer” and that she the procuring cause.  The other agent will say that the buyers walked into the open house on their own (or may even have been sent by their agent) but he or she did the groundwork, showings and educating that led to the offer. 

There is also a very valid debate whether it is a conflict of interest to be a seller’s agent and also work with the buyer (that’s worthy of a post of its own).  Nonetheless, doing both sides of a deal is allowed and legal in New Jersey.  So what should a buyer do if the buyer sees a nice property but does not want to deal with the seller’s agent?  Here are a few suggestions:

 

 

Recently, a buyer went to an open house and had some conversations with the listing agent.  The buyer then called me to make an offer on the property.  He had learned that the property was owned by the listing agent’s spouse.  The buyer felt that the listing agent couldn’t really represent him especially given the ownership issue, (which should have been disclosed in the listing, but wasn’t).  After asking many questions and explaining the procuring cause issue to the buyer, I guess the buyer went back to the listing agent to tell him he didn’t want to make the offer through him.  The listing agent told the buyer he would sue and that buyer would not get the property if he used a different agent.  I ran quickly in the other direction wanting nothing to do with the deal. 

As a buyer, if you wish to keep your options open and want to be able to use what ever agent you choose, take my advice – be very careful when you go to open houses or call about an ad or something you see on the internet.  You may find yourself working with an agent who is not in the best position to represent you since they work for the seller.

Posted by Lori Turoff | Currently 17 Comments »

2009 Jul 16th

How a Little Loyalty Can Save You Money!

Buying a Condo From the Builder’s “Sales Office” Can be Dangerous.hoboken restaurants

 I was recently working with a buyer (let’s call her “Sue”) who was looking for a one bedroom apartment in the mid-$300,000 range. We had gone out looking at properties two or three times but I hadn’t heard from her in a week, so I followed-up. Sue decided to buy a place directly from a developer in JC so she “didn’t bother to get me involved”. She agreed to buy the property at the full asking price and was already in attorney review.

I had not yet invested much time or effort with this particular customer, so losing the commission on this one transaction was no big deal. It does however illustrate a very good point.   By not saying “I’m already working with an agent”, Sue  not only cost me my potential commission but she may have hurt herself too.

It’s a basic tenant of real estate that the agent who lists a property for sale (the listing agent) always represents the seller.  The agents at the sales office of any new construction building are the listing agents!  By going to the sales office without us, Sue had in effect asked the seller’s agent to also represent her.  Now the ‘listing agent’ has become a ‘dual agent’ – representing the parties to both sides of the deal.

Let’s look at some of the reasons why you, as a buyer, wouldn’t want the seller’s agent working for you.  There are many (like the NY Dept. of State) who believe dual agency is an inherent conflict of interest (although in New Jersey it is perfectly legal and happens all the time.)  In situations where an agent serves in a dual capacity in NJ, the agent must disclose it to the customer and still has a ethical obligation to treat both the buyer and the seller fairly. Their first loyalty, however, must be to the seller as they are a fiduciary of the seller.   Being a fiduciary is a higher standard than just being fair.   When you walk into Toll Bros. or other sales offices, do they disclose that to you?  Do they have you sign disclosure documents when you make an offer on one of their units?  I wonder.

When Lori and I represent a buyer we are well above-average negotiators.  Lori is a lawyer and I am a CPA.  We have  40 years of combined real estate experience.  Even discounting our negotiating skills, our familarity with the purchase process and with Hoboken/JC real estate practices in general would have given Sue a tremendous advantage in negotiating the purchase price as well as navigating (and solving) the problems that inevitably crop up during attorney review, inspection, securing financing and the all the way up to closing.   Sue waived all of that expertise working on her behalf.  Is the developer really going to negotiate against themselves to get you a lower price?

As to the compensation, when a unit is sold (by an individual or by a developer) the seller offers a commission (in Hoboken typically 5% to 6%) which is split 50/50 between the listing agent and the agent representing the buyer. If an agent sells his or her own listing (as in this instance), he or she gets both sides of the fee because he doesn’t have to split it with the buyer’s representative. There are no “savings” for Sue by cutting her agent out of the deal.

Finally, Sue asked me to help her look for an apartment, I spent time searching the MLS trying to find appropriate places within her price range and with the amenities she required, I made appointments, collected keys and took her out a few times and then – she said thanks very much but I’ve cut you out of the deal without a second thought. Not very cool.

You know how some entertainers remind you to tip your waiters and waitresses after a show? Well, folks – show some loyalty to the agents that are working hard for you. It’s the right thing to do, and it will benefit YOU in the long run.

Posted by Lori Turoff | Currently 46 Comments »

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