Wednesday, November 7, 2007

Ethics

We've made much of ethics in the past, and we'll likely make much of them again in the future, as we are about to make much of ethics right now.

Roger gave us a link in yesterday's comments that sheds some light on to the much-seen practice of re-listing properties on the MLS. When we see a property using our Realtor, we ask about this; but it was actually our Realtor who turned us onto the whole practice in the first place as this Realtor is honest and does the homework and tells us. Contrary to some beliefs, many Realtors don't like the way other Realtors operate, thus giving all Realtors a bad name. Anyway, point being, the Realtor has the information, and you have a responsibility to ask for it.

Here's the meat of the issue:
If a property is not selling the listing agent can, with permission of the owner, re-list the property on MLS. They pay a small fee, the property is withdrawn, and then re-listed back on the market and becomes a new listing. The history of the old listing is available to Realtors but not the public, except when you ask.

Re-listing can affect the statistics for:

  1. Days on the market
  2. Percent of asking price paid
  3. Canceled and withdrawn home
  4. New listings
This practice of re-listing can make the market activity look different. It could show a different trend then what is actually happening. It is deceptive in nature. It should not be allowed.

Here is an example of re-listing:

Jan 1 listed $800,000
March 1 Re-listed $700,000
May 1 Re-listed $600,000
May 15 sold $590,000
Days on the market 15
Percent of asking price 98.3%
Number of new listing 3
Number of withdrawn 2

Now here is the same house without re-listing:

Jan 1 listed $800,000
price adjustment $700,000
price adjustment $600,000
May 15 sold $590,000
Days on the market 136
Percent of asking price 73.75%
Number of new listing 1
Number of withdrawn 0

It is the same house but at the difference in the statistical results.
And this came from a Realtor (with minor edits from me). This same Realtor also talks about dual-agency. His explanation goes much further than my rudimentary knowledge on the subject. I was interested to learn that the brokerage and not the agent is the actual seller contracted. What this means is that two agents working both ends of the deal from the same agency are really in conflict and acting on behalf of the seller.

I can't think of any reason why a buyer would not want to employ an agent on their behalf. It costs you nothing and if you use one that has no business connection to the seller agency, then you presumably have one working on your behalf. They sign a contract. You have legal rights associated with that contract. Makes sense to me to use one.

Now what would we do if a property we wanted to make an offer on was listed by the same brokerage as our agent represents? We'd first have a conversation with our agent. Do we feel secure that our agent has our best interest in mind? Do we think our agent is selling to us? If we felt at all uncomfortable, we'd get another agent to represent us. Is our agent showing us a disproportionate number of properties listed through their brokerage? All of these are warning signs in our minds.

Agents work relationships. It's a networking thing. If an agent felt we were acting inappropriately by using another agent to make the offer on a dual-listed property, that agent isn't looking out for our best interests. And thus would never get to list our home when we sell it nor gain referrals to our friends and families. If the agent can't see this then they are too short sighted to be working with us in the first place.

I'd like to hear from other agents out there on ethics in their business. And of course I'd like to hear from you too.

Check out Mohican's place for a much better Rent vs Own argument than I've ever articulated.

10 comments:

roger said...

HHV,

I would never agree to sign one of these Exclusive Buyer's Agent Contracts for several reasons:

1. What if the agent does not meet your expectations? Cancelling the contract is now an issue.

2. What happens if I find a FSBO on my own. No problem - just pay my buyer's agent a commission.

3. Look at the commission structure. If the buyer ends up buying a MLS property listed with a discount broker the buyer will have to make up the difference in commission paid to their buyer's agent

hhv said...

That is just ridiculous, I can't believe that even exists. Never been asked, if I was, I'd get up and walk out the door without giving the agent an opportunity to explain.

Imagine going to a car dealer and having the salesperson say to you that you have to sign a contract that says you can only buy a car from them. What a crock.

JMK said...

I would never agree to sign one of these Exclusive Buyer's Agent Contracts for several reasons:

You guys are now going to paint me as a complete sucker but we signed one when we bought. However, the one we signed was not as ridiculous as that one. It protected the agent from putting in time showing you properties and then to have you, the client, negotiate a deal without them.

However, the one we signed had a back-out clause. We couldn't put an offer on anything he'd shown us for a month after terminating the contract (maybe it was 3 weeks), but other than that we were free to do what we wanted. i.e. if we found a house that he hadn't shown us, we'd have been free to cut him out of the process. Terminating the contract could be done without notice.

The only potential drawback we saw was if he were to screw up a deal we wouldn't be able to fire him and then turn around and make an offer on another place he had shown us without paying him.

Now to be honest, I'm not sure I would have a real estate agent again. I am not sure ours did that much for us. He was an honest guy and helpful enough, but he didn't show us anything we hadn't found on MLS. The biggest service he provided was arranging the showing schedules and getting keys etc. That would have all been much slower without a buyer's agent, but I'm not convinced it was worth the 2.5% or whatever his share of the commission came to.

hhv said...

You didn't pay, jmk (hey that rhymes), so it was worth it to you. A buyer's contract in my opinion is the surest sign of a poor agent. They should have faith that their service will make you loyal. It works for me.

I'm thinking as consumers we should take it up a notch: don't deal with brokerages that allow their buyer's agents to use these contracts.

Anonymous said...

When you negotiate a real estate deal as a buyer you are not really negotiating with the seller you are negotiating with the agent. Remember that and you should be okay.

olives said...

I signed one of those many many years ago when I purchased my first house, however added into it was an agreement that the agent would pay our legal costs, etc. on the purchase.

renter said...

when i bought a place in another city a few years ago, i had a buyer's agent but she never even mentioned me signing a contract. she was fantastic. i think that hhv is right: if the agent knows they're good at what they do, they shouldn't need to lock you in.

Futura said...

I've been thinking about RE agent ethics lately. You see I signed up for PCS and the RE agent sends me mass emails every do often.

The emails are embarassing. They are usually links to bear newspaper stories.

At what point is a real estate agent liable for advising buyers to enter a market with fundamentals that are less than stellar?

Tim Ayres said...

I don't use Exclusive Buyer Agency Contracts (EBACs), because I am uncomfortable with the way they are set up.

If the sole purpose of the EBAC was to guarantee that the agent gets paid upon the buyers buying a house, then I wouldn't have a problem. I've been screwed over in the past - clients I've been working with for months turn around and buy a FSBO without even trying to let me negotiate with the seller on their behalf (and to get me paid; fair is fair).

For that reason, I should use one.

But, the balance of my ethics doesn't allow me to because the EBAC also has the neat little feature that they guarantee a rate of commission that is payable to the buyer's agent, and it states that the BUYER is to pay it, except that portion which is payable by the seller So, if your agent has you tied to an EBAC, and the commission payable is 3% on the first $100K and 1.5% on the balance, and the house you buy only has a $3000 commission attached to it, guess who's on the hook to top up the commish?

I don't think buyers should have to pay to use my services. And I'm not an old-timey REALTOR® who sold his first cave in 154 B.C. who are the usual opponents of the EBAC.

Good comments people, thanks for the discussion.

Tim Ayres said...

And about the re-listing issue. I have used this in the past to generate activity, although usually the original listing has already expired.

But, sometimes agents will over-estimate the asking price, and will re-list the property under a new MLS number to reset the days on market counter and the original price field. This is sometimes needed because if a property has been on the market for a long time, people get the impression that there is "something wrong" with it. If the only "wrong" thing is the price, then what is the hurt in re-listing it with a new price?