Monday, April 21, 2008

Realtor Ethics and Contracts

A family I know want to move. They called a Realtor to help them purchase a new house. Realtor finds out that they currently own their own home and sees an opportunity to get two commissions. So Realtor comes round to discuss their options.

This family is looking for a pretty specific scenario. They want to downsize but stay in a SFH. They have about 85% equity in their current home and when they sell they ideally want to spend no more than 85% of the sales price on their new place thus freeing themselves from a mortgage.

Their plan was to take their time finding a new house that fits their needs and make a conditional offer subject to them selling their own place. Their Realtor's plan is to sell their house first, thus creating a pressure situation that will force them to buy a new place quickly. This family feels like this situation could at best get them into a house they aren't completely satisfied with and at worst get them into a financial situation that has them in worse shape than the current good state of their financials now.

Somehow in the confused state of the arguments for and against the Realtor's advice, this family found a sign on their front lawn and copy of a contract that they don't quite understand why and how they agreed to sign in the first place.

Here's my question to Realtors reading this blog: what happens if a seller decides to break their contract in the immediate week after singing it, prior to the listing going on MLS? Should Realtors be subject to a "grace period" or "cooling off" period where there is a reasonable time limit on buyer's or seller's remorse, say like a week? where the seller can change their mind consequence free?

To me, the whole scenario paints an ugly picture of the industry. These people were told by the Realtor that in this market, conditional offers aren't being accepted. They were told that they should prepare themselves for bidding wars on good properties.

It seems to me that the Realtor could have secured two commissions by giving good service. Instead, hopefully, this Realtor will lose out on two commissions by being a snake. The trust is blown for these people. They have already told the Realtor that they won't be buying through them now.

Let's hear your thoughts and advice...

15 comments:

boomer said...

"REALTOR ETHICS"

one of the worlds shortest books?

LOL

Tim Ayres said...

Tim Ayres:
I can see this situation from both sides. There are perfectly logical reasons for selling your house first. If you're looking for something really specific, it can be heartbreaking to put an offer on it, subject to your house selling, only to have another buyer (who doesn't have to sell) offer on it afterwards and bump your offer out. On the other hand, like you said, you don't want to be pressured into buying something you don't like if your place sells quickly. It's a tough call.

I had a client recently buy a house (I'd been working with her for 2+ years, trying to find that right place). She arranged with the bank for bridge financing so that she could put an offer on the house without a subject to sale - important when you KNOW this is the house for you. We listed her house as soon as we got the offer accepted, and thankfully, it sold in enough time that she didn't need the bridge financing. But this is a good option that you can use to avoid having to list your house first.

But in regard to this issue with your friend and their REALTOR®. Any good agent should allow a client to cancel the contract if they change their mind. I believe that a contract is a contract, but what's the point in carrying a listing if the seller is going to be uncooperative? Your friends could simply have the house "unavailable" for showings, etc. My guess is they'll probably get a cancellation. They could always call his or her office and ask to speak to the managing broker if there is a problem.

A seller that is nervous about signing the listing contract can also request that the listing agent put in writing on the "Schedule A" part of the MLS® contract that he or she is free to cancel the listing at any time, etc.

-Tim Ayres - REALTOR®

Anonymous said...

I'm not a realtor, but I have bought and sold enough houses to know this:

1) There is no cooling off period. Typically, the realtor is entitled to a commission on the sale of the house until 6 months AFTER the expiry of the listing contract. (The six months after clause protects the realtor from getting screwed by someone who gets an offer on the side to sell a few days after the listing contract expires, thus depriving the realtor of a commission.)

2) In spite of the bears' view the market is crashing, conditional offers to purchase are viewed negatively and weaken the buyers negotiating position. It is better to secure an unconditional sales contract on the house that has to be sold before buying the next house.

3) If the market is crashing, they should sell now and rent for a year (surely you advised them to do this).

4) If the realtor got the sign on their lawn without them realizing what was happening, I have to wonder if they are in possession of all of their marbles. Nevertheless, the realtor is giving them sound advice, based on my points above. If they want to punish him, they should get together with a different realtor when they are ready to buy. As it stands, the realtor listing their house will get that commission, but he doesn't have to get the commission when they buy.

HMX5 said...

"Somehow in the confused state of the arguments for and against the Realtor's advice, this family found a sign on their front lawn and copy of a contract that they don't quite understand why and how they agreed to sign in the first place."

That paragraph troubles me, who's arguments caused the confusion? How many people are selling this property?

And what does the contract say?

Toronto realtor said...

I am working as a realtor specialized on certain Toronto neighbourhoods and I really care about my customers. I am in a business a long time and it would not be possible with a bad reputation. If problem like this appear I would deal with a customer one more time because it is nothing worst than unsatisfied customer who is complaining. You should talk to him and it wont work then you should start work on his reputation

sourgrapes said...

Sorry HHV,
You screwed up here. I usually support your views, but not this time. The realtor is RIGHT here, and you and the sellers are dead WRONG.


Don't you realize that the realtor is a decent person who is trying to protect clients from possible financial devastation in a changing market? The sellers don't know how lucky they are. Instead of being grateful, all of you are back-stabbing this innocent agent.

In a HOT market, it is OK to BUY firstif you have a very desirable house in a fantastic location and you price it well. Those 3 criteria will work in an up or down market, but it is crucial to move sensibly in a declining market like the one we have now.

Please see my point. Which scenario is better, bearing in mind that life offers NO guarantees?

A) Buy your 'dream home' unconditionally first, then your former house takes a year to sell, costing you maintenance, interest, loss of opportunity on the cash you have in your first home. This is where the pressure to SELL comes about. Buyers know your home is vacant, so will low-ball on offers. The stress of owning 2 houses at once will force the sellers to accept any offer to get rid of the burden.

B) Take advice from a SMART and DECENT agent who prefers to SELL your house first. You are in charge as far as the offers you get, the CLOSING DATE, etc. If your buyer wants your house quicker than you can buy another, it will cost you TIME, in that you need to rent or shack up with the parents or good friends while the RE prices decline and you find your dream home AT YOUR pace, without losing sleep, and mostly without losing MONEY.

Which choice would you make? I sympathize with their realtor. They owe him an apology. I don't claim to love realtors, but this couple are darned lucky to have found someone who is determined to protect them from their own foolishness and impulsiveness. This realtor obviously knows the risks involved in carrying 2 mortgages..

I cannot believe they would even consider being disloyal by withdrawing the listing or buying through someone else. Life is strange.....

sourgrapes said...

Me again. I forgot to point out that in scenario A, the sellers are unloading at the TOP of this crazy market. They could be luckier in that they get to buy just as home prices decrease too.

Furthermore, by choosing option B, they could find themselves PAYING top dollar, but getting less for their first home if prices suddenly dip 20% or whatever during the waiting period between buying and selling.

sourgrapes said...

OOPS! I said....'Furthermore, by choosing option B'


Please change that to read option A (buying before they sell)

hhv said...

I appreciate the comments. SourG... isn't the customer always right? My post was about a professional who didn't listen to their client. Regardless of whether or not the advice is right or wrong, isn't it more important that the client sleep at night?

This family doesn't have to sell. They are perfectly happy long term and comfortable financially staying where they are. The offer on any new place will be conditional on them selling the old. Market conditions aside, it matters not to them the values of the places they buy and sell, only the spread. If they can't make the spread work, they don't sell and move, simple as that. If they sell, they are forced to find a new place, even if they can't find a suitable one with a working spread between purchase and sales price.

They feel that in order to be in the driver's seat, making a conditional offer on a new place is the best course of action for them. My point wasn't about the soundness of their actions, it was about the practice of the Realtor. In my mind, right or wrong, the pro should listen and respect the client. Alternatively, the pro could have said "I won't work like this, find someone else."

What happened was a conversation where the Realtor talked a client blue in the face, made them sign a contract during a conversation that left the client with significant doubts over the soundness of the advice, for this particular situation, and unable to sleep at night.

The situation was resolved yesterday. The house is off the market and the family is slowly looking at other SFH's. It appears that the actions aren't too damaging to the relationship between client and Realtor as the Realtor finally listened to the client.

Tim, thanks for the Realtor's perspective. I can see the validity of the position on all sides.

vg said...

Tough call for the agent and the seller,you are playing with a 15% window. You can hardly call the agent a snake because he wants to ensure their house sells first. You can always put a 90 day move in stipulation and if you can't find anything suitable then rent for a year as another poster said and wait out the mania of what bidding wars are left. It seems there are many homes with price reductions so not sure what the expectations of the seller are when downsizing.



Take for instance MLS# 244575, a very nice almost new home that was reduced $60,000 in a month and a half and is now relisted as a brand new listing with pictures of the front of the house taken at a new angle to disguise the appearance of the previous listing. Now thats what I call a snake.

sourgrapes said...

HHV,
To each his own. I get your drift as far as the clients feeling cornered. But remember that they may N E V E R get an offer on their place. We just never know...

Maybe I'm different, but I would have lost the sleep if I were forced to carry 2 debt-loads.


Bear in mind that a listed home does not mean a SOLD home. Even if they get full-price offers, they can simply refuse to sell if their dream home has not materialized by the time offers come in.

The stipulation for 3-4 months of time before closing is not unreasonable either. In other words, nobody is really twisting their arms, although they appear to be intimidated by the whole process.

I interpret this situation as if there are more balls in the clients' courts. They get to 'feel out' the seller's market while window-shopping. The realtor is a keeper IMHO.

I would sleep better dealing with someone like that, who looks out for me, instead of the realtor that encourages me to get into debt by buying a property without ensuring I've unloaded mine first. Oh well!

Anonymous said...

If your agent mentions "bridge financing" get him/her to explain what this means!

If you buy a home and do not have an offer on your current house - THIS IS NOT BRIDGE FINANCING. This is owning two homes and you may loose the deal on your new purchase as your income is not high enough to cover two mortgages.

Bridge Financing is when you have bought a home and the home you are selling has an accepted offer. Unfortunately, the closing dates on the two homes are not the same. So, you have to "bridge" the time period until both deals are closed.

If your agent says different - dump him or her and find yourself a knowledgeable agent.

Siobhan

Anonymous said...

Everyone likes money and tries the best to get it, so does the realtor. But many of the realtors go too far and became ugly. There are only few good ones. An example of a bad realtor, please see ML# 244133. Many of them will be jobless in the near future.

Cedarman said...

Simply put, never sign anything you don't understand.

If you sign a contract, you have signed a binding agreement. It is childish to think otherwise.

From the Better Business Bureau website,

6. Assume all contracts are binding.

There is a common misconception that consumers have a right to cancel any contract within ten days. Many consumers do not understand that provincial laws which give consumers limited cancellation (or "rescission") rights apply to only a few specific situations.

In most instances, sales agreements and other contracts bind you the moment you sign them. There is rarely a "cooling off" period. B.C. law gives you the right to cancel some contracts that you sign in your home. Certain lessons and services, such as dancing lessons and health spa memberships are also subject to the B.C. 10-day "cooling off" period. But again, these laws apply to very few situations. If cancellation rights are not stated in the agreement, assume none exist.

Certain documents you sign may not be called "contracts," but are just as binding. Signing an estimate for work may obligate you to the project. Signing a "certificate of completion" may make it difficult to later complain about shoddy workmanship. Make sure the paperwork you're signing doesn't waive your rights as a consumer or contain any unexpected surprises. Assume that signing anything obligates you to something - and act with appropriate caution.

Metaldwarf said...

For what its worth. With all Insurance contracts there is a "10-Day Free Look" where a client can cancel the contract and get all their money back with no fees or withholding.