Ever have one of those days where your colleague at work does something dumb?
What about a day when they do this dumb thing in front of your company’s clients or customers?
The whole real estate industry had one of those moments earlier this month, when CBC released a hidden camera investigation on their show Marketplace. Here’s the link to the video in case you haven’t seen it.
On it, they show footage (via hidden camera) of Realtors trying to double-end a deal. This means they are representing both the buyer and the seller in a transaction. In technical terms it’s called multiple representation, where the listing agent represents both the seller as well the buyer.
This is legally allowed in Ontario but you have to follow a number of rules to make sure it is fair to both sides.
The Marketplace video shows Realtors breaching ethnical and legal rules in their attempts to close deals where they get paid more commission.
Very, very dumb.
Now, there are lots of articles and stories about the problems with multiple representation.
That’s because there are lots of problems with it.
It’s complicated to do right, it can easily result in unfair advantage for one of the parties and it can result in lawsuits and RECO claims.
There are few occasions when multiple representation makes sense, but they do exist.
Here are the three factors that need to be in place for multiple representation to make sense.
- Knowledgeable client on at least one side
The reason there is typically a buyer agent and a seller agent involved in most real estate transactions is because their clients need guidance. Questions about the value of a property, neighbourhood concerns, investment potential are all commonly discussed between the client and their agent.
If one side of the transaction is not interested in the advice or guidance of a Realtor and is knowledgeable about what they are getting into (either in selling their property or buying it), then the lack of their own agent helping them is acceptable. In multiple representation the Realtor involved still has a legal obligation to disclose material facts and to not withhold information relevant to the sale.
Without clients on at least one side who are experienced and who know what they are doing, multiple representation is likely a bad idea.
- A Realtor willing to reduce commission
With over 40,000 Realtors in the GTA, there is never an issue where there is just not another Realtor interested in the transaction. I have heard of situations in more rural areas where multiple representation takes place because of no other valid option, but in the GTA, the biggest reason multiple representation occurs is money.
Specifically, it occurs when the listing agent is willing to forego some of the purchasing side commission (typically 2.5%) in order to make a buyer’s offer more attractive and get a deal done.
Buyers without agents often assume that the Seller can “save” 2.5% with no agent on the other side and therefore would accept a lower price from a Buyer without an agent who needs to be paid.
In reality, many agents have signed listing agreements that do not specify a lower commission if no other agent is involved. If they have detailed what happens then, it is typically a reduction of the buyer side commission, but only partially. Discounting by ½ a percent to up to 1 ½ percent does happen but it depends on the situation.
Buyers don’t realize that when they don’t have an agent, the listing agent has to do part of that agent’s job in preparing offers and documents, explaining representation, disclosing material facts and so forth. It is certainly more work for an agent who does both sides and as crucially, it exposes the agent to significant risk if something goes wrong with the deal. With no other agent involved, a listing agent is the only person sued or taken before RECO if the buyer later feels like there were aspects to the purchase they didn’t like.
Without a Realtor willing to reduce the buying side commission to allow the end dollars to be more attractive, multiple representation doesn’t make any sense.
- Only two parties involved
When multiple representation meets multiple offers, things go sideways very quickly.
The Marketplace investigation was particularly damning when the agent representing both sides also had a bidding war on their hands.
In such a situation, the listing agent has a buyer client where he or she stands to make more money if that purchaser was the one who won the deal. The temptation to reveal just a little bit of useful information to that buyer client means that we often see multiple offer situations end with the purchaser being the listing agent’s client.
While it is legally and ethically wrong, agents can indicate in numerous subtle ways what their buyer client needs to do with their offer to win the bidding war.
The most ethical way I’ve heard of avoiding this issue is when the listing agent’s buyer client is only allowed to submit their “best” offer and isn’t given a chance to change it if the other offers are close. This prevents the listing agent from pushing their buyer client up just enough to beat the next highest offer. At the same time, it puts the buyer client in a difficult position as they are being treated differently than the other offers, who may be given an opportunity to improve their offer.
When there is a Seller and one Buyer involved, multiple representation avoids this challenging area and it can make sense for it to take place. In a bidding war, multiple representation is extremely problematic and very risky for the listing agent.
There you have it – three factors that should be in place for a multiple representation situation to make sense. If one or more of these factors is absent, you start running into complex situations where even experienced agents can run afoul of the ethical (and perhaps legal) requirements for the transaction.
If you or someone you like are interested in buying or selling with a Realtor who can handle complex situations (and knows when to avoid them!), please get in touch with me. I’d love to be responsible for what comes next.
Regards,
Jeff
POOLS AND STREAMS
Preserve natural pools and streams and allow them to run through the city; make paths for people to walk along them and footbridges to cross them. Let the streams form natural barriers in the city, with traffic crossing them infrequently on bridges.
When I read this lesson, I thought immediately of Freiburg, Germany, where there are little channels of water beside many streets. Originally intended to supply water to parts of the town, they are now simply water features that add tremendously to the appeal of the city. Some of you may think of Amsterdam, or Venice and have similar fond memories of the charm of places where water is allowed to be part of the city, rather than controlled and hidden.
From a real estate perspective, properties that have views of water or even better, are located with direct access to water, are tremendously appealing. Such properties remain high in demand and are often the location of some of the nicest (and highest priced) homes in a city.