Andrew Wetzel's Musings

March 22, 2019

Dual Agency: Does having two buyers interested in the same property qualify?

Filed under: Buying,Ethics,Hiring an agent,Multiple Offers,Price — awetzel @ 5:40 PM

In the NAR Code of Ethics and Standards of Practice, Article 1 requires that REALTORS “protect and promote the interests of their client” and says that this obligation is primary.  Further, we have 6 fiduciary duties owed to clients, meaning that we have a formal representation contract with them, which requires giving them our undivided loyalty, our disclosing all information concerning the transaction that might affect their decisions, our not revealing their confidential information and our protecting them from foreseeable risks or harm.  In most Real Estate transactions each party has their own exclusive agent making these responsibilities easier to understand although conflicts still arise.

According to RELRA, the Real Estate Licensing and Registration Act of 1980, Chapter 2 defines “dual agency” as occurring when an agent represents both the buyer and seller in the same transaction.  In Chapter 6, Duties of Licensees, Section 606d, it states that a licensee may only act as a “dual agent” with the full disclosure and written consent of both parties to the transaction.  Further, it states that the agent may not take any action that is adverse or detrimental to either party’s interest.

The PA Consumer Notice states that as a “dual agent”, the licensee works for both the buyer and seller.

The concept of “dual agency” can be complicated enough when you have two parties trying to do business with each other and perhaps at the expense of the other, meaning that a buyer and seller are not always equally happy with the outcome even though a deed may have transferred from one to the other.  Many agents question how an agent can properly represent two parties with potentially opposite goals.  Some refuse to be “dual agents” which is perfectly legal in PA.

However, while not considered “dual agency” in PA, what happens when one agent represents two or more buyers each interested in purchasing the same property?  I respectfully suggest that this is more like “dual agency” than not in terms of its practical application.  Most of us will never have an opportunity to confront this and when I discuss it in my classes many agents admit that they never really thought about.  Let me explore this.

Let’s start with my having one buyer interested in a house and assume they have made an offer and heard a “counter-offer” from the seller.  It is reasonable to assume that our fiduciary duties preclude us from disclosing their interest, including the amount of their offer, to anyone else (think of the fiduciary duties of loyalty, confidentiality and reasonable care) as well as letting anyone else know how a seller countered their offer as doing that could harm my buyer’s position.  So, what happens when I either have two buyers interested in the same or similar properties?  Let’s keep it simple:  whether 2 or 200 makes no difference although it gets geometrically more complicated as the number rises.  While RELRA may not see this as “dual agency”, I think it in the best interests of all involved to treat it as if it were.  Let’s look at two general examples.

First example.  I am working with two buyers, each looking at different price ranges.  One is looking up to $200k; the other up to $190k.  The $200k buyer makes a $180k offer on a $200k listing which the $190k buyer considered out of their price range.  What would happen if I informed the $190k buyer that the $200k seller countered at $195k?  From the seller’s standpoint, since I have no fiduciary duty to them, I would think they have no recourse for my disclosing their counter-offer although how a seller counters an individual buyer does not establish what they might accept from another and, presumably, it is in the seller’s best interests to have more than one interested party.  The real question is how would my $200k buyer feel if they knew that I shared something about their negotiating that might generate competition for them which could end up causing them to have to pay more to get a house or, perhaps even worse, cause them to lose the bidding?  This sounds like a problem even if we do not call it “dual agency”.  How would you feel if this happened to you?

Second example.  Two of my buyers-clients express interest in seeing the same property.  Aside from the planning it might take to manage the process of showing and perhaps writing offers and negotiating them for two different buyers, what is their expectation for how I keep the two processes separate?  As clients, they both signed the Consumer Notice and either accepted or declined “dual agency” and, since they signed a representation contract with me, they accepted the fact that I may be working with other buyers who share the same goals in terms of what they are looking to buy.  If either declined “dual agency”, how would that influence my performance with the second buyer, if at all?  Does the agency selection of either have any impact on whether I can add clients with a similar goal to my list of clients?  We all know that people change their plans from time to time and a buyer may decide to look at houses that I am already showing to someone else.  Of course if I failed to properly manage the process I have no one to blame but myself.

Again I mention the potential conflict and add to that.  In discussing this concept with other agents, I have heard some startling opinions.  Some feel it only “fair” to let both buyers know that they have competition.  One agent even stated that they would stop representing both, allowing their broker to designate a new agent for each, and that they would let both know exactly why.  Perhaps I look at this differently from others but, were I working with a buyer’s agent, I would be appalled to learn that they advised another of their clients about MY interest in a specific property.  Even if we take for granted that the details of my offer are confidential regardless of whether or not the relationship constitutes “dual agency”, advising another of my interest could harm me either in terms of my cost to acquire the property or, even worse, result in my losing the chance to own it.  In this scenario one of us will lose and that person may well have wished to know they had competition but the very act of raising the stakes most certainly seems to only benefit the seller unless neither buyer acted differently.

The last analogy I will use relates to how a listing agent is allowed/ expected to answer an inquiry about the existence of other offers or interest.  It is expressly understood that their ability to answer is dictated by their seller client.  While I would not suggest that a buyer agent’s informing a pair of buyer-clients about the existence of the other’s interest is a violation of the seller’s interest since there is no fiduciary duty, I think that the buyers should dictate whether their buyer agent is in fact allowed to share the buyer’s interest in a specific property with another buyer client.

Agency is not always pretty and is not always easy to explain but it is expected in client relations and its misapplication can and will cause harm, which is the antithesis for our entering into such a one-to-one relationship in the first place.

There is no time for inexperience, empty promises of false expectations! 

Remember:  HIRE WISELY!  We are not all the same!

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November 10, 2017

Anatomy of a Back-Up Offer

Filed under: Buying,Ethics,Multiple Offers,Selling — awetzel @ 6:02 PM

The following post is meant as a “teachable moment” not for bragging or embarrassing anyone.  I am an instructor of ABR (Accredited Buyer Representative) and SRS (Seller Representative Specialist) candidates and this situation demonstrates some of my core philosophies about Real Estate and how to best protect our clients.  Let me start with an overview:

  1. A Real Estate transaction, regardless of whom you represent, is a BUSINESS transaction. Whether you are representing a relative, a friend or someone you just met does NOT matter. You should work equally diligently and honestly for all, keeping in mind that it is business;
  2. In PA we work with a “fill in the blank” agreement of sale. A buyer’s agent needs to explain the entire contract to their buyer-client, ensure that they understand what they are proposing/ offering and explain how to best maximize the buyer’s chance for succeeding in acquiring a seller’s property. A purchase offer must make sense to a seller and both parties are expected to honor the specific terms to which they agree. In PA the contract says that the dates and times are the essence of the agreement and are binding;
  3. the ebb and flow of the agreement allows each side certain opportunities to perform their “due diligence” and to control what happens next. There are times where either party may be allowed to terminate the process without the other side’s approval. Hopefully the end result is a sale that benefits BOTH parties.

None of this is meant to provide legal advice so make no assumptions about a situation you are involved with now or going forward. Here is a general overview of what happened:

  • an agent inquired about a property I was marketing. They asked a few questions which, while appreciated, seemed a little odd. The agent seemed unsure of themself;
  • the agent called me again a day or two later asking the same questions with an addition or two. I suggested that they contact the local municipality to make sure they received the correct answer regarding a zoning/ use question;
  • a couple of days later I called the agent to see if their client had further interest and was told they had written an offer and were preparing to send it to their client;
  • another couple of days passed so I called again and was told that the agent had a signed purchase offer that they would be forwarding to me shortly. The agent specifically said they would call me after they sent it;
  • more time passed without a call or an offer. I wanted to follow up without compromising my seller by appearing over-anxious. Sad to admit but other agents have told me that they were preparing offers for other properties or that they were going to send me something but nothing developed so I am somewhat skeptical until I have something in hand to present to a seller. I called the agent again and was told that they had scanned and emailed me something two days prior as they had said they would. I asked why they had not called me but wanted to avoid any drama that might affect the process (they had no answer). The agent re-sent me the offer which had a day left before expiring;
  • I called my seller-client and verbally presented the offer to see how they wanted to respond. The offer had an unusual contingency that did not concern the seller and they agreed to sign it as-written although they agreed that we needed a clarification regarding what the buyer and agent were looking to accomplish with the contingency;
  • the seller came to my office and signed the contract the next day.  I scanned and emailed it to the buyer’s agent and then called them to make sure they received it. I asked about the contingency. They said their client wanted to survey the boundaries of the property which is fine but the buyer accepted one general contingency while waiving the specific one covering surveying the boundaries which I found curious. Either way, my seller client was unconcerned that the buyer had a 10-day period during which they could terminate the sale for any reason whatsoever;
  • day #5 arrived and passed.  This was the day the initial deposit was due. I called the buyer’s agent on day #6 and was told that they had a personal check despite the fact that the contract required a bank check or wired funds since there was less than 30 days left before settlement;
  • a couple of more days passed with no deposit check. I was advised that the buyer agent had requested wiring instructions and I presumed that that was for the payment of the funds due at settlement;
  • more time passed and, after communicating a few times throughout the day, the buyer agent offered that the buyer would be wiring both deposits, the second one not being due for a couple more days.  My seller client thought that was fine;
  • during the time since the initial deposit was due, I was contacted by an agent who said they had someone interested in buying the property. They asked me if there was anything they could do which stunned me as we had a fully-executed contract. I advised the agent that we would accept a back-up offer in the event that something happened. I asked them to put their client’s offer into writing and suggested a specific date for my seller client to approve it (I offered the day after the offer in-hand was supposed to settle). The agent agreed;
  • day #10 (the last day of the contingency) passed without my hearing anything further about the contingency or the initial deposit. My client and I spoke frequently and we were both losing faith in the original offer and waiting for the “back-up” to arrive. The seller agreed with a strategy I have used before:  I would send an email to the agent stating that the contingency had expired and asking for clarification regarding the status of the initial deposit check;
  • with the seller’s permission I called the second agent and advised them that we were in a situation where their offer would be welcome but that time was of the essence as the seller wanted to sell their property to someone;
  • I had another conversation with the first agent and what they told me essentially provided all my seller needed to know:  the first buyer was adament about doing a survey and would not provide any deposit money until they were certain of the property boundaries for fear of losing it if they decided to terminate the sale. In addition, whether it was due to the fact that almost two weeks had already passed or that something really came up with the buyer’s schedule, the agent told me that they needed to delay the agreed-up on settlement day. What a trifecta:  a late deposit, an expired contingency period and now a need to delay settlement!;
  • I received the back-up offer and called the seller to arrange a meeting. I presented them with the back-up offer and a form to terminate the first sale for failing to meet the terms of the agreement. To their credit, the seller admitted feeling uneasy and questioned the ethics of switching buyers. As I explained to him, the essence of the situation (and the reason for this post) is that the buyer made an offer they were not able or willing to honor and was apparently represented by an agent who, to say the least, was unable to get the sale done as agreed.

Of course no agent can control or dictate what their client does but this agent’s conduct/ performance contributed to our situation. He should have generated an addendum extending the due date for deposit and the contingency to avoid a “default”. Had that been done, delaying settlement would not have posed a problem for the seller. Unfortunately, in addition to whatever the buyer was thinking, the agent never demonstrated the ability to convince us that we were going to complete the sale so the seller made the “business” decision to terminate the first offer and switch to another. Had there been no “back-up” offer, who knows what would have happened.

As I always like to say, HIRE WISELY! In this case, it goes both ways. Perhaps the agent should have declined the opportunity to represent this buyer.

March 15, 2016

Multiple Real Estate Offers: Fun for Sellers and Buyers!

Filed under: Multiple Offers,Selling — awetzel @ 5:30 PM

Writing a purchase offer for a Buyer-client and presenting it to a Listing Agent is pretty common although all agents are not created equal. Let’s leave that for another post.

Accepting a purchase offer from a Buyer’s Agent and presenting it to your Seller-client is also pretty common with the same disclaimer.

However, what may be like “playing checkers” (I do not mean to minimize the process or related emotions!) quickly becomes “playing chess” when there are multiple offers being generated for the same property. Many things can go wrong and someone is likely to feel left out.

Most Buyers tend not to like competition (last decade they ran towards it like a moth to a flame. Today, especially in areas with ample inventory, not so much) whereas Sellers love it although it can get complicated and, just because more than one prospect decided to make a formal offer, there is no guarantee that the Seller will enter an agreement with any Buyer.

A wise Buyer Agent will inquire about the existence of other “interest” or other offers prior to writing an offer.  Some ask to be kept advised if anyone else show interest. They may, can and will ask a series of questions designed to learn as much as possible:  is there competition/ other interest?; when do we need to get our offer in?; how much will it take and under what terms and conditions?; if there are other offers tell me who represents the Buyer (what they mean is is the Listing Agent a Dual Agent representing both parties)?; if there are no offers have any been rejected and if so what was the highest rejected price? It could go on and on and on. So, how does the Listing Agent answer any questions?

REALTORS are “fiduciaries“, meaning that we act on our Client’s behalf with their specific permission. When we do anything, it is expected that we do so with their prior consent as what we do may and will be perceived as obligating them. Going rogue is NOT an option! Our duties include: obeying their lawful instructions, being loyal, disclosing what we know, keeping what they tell us confidential, providing an accounting for any monies involved and providing reasonable care and due diligence in our actions. The center piece, if you will, of being a REALTOR is our time-honored Code of Ethics. Established in 2013, our COE has 17 Articles (with Standards of Practice) split into three sections describing our duties to Clients and Customers, the Public and other REALTORS. Article 1 requires that “REALTORS pledge themselves to protect and promote the interests of their clients” while treating all parties honestly.

Our PAR listing contract requires that we obtain the Seller’s permission to disclose the existence of other offers as well as who (the Listing Agent, another agent in the same firm or someone from a different firm) obtained any offers. Two points:  first, someone must ask the Listing Agent the question (there is no specific obligation for the Listing Agent to make someone aware unless the Seller directs that action); second, we must be honest OR say that we are not authorized to discuss that. The best time to discuss this is when the listing contract is being signed or responding to the questions will be awkward (geez, I am not sure. Let me ask the Seller???). Most of the hypothetical questions mentioned are NOT covered in the PAR listing contract but I assume, as with any aspect of representation, the Principal (the Seller or Buyer) decides what we do.

In my experience, many if not most Buyer Agents do not ask about the existence of other offers which can disadvantage a Buyer who is not aware of competition (Buyers may not get a chance to change their offer. A good agent must discuss whether their Buyer-client wants to make their “best offer” or is willing to see what happens). In fact, many Buyer Agents email or deliver purchase agreements without advising the Listing Agent which could cost a Buyer the house they want if there is other interest. There are often times when I interact with Agents and, frankly, I am not sure whether they are expressing their own opinion or their Client’s. When that happens I will ask as I then need to advise my client.

As far as Multiple Offers, markets differ and I would never assume that there is OR is not competition. In my opinion, it is wise for all Buyer’s Agents to contact a Listing Agent prior to preparing an offer (of course, that may not be possible for a variety of reasons) to learn what they can. In the absence of that conversation, prepare your Buyer as best you can. I advise my Buyer clients to do what they feel comfortable doing do that there will be no regrets.

Listing Agents need to know what latitude they may have (document it! Sellers may have a change of heart when giving verbal instructions). When there are Multiple Offers, the Listing Agent is somewhat in control and has two or more Agents and their Clients waiting for instructions. Negotiations can get difficult and, no matter how happy the Seller and you may be, you do not need lingering feelings that someone was not treated honestly.

As for Sellers and Buyers, you may never need to know any of this. However, better to discuss it when you don’t need it than to learn as you go.

HIRE WISELY!

 

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