Negotiating In Good Faith?

This blog post is actually going to be a story about a person who was negotiating in bad faith, but I wanted to try and put a more positive spin on it!

When making an offer on a property in Toronto, I’d like to think that the buyer in that transaction is doing so because buying the property is the number-one objective.  Simple enough, right?

Well let’s talk today about when an offer isn’t submitted in good faith, and it’s really just a means to an end; a different end, that isn’t necessarily buying the property…

GoodFaith

Trust is an essential part of any real estate transaction, between a buyer agent and a seller agent, and it can make a deal go smoothly, or turn it right upside down.

I’ve often said that there are a handful of agents in this city that I seem to deal with over and over again, and over time, the relationship strengthens to a point where there’s a mutual trust.

Think about showing up to an offer presentation with only one copy of an offer, handing that offer to the listing agent, and then when a deal is reached, saying, “Just scan it, and send me a copy tonight.”

That’s trust.

And whereas many agents show up with four copies (one for the buyer, one for the seller, and one for each agent), and ensure that each copy is signed and acknowledged for by the time all parties up and leave, I’m not against using a strong trust to help facilitate the process, make it smoother, quicker, or easier.

Think about a multiple offer situation where there are nine offers, and the highest offer isn’t accompanied by a deposit cheque.

As the listing agent, what do you do?

If you accept that offer, then yes – the buyer is legally obligated to purchase the property.  But without a cheque, there’s no consideration for the deal, and all you have are eight pieces of paper.

In many instances, the seller will take the second-highest offer, if there’s a cheque accompanying that offer.  Or the listing agent might ask the agent with the second-highest offer to increase the offer to “match” that high offer, that has no cheque.

It all depends on the agent, his or her reputation, that of his or her brokerage, and of course – trust.

I’ve “won” in multiple offers with no cheque before because the listing agent told his sellers, “I know David – he’s with Bosley, it’s okay, he’ll bring a cheque tomorrow.”

And I’ve been on the flip side of that situation as well, electing to work with the highest offer in a multiple offer situation, when there is no deposit cheque, but I know and trust that buyer agent.

I don’t want to suggest that we Realtors should “expect the worst” at all times, and be pleasantly surprised when things turn out well, but we are on guard much of the time, and always on the lookout for somebody that we think is going to screw us.

A couple weeks ago, there was an open house for one of my listings, and my colleague who was running the open house told me, “There’s this one buyer agent who has been here twice already, and has walked away with the key!  He’s going back and forth between three units for sale in the building, and he kept the key!”

An hour later, my phone rang, and it was that very agent – registering an offer.

He seemed very preoccupied with where and when we would be “presenting” the offer, and didn’t really seem interested in discussing the terms of the offer, or anything about the property.

He was adamant that he present in person, to myself and the seller, but I told him rather plainly, “We don’t do in-person presentations anymore because we don’t have to.  Technology has erased that need.”

I wanted to say, “This isn’t 1994,” but that would have taken it a bit too far.

The reality was – my client was at a family function, as was I, it was a Sunday afternoon, and there’s really no benefit to presenting in person – it’s not like you’re going to get the property for less.

The buyer agent said, “Okay, then I’ll drop it off in person, and wait for you to present to your client, then come down and talk to me.”

It was a little bit odd.  It wasn’t something altogether new, but I just felt that something wasn’t quite right.

The offer came in, and it was low, especially for a property that had been on the market for three days, so we signed it back.

I emailed the agent, called the agent, and paged the agent, but the agent never returned my messages.

It took about four hours, and repeated attempts, and finally I reached the buyer agent to tell him about our sign-back, but amazingly he said, “We’re working on another offer.”

In fact, he was a bit confused as to who I was, and what property I was talking about.

I got him up to speed, and he said, “Oh, right.  I think, actually, that property isn’t going to work for my client.”

This is all through broken English, so I was trying to decipher what was really going on here, but I started to think that this agent had his hand in more than a few things at the moment.

I asked him, “What changed in the last couple hours?  Why is it ‘not right’ for your client”

Then in one of the more extraordinary moments in recent memory, he told me, “We have many offers out right now and we’re trying to see which brings us the best value.”

MotherFf@#$%&*

Do you follow what he was doing?  What he had done?

I asked him, “How many properties are you buying tonight?”  To which he replied, “Oh, we are just buying one property.”

And I said, “So what if you had more than one offer accepted?”

He didn’t follow.

He said, “No, no, no, we buy one property tonight.”

I said again, “But you made offers on several properties, correct?  So what if more than ONE offer was accepted, then what?”

He repeated himself and said, “We only buy one property.”

I took a big inhale, and basically yelled into the phone, “You made offers on what – two, three, four, five properties today?  So what if, rather than getting a rejection or sign-back, two or more of those offers were accepted by the seller?  What if, for argument’s sake, four of those offers were accepted?  Then what?”

He didn’t understand, didn’t know, or didn’t care.

He just said, “We only buy one property.”

Talk about negotiating in bad faith.

Basically what he was saying was rather than focus on one property, make an offer, and see where it gets him, he wanted to put out FIVE offers, and if more than one was accepted, his buyer would just back out.

His buyer would pretend like those signatures on those pieces of paper are meaningless, and simply say, “Nevermind.”

As I said at the onset – the paper is worthless without a deposit cheque.  And most offers on condominiums are conditional, so there’s an “out” for the buyer.

But this buyer knowingly entered into negotiations with multiple sellers at the same time, when all the while, the buyer was only going to buy one property.

And you might argue, “Good for him, he’s being shrewd,” but if more than one offer was accepted, then he’s acting in bad faith.

Turn things around for a moment – pretend you’re a seller instead.  You get an offer on your house, and you sign it back to the buyer.  Then you get another offer from a different buyer – you can’t accept that offer until the outcome of the first offer is determined.  Because if you did accept that offer, and the offer in sign-back was accepted, then you’d have sold your home TWICE to two different buyers.

So how is being on the buy side any different?

I guess because you can be an a-hole and just back out of the deal.  Until there’s a deposit cheque, there’s no consideration for the deal.  So there’s nothing to stop a buyer from “buying” four condos, and then telling three of those sellers to bugger-off.

I told this agent rather bluntly, “I will never work with you in the future, ever.  And when I hear your name mentioned, I will have no choice but to tell my colleagues what transpired today.”

I tell new agents that one deal is not worth ruining your reputation over, and if they have a client that wants to act in bad faith, or do something untoward, then that client isn’t worth working with.

Suffice it to say, that agent did not by my seller’s condo.

But knowing what I knew – that they had made offers on 4-5 condos that night, had they decided to proceed with my listing, I’m not sure I would have advised my seller to keep working on it.

What’s to stop them from tying up the property, and then asking for a $7,000 abatement during the conditional period?  I wouldn’t put it past them; not if they’re the type to make offers on multiple properties at once.

It’s situations like this that make me so much happier when I enter into a transaction with an experienced, respectable, trustworthy agent that I’ve worked with before.

Sometimes you don’t know how good the good ones are, until you have a bad one.

And if there’s one buyer out there negotiating in bad faith, there’s probably hundreds more.  It’s just my job to protect my seller, and I fear in this market, with many inexperienced agents, that’s often easier said than done…

9 Comments

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  1. Jib Halyard says:

    A healthy, transparent market is one in which buyer power and seller power seesaws back and forth inexorably. Why do real estate people in this country expect to be sheltered forever from the basic laws of economics?

  2. marko says:

    so much ink wasted complaining here. all you have to do is require deposit cheque when offers are made and problem solved.

  3. tony says:

    What about dishonest sellers/agents who price their property below market value looking for a bidding war but in the end the offer the seller was looking for never materializes? Then a few days later the same property is back on the market for 50-100k or whatever more. I’ve seen this sleezy tactic many many times in the GTA. The government needs to regulate the RE industry. I know many here would kick and scream at the thought. I doubt this even gets posted.

  4. navyliz says:

    Is it really that common for people to not have a deposit cheque ready to go? If a client is prepared to make an offer, shouldn’t they be able to rustle up a cheque as well? Also – are people so used to getting a deal on stuff that they just can’t comprehend that they are more than likely going to pay full price or more for real estate in Toronto? Having bought and sold in several other cities prior to moving to Toronto, I admit that it was difficult to swallow, but it took all of about 10 minutes to figure out what you had to do to get a house here. Luckily we had a good agent 😉

  5. jeff316 says:

    Some might say he turned the tables on the current market dynamic that currently favours sellers. Regardless, it seems like an exceptionally risky strategy – I guess having no deposits mitigates the risk – until someone runs into the one seller with enough time and money on their hands to take you to court.

    An aside – dwindling in-person presentations, I wonder what the implications are for “phantom” offers?

  6. donny says:

    So what his name???? Lets not make this easy for him.

  7. crazyegg says:

    Hi All,

    It has not been easy being on the buyer side in the GTA in the past several years.

    Submitting offers on multiple properties is a form of “buyer strategy” that I think is more common than most realize.

    In order for this to “work”, the buyer would need to make the offers soft so that they would have no chance of being accepted but not too soft so as to be rejected outright. The buyer’s overall objective is to buy ONE house. As long as ONE offer is signed back, he is in the game.

    Its a form of hedging your bets as a buyer. Not illegal by any means but may be an effective way of securing a property in this long hot market…

    Regards,
    ed…

    1. TheOriginalDan says:

      I guess the more people realize the tactics of those ahole buyer agents, the easier it will be for listing agents to recognize it and respond accordingly and not waste their time like David did.

  8. william jakeman says:

    You should always trust your intuition David. If it doesn’t feel right or if your suspicious from the get go it probably isn’t right. Good luck to you in the future and thanks for sharing your story.

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