Dual agency has long been a questioned practice in real estate, but if you disagree with “multiple representation” here in Ontario, you could not even begin to imagine what things are like on the other side of the world in Germany…
A few weeks back, I wrote a nice little post about a client of mine whose mother is trying to sell her home back in Germany.
It didn’t get a lot of fanfare, and one reader commented “yawn” in response to the subject matter. Obviously that reader understands that my job is to entertain every single person on the planet, individually, according to his or her interests and preferences. But I digress…
Interesting or not, I think the fact that real estate agents in Germany are representing both buyer and seller in every transaction is something that we should explore further on this blog.
My client, Werner, told me last month that his mother is having trouble selling her house in Germany.
The house is listed at 228,000 Euros, and has been on the market since last fall.
The German real estate market works in very different ways from that of what we’re used to in Toronto, or even in all of Canada.
There are no “buyer agents” in the area where Mrs. Werner’s house is listed, and there are no “cooperating brokerages.”
The listing agent represents the buyer and the seller in each transaction, and while this happens from time to time in Canada, it doesn’t happen 100.00% of the time.
This, in my opinion, creates potential for a conflict of interest, and if I may be so bold as to take my opinion one step further – I think the conflict of interest under this system is simply expected.
Take Mrs. Werner’s latest interaction with her agent as one example.
Mrs. Werner received an offer of 210,000 Euros, and Werner emailed me and asked, “What should we sign back at? What should we say?” Without having any knowledge of the inner-workings of the German real estate market, I said:
“Don’t sign back at all. Tell the buyer that you’ve already had offers higher than this and rejected them, and there’s no point in even working with the offer.”
Werner replied, “We can’t do that. The listing agent works for buyer AND seller here, so he’s already told the buyers that we haven’t had any offers on the property, and he came up with the 210,000 price to begin with.”
How the heck can you argue that this isn’t a conflict of interest?
Negotiating is the biggest part of a Realtor’s job when the property has been on the market for a while (ie. not like in Toronto where multiple offers are ever-present, as you can’t really negotiate in an ‘auction’), and there’s simply no way for Mrs. Werner to negotiate with the buyer when the listing agent is refusing to keep anything a secret!
How the heck is Mrs. Werner supposed to sell her house for fair market value when her own agent is trying to get her to firesale it?
To put things in perspective, consider that with no buyer’s agents, and no cooperation between brokerages, that means that every brokerage has an “inventory” that they need to move in and out.
If you have two brokerages in town, and Brokerage-A has 20 properties under contract, and Brokerage-B has 30 properties under contract, a buyer will walk in to both brokerages and ask, “Whaddya got?”
Brokerage-A will try and sell any of their 20 listings to that buyer so that the buyer won’t walk through the door to Brokerage-B.
Brokerage-A needs to move their inventory, as does Brokerage-B. But they’re competing for the same buyers, and the product they have available will dictate whether or not they make a sale.
So how can you, as a seller under contract, be sure that the brokerage is trying to sell your property and not one of their other units listed for sale? They might take a buyer and push their most over-priced or hardest-to-sell property on that buyer, just to clear out the inventory!
Mrs. Werner received the offer of 210,000 Euros and said, “I want to sign back at 223,000.”
The next day, her agent – the listing agent, said, “The buyers won’t go that high. You have to come down on price. There’s no way they’re going to come up to 225,000.”
Mrs. Werner replied, “Hold on – I said 223,0000! Didn’t you tell them that? Where did you get 225,000 from?”
The agent quickly shot back, “Whatever – yeah, sure, 223,000. It doesn’t matter – that two-grand doesn’t make a difference.”
Based on this exchange, it seems as if the agent never even listened to Mrs. Werner, and likely didn’t even present the 223,000 Euro offer to his buyers. But then again, if he’s acting on the buyers’ behalf, what does it even matter whether he presents the offer or not, if he can just tell the buyers, “Don’t take this offer”?
Do you see how large a conflict of interest this is?
How can Mrs. Werner be sure that her OWN agent even presented that offer?
In Ontario, we have what is called the “Offer Presentation Acknowledgement.” I’ve used this before a few times when I suspected that the listing agent wasn’t actually presenting the offer, or even informing his client that there was an offer on the table! Just last week, I submitted an offer to a listing agent who emailed back in ten seconds and said, “Sorry, the price is not negotiable.” Unless she happened to be sitting there with her client, there’s no way she presented the offer. I explained to her that as per RECO guidelines, all offers must be presented to the client within a reasonable time frame, and I added the Offer Presentation Acknowledgement for good measure.
There is nothing of the sort in Germany.
There is simply no way to ensure that your offer is being communicated to the buyer or seller in a transaction when the listing agent happens to represent both parties.
So my advice for Mrs. Werner: get in the same room with the buyer. Maybe it’s time to expose the agent for all the BS he’s been throwing back and forth. Who knows what he’s told the buyer! For all Mrs. Werner knows – the listing agent is trying NOT to sell her house, because he’s trying to push a different property onto that current buyer.
This is the problem when every brokerage represents their own buyers.
It’s all about moving inventory in and out the door.
Buyers roam around and look at what listings each brokerage has. If the brokerage feels that they can close that buyer with any one of three properties, they don’t care which one it is! They’re not making sure it’s the right property for the buyer, but only the one that buyer will purchase.
If the brokerage knows they have a listing that is an easy sell, they won’t put any work into selling it. If a buyer walks through the door who is willing to look at anything, they’ll likely show that buyer the three properties they’re having the most trouble moving, just to try and get rid of the inventory.
The “hot” property will sell itself. The brokerage knows they can attach a buyer to that property any day of the week.
But the properties that are tougher to move will likely get more showings because the brokerage would love nothing more than to get rid of a listing that’s rotting on the market, or even more importantly – one that is about to expire.
Mrs. Werner’s house is in the midst of a long listing agreement which has three months left on it. Werner doesn’t think that the brokerage is going to try and sell his mother’s house until they absolutely have to.
In the end, the entire system is flawed because the listing agents represent both sides, and they have too much power. Every single move they make has a conflict of interest attached, and there’s nothing a seller can do but go to the next brokerage where the exact same rules apply.
For all those people that complain about multiple representation in Toronto, just imagine what it would be like if there was no MLS system, no cooperating brokerages, and no confidentiality whatsoever like the folks in Germany have grown accustomed to.
But at least they have good Bratwurst, right Werner?Back To Top Back To Comments
at 8:19 am
[J]ust imagine what it would be like if there was no MLS system, no cooperating brokerages, and no confidentiality
It’d be like Manhattan!
What bothers me isn’t so much the conflicts in multiple agency, but the conflicts, for the buyer agent, in regular agency:
– The seller/agent sets the compensation. Obviously a problem, because sometimes the non-public field that usually says 2.5 says 3. Obviously somebody thinks that works. And it takes a saintly agent indeed to show properties where it’s less than 2.5, or being sold by agents who only do exclusives.
– The buyer agent gets compensated based on how much the buyer spends. It’s easy to bump naive buyers up to the maximum cash they can get their hands on.
– The fewer hours you spend with your buyers, the more you make per hour. So maybe push them into a bad property they’ve shown interest in, or encourage them to bid high on that one that’s going in multiples?
Seller agents? Fewer conflicts, but:
– An incentive to leak information to the buyer in order to sell the property faster
– Sellers have no way of structuring commission for maximum incentive, e.g. “$1,000 plus 10% of any amount over $400,000 that you get me” is actually illegal in Ontario. I wonder who wrote that clause into the law?
– Same(ish) commission regardless of how much work they do. So no pics (wasn’t at least one pic formerly an MLS requirement?), inaccurate/missing room measurements, and a propensity, in hot markets, to push most of the work onto the buyer agent, e.g. last month’s Etobicoke auction farce. I’ve listened seller agents bully buyer agents into doing everything but pick up their dry cleaning.
I’m not saying that agents are generally crooked and, to be fair, taxi drivers, auto mechanics and dentists all have incentives that run counter to their customers’. But every sales manager knows that the sales force tends to do exactly what maximizes the sales force’s income, so getting incentives aligned is key.
at 10:46 am
Bratwurst is traditionally more of a southern thing. A more appropriate traditional meal in Mrs Werner’s near-Hamburg hometown would be something like soused herring (http://en.wikipedia.org/wiki/Soused_herring).
Getting in touch with the buyer directly would seem like a good solution in this one instance, but of course it would further poison the already poor relationship with the agent. Aside from the bizarre dual agency and selling-from-inventory structure, the lack of competition especially in smaller cities, and the lack of an MLS-like central repository of listings only make it worse.
As crazy as it sounds, when you look overseas or south of the 49th, it doesn’t seem like we have it that bad here at home after all.
at 8:27 pm
Interesting article. I don’t have a specific comment regarding this article, but I do have a conflict if interest question. Is it a conflict of interest if a realtor purchases one if his/her own listings (especially within 30 days of the property being listed)?
Just curious, and hope you can answer.
Thanks, in advance.