How Many “Hats” Can You Wear?

Business

5 minute read

February 3, 2014

There are four hats you can wear in the purchase and sale of real estate:

1) Buyer
2) Seller
3) Buyer Agent, or “Cooperating Agent”
4) Seller Agent, or “Listing Agent”

We know that sometimes, a Realtor can wear two hats, and act on behalf of the buyer AND seller, ie. multiple representation.

But what happens when we add a third hat to the mix?

Walter Matthau's lot of four hats he wore in various films as well as in life

After last Wednesday’s blog post, where I outlined the problems that exist at 201 Carlaw Avenue, a resident in the building filed a complaint with RECO Ethics.

Nothing that I wrote in Wednesday’s blog post was incorrect, misleading, or not based 100% on factual evidence that I have in hand, but it seems that when you say or do something on the Internet in 2014 that people don’t like, they WILL try and do something about it.

I’ll have to defend myself at RECO, and don’t worry – I’m not going to change my approach on Toronto Realty Blog.  I still consider myself a consumer advocate before a “salesperson,” and my blog will always give out free advice, information, and education on the real estate market for buyers, sellers, or anybody that feels like reading.

Today, however, I would like to talk about real estate ethics, which is ironic, considering I’m going to talk about something that IS allowed in organized real estate, but which I find unethical, when all the while, I’m being taken to RECO ethics for something that 99% of readers agree with, and appreciate.

Sound good?

At the onset, I mentioned the “four hats” of real estate.  These are the four parties to each and every real estate transaction.

Sometimes, a party wears more than one hat, and it’s usually the Realtor.

We’ve discussed “Multiple Representation” on this blog before a dozen times, and while some people feel it’s unethical, since it presents a conflict of interest (one agent representing BOTH buyer and seller), it’s completely legal, and there’s nothing to stop any Realtor from doing it.

Now, it should be noted that organized real estate fails to distinguish between an agent and a brokerage for the purposes of multiple representation, which is to say that if David Fleming from Bosley Real Estate represents the buyer, and Bob Smith from Bosley Real Estate represents the seller, then multiple representation applies.  It’s no different, by definition, for David Fleming to represent BOTH buyer and seller, than it is for two agents from the same brokerage.

But what about when an agent is selling his or her own house?

If Bob Smith wants to list his house for sale, then he wears TWO hats – seller and listing agent.  There’s nothing wrong with this whatsoever, although as a side note, a Realtor’s Errors & Omissions Insurance won’t apply when a Realtor lists his or her own house, which is why you see most Realtors getting a colleague’s name on the listing.

So what if a Realtor wants to wear THREE hats?’

What if the Realtor, selling his or her own house, also wants to represent a buyer in the transaction?

Well, there’s nothing wrong with that, legally, ethically, or under the rules.  But let me take this one step further.

What if the Realtor, selling his or her own house, also wants to represent a buyer in the transaction……when that buyer is competing in multiple offers?

Aaaaaaah!  Now you see!

If you don’t follow – let me lay it out.

Bob Smith’s house is for sale.

Bob Smith is a Realtor, who is acting as the the listing agent for the property.

Bot Smith lists the property on the open market, on MLS, and puts a hold back on offers until February 3rd, 2014 at 7:00pm, and then under-prices the house to solicit multiple offers.

Bob Smith then runs an open house, and an unrepresented buyer walks through the door, and wants to make an offer – through Bob Smith.

Bot is then wearing three real estate hats – he’s the seller, the listing agent, and the buyer agent.

So how does he ethically and responsibly handle this situation, where his buyer-client is making an offer, in competition, against six or seven other buyers with their agents?

Trick question: he can’t.

I don’t believe it’s possible, and I’m shocked that this is allowed.

But low and behold, I almost encountered this situation earlier last week with a west-end property where a Realtor was selling her own home.

I went in to the open house last Saturday, and the Realtor came to the door and told me, “Just to let you know – you have to be done by 3pm, as I have private showings.”

She wasn’t making any bones about it – she was going to try to solicit a buyer, and get her own offer.  She gave her life story to everybody that came into the house, and was actively working the buyers in the room.

My issue is this: if she’s trying to sell the property herself, then why is she on the open market, allowing hundreds (and there were HUNDREDS) of people to come through the home, and trying to solicit multiple offers, when all the while, she’s likely going to “win” in multiples with her buyer?

I mean, I can only speculate that this would be the case.

If there were nine offers on the property, and the 9th buyer happened to be a client of the seller (and listing agent…), and presented the offer last, it doesn’t take a rocket scientist to see what would happen.

So how is this not illegal?

Well sometimes, people ask “who would be hurt by this?”  The seller wouldn’t be hurt, since she gets the most money for the home, and the buyer is happy.  So who is hurt?  Well, the eight other buyers, who were used as leverage, and their eight agents, and their eight mortgage brokers and home inspectors, and so on, and so forth.  Call it “sour grapes” if you want, but that’s not really an “open market transaction.”  That’s a stacked deck, and I think it stinks.

The truth is: we rarely ever come across this situation.  But when it does happen, it’s often a Realtor who is new, or inexperienced, or both, and possibly unethical.

Do you want to know what IS ethical?

How about an agent in the west end who posted this disclaimer in the MLS listing:

ListingAgentNotRep2

Wow.  What a guy.

I won’t get into names here, since I don’t know this agent personally, but his reputation is fantastic in the industry, and he’s a top producer.

Here’s a home where there were likely to be double-digit offers, and where many buyers might try to approach the listing agent to “gain an edge,” and yet the listing agent decides not to work with any buyers in the transaction.

What a guy.

Here’s somebody who identifies that it’s his listing, and thus his duties are to the seller, and not to try to solicit buyers, to potentially bid against a dozen other buyers, in what could end up being a conflict of interest.

This guy refused to wear TWO real estate hats.

And some agents want to wear THREE.

I’m not suggesting that all agents would cheat in a multiple offer situation where they own the home, and represent the buyer and the seller.  But I am suggesting that this would be the prevailing perception, and if they “won” against fourteen offers, it’s impossible to suggest otherwise.

A lawyer might tell you that the mere perception of conflict of interest is enough to try to avoid it, but a Realtor wearing three of the four real estate hats would be walking right into it.

When I saw that lady in the west end last weekend shooing people out of the house at 2:55pm to get ready for her “private showings,” I wondered why we define a “cooperating broker” as such, and how the “Multiple Listing Service” is supposed to function when people are using it as bait.

I’ve had this discussion with colleagues, and most of them shrug, and say, “So next time, don’t show the house.  Or don’t offer on it with your buyers.”  But is that really the answer?

I’m not trying to sound like some sort of hero after my Wednesday RECO complaint, but I do wonder why there aren’t more stringent rules for presenting multiple offers, given that every freakin’ house in Toronto is selling in multiples these days!  If it wasn’t so prevalent, then we wouldn’t be dealing with this many issues.

Is a little proactivity so much to ask?

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

Find Out More About David Read More Posts

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10 Comments

  1. Paully

    at 8:06 am

    Lots of shifty RE agents out there. They make the good ones look much better by comparison, but drag down the whole industry to a lower level.

    I came across another very questionable scenario last week, where the agent was the buyer. An agent that does a lot of business in a certain condo was presumably approached by an elderly resident who was moving out to a nursing home. Rather than list the condo on MLS for maximum exposure and price, instead, the agent bought the place himself, privately, with no MLS listing, and unfortunately, no MLS sale-price disclosure.

    The agent has severely conflicting goals in this transaction. He should be trying to get maximum price for the owner, but instead he wants to buy it for less, way less if possible.

  2. DIlls

    at 10:43 am

    I know the listing you’re speaking of. I also liked how he put “Please leave kids at home when coming for a visit” That’s how bad this house was

  3. Joe Q.

    at 10:56 am

    David, didn’t you mention that the listing agent on the $200k-over-asking deal on Perth was in fact the owner of the house, and had his own buyer to boot? Three hats right there.

  4. ScottyP

    at 12:40 pm

    Wonderful to know that RECO is going to be wasting everyone’s time dealing with the completely baseless and spurious complaint against you, when they could be allocating their resources towards advocating, as is their mandate, on behalf of consumers on much more pressing issues such as the one outlined here.

    RECO: “Rejecting Every Championing Opportunity.” What a joke.

  5. Kyle

    at 1:21 pm

    The three hat situations are just ridiculous. What buyer in their right mind would let their agent try to sell them his own house in a bidding war. That’s almost as crazy as a client competing against his buyers agent to buy the same house.

  6. Longtimereader

    at 2:35 pm

    This reminds me of a situation my friend’s parents just went through this winter. They had just listed their house, and had not yet had an open house or any viewings. The listing agent’s daughter came to view the home, and put an offer down that was accepted. It was much lower than it should have been, and in a moment of weakness, (many long hours prepping, exhaustion, whatever) the sellers accepted the price, which has now devalued the neighbourhood. I find it ridiculous that the listing agent was both representing the sellers and the buyer (her daughter). Who is watching out for the best interests of the seller? These people were robbed, and I can’t believe it is legal.

  7. Joe Q.

    at 2:45 pm

    RECO is now publishing a quarterly summary of sorts for its disciplinary actions.

    http://www.reco.on.ca/UserFiles/Regulatory%20digest/Regulatory%20Digest%20Issue2%20FINAL.pdf

    Among the highlights is a $13,000 fine for a Toronto Realtor who double-ended a deal and failed to “inform another registrant before the property sold that his brokerage was representing both the buyer and seller in the transaction” and also failed to “inform another registrant before or during the offer presentation that he agreed to reduce his commission to facilitate the sale.”

    There are a few other beauts in there too. A Realtor who removed another brokerage’s signs and replaced them with his own — $12.5k. Etc.

  8. Anonymous

    at 3:19 pm

    After looking around with agents for a long time, my husband and I decided to be agent free. We found this more flexible, because we weren’t relying on a person to be free just to open the door, and work as per their schedule instead of ours. We actually lost a few houses because agents couldn’t show it to us the same day but could shoe the next day. Many bully offers accepted in the interim. So, we decided to work with the selling agent. One tried to tell us to work with her colleague instead, and within the first day there was so much back and forth and half-baked answers to our questions that her colleague got, that we stuck by our decision to work with the sellers agent. So she agreed. There were two offers – ours and another one. And I must say the agent was so ethical throughout the transaction. She didn’t give us any indication of the other offer, got back to both parties to ask us to put our best foot forward. And we got the place solely on our bid, without any extra information that would be unethical. I must say, ethics really comes down to someone’s conscience. But also, having said that, I could see how three hats will not let you be ethical in any situation. But I can say from experience that you could be very ethical as agent for both parties in a multiple offer situation.

  9. NewTorontoAgent

    at 11:54 am

    David, please let us know how your hearing with RECO goes, if you can. It would be interesting to see what they have to say about your posting on the 201 Carlaw Avenue condo. RECO should be spending more time going after the unethical and crooked agents, rather than wasting their time with you.

    1. David Fleming

      at 11:06 pm

      @ NewTorontoAgent

      Nothing from RECO so far, although it’s been a week, and I’m still getting calls at the brokerage from residents of the building.

      One person called today and said to our receptionist, “Tell David I’m going to sue him for everything he’s got!” That’s just a line, like, from a movie.

      I feel for the residents, but all I did was report the news.

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