All this talk lately about holding back on offers and under-pricing has me rather surprised to see this article in the Ontario Real Estate Association’s monthly “Realtor Edge” publication about a case of over-pricing.

It gives you a little insight into the other side of the equation…

THE CASE

This case involves violation of several rules under the RECO Code of Ethics regarding ethical behaviour, misrepresentation, competence, and unprofessional conduct.

In September 2006, RECO received a complaint from a company that held a mortgage for a property located at 1-A Street.  The printout of the MLS listing which was provided to obtain the mortgage in November of 2005 showed that 1-A Street was listed at $229,000.  When 1-A Street went into foreclosure it was determined that 1-A Street was worth less than $65,000.

A review of the listing showed that 1-A Street was listed by Brokerage A with Salesperson A in November 2005 at $229,000 and the listing was set to expire on July 17, 2006.

In November 2005, 1-A Street sold for $220,000.  The Agreement of Purchase & Sale indicated that there were no real estate brokerages involved in the transaction as the acknowledgement and commission trust sections of the Agreement of Purchase & Sale were not signed.  Further, the deposit was to be held by “The Vendor.”

On inquiry into the transaction, RECO Staff met with Broker A, the Broker of Record of Brokerage A, and confirmed that 1-A Street was not sold through Brokerage A.  Further, the appointment log on file showed that 1-A Street had never been shown during the time it was listed with Brokerage A.

Salesperson A wrote to RECO Staff and stated that the Seller was introduced to him by a client in October 2005, and that a few days later, the Seller asked him to view the Seller’s property.  When Salesperson A looked at the property, he advised the Seller that the property was worth about $100,000.  A week later, the Seller contacted him and offered the listing to him but the Seller insisted that the property be listed at $229,000.

Salesperson A stated that because he did not have many listings at the time, he was excited to get one and therefore listed the property at the price suggested by the Seller.  Salesperson A also confirmed that the listing expired without any showings.

THE FINDINGS

The RECO panel determined that Salesperson A acted in an unprofessional manner when he:

a) listed 1-A Street at a price that he knew was overly inflated, and;

b) did not do what a reasonably prudent registrant would have done to avoid allowing his services, including authorizing MLS listings that included grossly inflated property value, to be used for improper purposes.

Salesperson A thereby breached the following Rules of the RECO Code of Ethics:

RULE 1(2) ETHICAL BEHAVIOUR – A Member shall endeavour to protect the public from fraud, misrepresentation or unethical practice in connection with real estate transactions.

RULE 10 – MISREPRESENTATION – A Member shall not make any statement or participate in the creation of any document or statement that the Member knows or ought to know is false or misleading.

RULE 42 – COMPETENCE – A Member shall render conscientious service with the knowledge, skill, judgement and competence, in conformity with this Code of Ethics and the standards which are reasonably expected of Members.  When the Member is unable to render such a service, either alone or with the aid of other Members, the Member shall decline to act.

RULE 46 – UNPROFESSIONAL CONDUCT – A Member shall not engage in an act or omission relevant to the practice of the profession that, having regard to all the circumstances, would reasonably be regarded by Members or the public as disgraceful, dishonorable, or unprofessional.

PENALTIES AND COSTS

Salesperson A was ordered to pay a penalty of $7,000 within 120 days of the decision of the Discipline Committee.

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My thoughts?

This is a case of blatant over-pricing; a house valued at $100,000 that eventually sold for $65,000 was listed at $229,000 and never received a single showing, and the actions of Salesperson A breached four rules of the RECO Code of Ethics.

So what then do we make about under-pricing?

How is listing a $650,000 house at $559,000 (in hopes of getting $700,000) any different from over-pricing in the above examples?

I’m playing devil’s advocate here, because I do work for sellers as often as I work for buyers, and many sellers have it in their heads that the in-thing to do is under-price and hope for a bidding war.

I have to do what my seller wants, right?

Well, in the above example, Salesperson A took the listing for a $100,000 house at $229,000 because the seller told him to!  Yet it was the salesperson that was held accountable.

So how is under-pricing different?

I just don’t know anymore.

Frustration aside, I still don’t like the practice of under-pricing.  It’s just so sleazy and fraudulent, in my humble opinion.

Holding back on offers is one thing, but deliberately under-pricing is another altogether.

Maybe I’m just becoming too honest?

I wonder how that will affect my business…