What Happens When The Listing Agent Has His Own Offer?

Business | February 12, 2016

Well I certainly didn’t intend for this to become a theme week, but let’s continue the discussion about multiple offer situations, and look at when the listing agent has his or her own offer, what happens, and what, if anything, you can do as a competing buyer.

It’s hard enough to “win” in competition in the 2016 Toronto real estate market, but when the listing agent has his or her own offer, there’s always a chance that their offer magically trumps all the competing offers, and in hindsight, there was never anything you could have done.

It doesn’t always work like that, however.  Let me explain…

RealEstateListingAgent

The very first question I ask a listing agent, on the night of offers, is quite simply: “Do you have your own offer?”

If they do, then I temper my expectations.

If they don’t, then I ask, “Does anybody in your office have an offer?”

If somebody in their office has an offer, I ask who that agent is, and then I search around – on Google, on MLS, and through any medium, to see if that “person in their office” works with the listing agent, and if there’s a chance it’s just the listing agent’s own offer being presented by a colleague, in order to give the illusion of impartiality.

Like it or not, there’s nothing to stop a listing agent from pushing his or her offer to the top.

There are no rules that prohibit it.

There’s ethics.  And reputation.  And a conscience.

But if a listing agent has a buyer for his or her own listing, and there are eight competing offers, would it surprise you to see that the listing agent magically pulled the right number from the hat, and “won” against those other eight offers?

It happens all the time, but more often than not, it’s the same handful of agents and/or brokerages that are known throughout the real estate community.

Some of them have no shame about it.  Some of them flaunt it.  Some of them advertise it.  Go to their open house and they’ll openly explain, “The only shot you have of getting this property on offer night is by making an offer through me.”

Don’t worry if you’re an active buyer in this market.  As I said, it’s rare.  And personally, I know of two agents whose listings I simply do not show, because they always seem to magically double-end their own listings.

What’s the point of playing if the game is rigged?

For the most part, “multiple representation” is done on the up-and-up.

At my brokerage, any agent who has an offer on his or her own property will either present his/her offer first, before anybody else, or have a manager work with the buyer.

I lost an offer on my own listing once.

I had my colleague work with the buyer, and their offer was low.  A competing agent from another brokerage had the highest offer, and that was that.

You might ask me, “David, why wouldn’t you ‘cheat’ if there are no rules against it, and if you could have made twice the commission?”

Call me naive, but I have a very good standing in this business.  I have a great reputation among my 44,000 industry colleagues, and one deal isn’t worth putting all that in jeopardy.

I beat an agent earlier this year who had a listing on her own offer.  She worked the open house, found a buyer, and submitted an offer on her listing among a dozen others.  But my offer was the highest, and my buyers got the property.

I beat another agent last year in the same situation – a Homelife agent.  I honestly thought I had no chance in hell.  He said his offer was “presented first,” and I was cynical.  My offer and his offer were the “top two” out of six, and we were sent back to improve.  I thought it was all posturing for the illusion of fairness.  But in the end, I was told by the broker/manager, who was overseeing the process, that my offer was the highest, and my client got the property.

I was stunned.

It’s not that I was judging a book by its cover, it’s just that……wait……no, that’s exactly what it was…

I was just so certain that this agent, at this brokerage, in this part of the city wasn’t going to play fair, and boy was I ever wrong.  It was one of the most ethical, professional offer presentations I’ve ever witnessed.

But sometimes, you just know the agent is going to rig the game.

And that’s when you have to rise to the top, and figure out a way to win regardless…

Late last year, a condo townhouse was listed for sale in the west end, and it was the type that I had buyer clients waiting for.  And I don’t mean that in the cliché sense of the phrase, but rather we were specifically waiting for this very model, in this very complex, to hit the market, and we had been waiting for about two months.

We knew right away that we wanted it; that was never in doubt.  After seeing the unit, we decided to proceed with an offer the next morning, and that’s when the situation got interesting.

The unit was listed by a Realtor who I knew had a day-job.  He never called me before 5pm, and he was incredibly difficult to reach.  I would find out later on that he was, in fact, a part-time agent, as his new brokerage gave me his “work number” to track him down.

The morning after our viewing, I told him that we had an offer for him, and he said, “Well we’re going to review all the offers after the open house on Sunday.”

It was odd.  There was nothing in the listing about an “offer date” and I didn’t know he was “holding back” offers.

But perhaps neither did he?  Maybe he was flying by the seat of his pants?

The unit was listed on a Thursday, we saw it on Thursday night and had an offer for Friday morning, and now he was saying they would review offers on Sunday after the open house.

Then he went on to say, “We’re going to review all the offers, and then send the top three back for a second round of bidding.”

It was bizarre.  It was completely out of context, but it was also odd to just blurt that out to begin with.  This goes back to Wednesday’s blog post about how listing agents handle multiple offers, and when there’s a “second round.”  Here we had this joker, telling me he was going to send back the top three, when he had exactly zero offers to begin with.

In any event, the day of the open house, my clients signed the offer, got the deposit cheque from their bank, and I showed up at 6pm to present my offer.

There was one other registered offer on the property, and it belonged to a buyer that the listing agent himself was representing.

As we say in the business, he “pulled a buyer from the open house.”  Somebody came through the open house and decided to make an offer through the listing agent.

So it was me against him, and the cards were clearly stacked against me.

Some listing agents will “cheat” in multiple offers when they have their own offer, and some don’t.  But you can guarantee that a fledgling, part-time agent is going to do everything in his power to “double-end” the deal, and make twice the commission.  He has absolutely nothing to lose.

He told me he had presented his buyer’s offer to his seller first, but that didn’t matter.  I figured he would review my offer, and then simply add $1,000 to his buyer’s offer, and tell me I lost.

So I had only one move, and that was to win over the seller directly.

The only thing I could think of that would give me an edge was my deposit cheque, and I figured that with most banks closing by 3pm on Sunday, there’s a good chance the competing buyer, who walked into the open house, did not get a deposit cheque.

I sat down at the dining room table and watched the seller – a late-20’s, investment-banker type, drink scotch on the rocks, and play with his Scotty Cameron putter.

I presented my offer, and then presented my $50,000 certified cheque from TD Bank, and said, “Here’s the cheque, obviously we’re not doing a deal without this little beauty tonight.”

The seller furrowed his brow and I could see he was thinking.

That was my ticket.

I knew right then and there that I was going to beat the listing agent, even though he had his own offer.

The seller held the cheque and studied it like it was ancient hieroglyphics.  He was mulling over the proposition in his head, as I spoke.

“As you know, you need consideration for the deal,” I told him.  “These,” I said, as I held up the pages of the Agreement of Purchase & Sale, “Are simply pieces of paper.  They do form an agreement if signed by both buyer and seller, but without a cheque, they’re meaningless.  The buyer can walk away and your only remedy is a lawsuit, which, of course, you would never follow through with.”

The seller was nodding along as I spoke.

“No seller in this market, in competition, signs an offer without a deposit cheque in hand.”

Then I sealed the deal by stroking his ego, and giving him no room to back up, by saying, “But I’m sure you already know all of this.  Compared to your world (meaning finance) this little real estate game is like child’s play.  I mean, an average Joe might f*** this up, but a guy in your position isn’t going to leave this to chance.”

I don’t know whether my offer was higher than the listing agent’s offer, or whether it was lower.

But in the end, it didn’t matter.

The listing agent called me back to say “congrats” and that they were going to accept my offer.  As soon as I stepped back inside, he said, “I guess I should have brought a cheque to this party, huh?”

The seller clearly decided not to sell his property to somebody without a cheque, and the listing agent didn’t get a chance to “cheat” his offer to a higher price, if, of course, he was lower to begin with.

If that was a more experienced agent, he or she would have ensured the buyer brought a cheque.  Or maybe he or she would have had the salesmanship to convince the seller to accept the offer without a cheque.

Or maybe I would have still won.

How often does a listing agent have his or her own offer, in multiple offers?

Throughout the city, I’d speculate maybe 1% of the time.

If we’re talking specifically in the red-hot, single-family, freehold, residential market?  Maybe 5%, max.

It’s not common, but it does happen.

And as with the other topics we’ve covered this week, you simply have to be ready for anything in this market…

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24 Comments

  1. Marina

    at 8:54 am

    I don’t think I’d be comfortable making an offer through the listing agent. Yeah, maybe there is a higher chance of getting the property, but I’d also feel like they might try to railroad me. There is just something really uncomfortable about it.

    1. johnny chase

      at 10:20 am

      I’ve bought two homes – and both times used the listing agent. For me it was worth it… I knew what the house was worth and letting the agent double end it is the difference in winning. And yes one time was Bosely – but they brought in “the manager” to present it for impartiality. Weird.

  2. Joel

    at 10:50 am

    If I was selling I would want the agent to go last. They are working for me and that results in me getting the most money. While it might not be ‘fair’ if a selling agent can do something to get their client an extra $5000 I would want them to.

    1. Mike

      at 11:40 am

      How do you know that you got an extra $5,000? Outside agent comes in with an offer of $1,000,000 and Selling agent has a buyer willing to pay $1,005,000 you walk away thinking you pocketed a cool five grand but maybe given the chance the original buyer would have paid $1,010,000 had they been asked. Of course they wouldn’t have been asked because the Selling agent won’t make as much on that extra ten grand that you would have pocketed as they would on a double-ended commission. You’ve mistakenly believed that your agent values your one time business over personal profit.

      1. sandy bodnar

        at 9:10 am

        There is such a thing as asking agents to go back to improve their offers and a chance that no one returns. Have to be very careful that for a lousy $5,000 Buyers get fed up and don’t come back. I have seen it happen.Once I was in that situation & a smart alec young agent told me “I have it in the bag”,when we were sent away. 2 hours later, I returned with a slightly improved offer, he did not. You never know. Work for your client ethically and it always works out.

  3. Cool Koshur

    at 11:41 am

    There is conflict of interest here. Isn’t it the responsibility of listing agent to put the disclaimer that one of his clients is also the bidder?. You are right this game is rigged. I have seen sellers typically pay less commission if listing agent also gets the client which can work in favor of sellers sometime. Sellers may not necessarily get the highest offer, but they saving on commission.

    In perfect world, listing agent should put all offers on table including his own and let the seller make a call.

    1. Long Time Realtor

      at 10:24 am

      @ Cool Koshur.

      If the listing agent has an offer it must be disclosed to the other participants and if the listing agent is cutting commission, that must also be disclosed.

  4. Mike

    at 11:54 am

    What the real estate business needs to implement is a ‘Stalking Horse Auction’. Stalking Horse Auctions are common in bankruptcy proceedings because they offer stakeholders the greatest transparency and maximise value.

    It starts out with the “stalking horse” bid, this is one person who generally agrees to be the “stalking horse” to put forth the opening bid which will be revealed to all other participants. Other people who wanted to submit a bit would then see what the initial offer is going to be decide if they want to bid higher. Those bids are then disclosed to the ‘stalking horse’ who then decides if they wish to put forth a bid higher than those other bids. If the ‘stalking horse’ decides that they want to best the highest bid then they would walk away with the house, if not it goes to the highest bidder.

    The ‘stalking horse’ is selected by having everyone sending in their initial bid and the highest one takes it.

    There are advantages and disadvantages to both. Stalking horse sets the market and might bid too much in their initial offer. The other bidders get to see the ‘stalking horse’ offer and have an opportunity best that offer but could again be bested by the ‘stalking horse’ in the end.

    The reason these auctions would never work in Toronto real estate is that their fair, transparent and take the power away from the agents and put it in the hands of the seller.

    1. Geoff

      at 8:40 pm

      that assumes that price is the leading factor in the decision making process.

  5. Keen Observer

    at 11:56 am

    Judging from the comments here today, is it any wonder the vast majority of the public don’t sell or buy privately? It’s because the vast majority don’t have a friggin’ clue what they’re talking about when it comes real estate, or how the house buying process actually works. Yet everyone’s an expert.

  6. Paully

    at 3:08 pm

    Wouldn’t the simple solution be to open up all multiple offer situations into a full-on auction? If all of the bidders knew what was being offered and by whom, they could then decide to ante-up or walk away based on full information. It could lead to even higher prices! I would have to guess that many times a second or third highest bidder laments after-the-fact that, “if I knew it would only take and extra $5000 or $10000 to win it, I would have come up!” Open auction gives everyone the fairest chance to step up, and the listing agent has no perceived advantage or conflict.

    1. Keen Observer

      at 5:52 pm

      Short answer – No!

      The “Full-On Auction” must follow the agreed upon protocol:

      We must first have the “stalking horse auction” followed by the “Trojan Horse auction’ followed by the “Horseshit auction” culminating in the infamous “Bullshit Auction”

      Every expert knows that!!

      1. Paully

        at 8:33 pm

        I prefer to call them the more polite terms “cow and horse poo-poo,” but I get your drift!

  7. Kyle

    at 9:43 pm

    Knowing what the other bids are is only going to help so much. If every bidder goes in with the highest they’re willing to pay, the person willing to go the highest will win, regardless of whether they know what the other bids are or not.

    1. Paully

      at 11:30 pm

      As David pointed out above, the highest that a person is willing to pay is not a static figure. It depends. People get caught up in the hype and excitement and over-pay at auctions all the time.

      Don’t get me wrong, I would not seriously expect real estate auctions to start popping up here. If they did, I would expect some would yield higher final prices than the current system, and some would yield lower final prices, so the net would not change much.

      However, I do wish that there was a way to make the current system not only be more above-board, but also have the appearance of being so. If an agent double-ends a multiple-offer deal, even if they do everything 100% clean and ethical, there is still room for doubt from the other parties, and there is no way to prove that it was all done fair and square.

      1. Kyle

        at 9:21 am

        I disagree i think the highest amount someone is willing to pay is static, and is not dependent on what someone else is willing to pay. I think everyone should do a “mock auction” in their head before going into a multiple offer situation to figure out what they’re highest really is and stick with that number

        e.g. Would i pay 800K? Sure…. 805K? OK….810K? Probably….815K? OK,Probably not….816K? No thanks….817K? No f’ing way!

        I will grant that knowing the other offers allows someone to bid “just high enough” without having to reach their highest, but if another bidder is willing to go higher than the insider, that knowledge is moot.

  8. Donny

    at 8:42 am

    I think all offers should be presented at the same time in the same room in an open process. Its the fairest way and I’m sure the seller will always get a higher price since people can compete openly.

  9. Long Time Realtor

    at 8:54 am

    There is no perfect system, auctions included. Ever heard of shills?

    If someone is out to cheat you, you may very well get cheated. There are shysters and crooks in every line of work.

    As such, any search for perfection is futile. Having said that, you may be aware that real estate offices are now required to keep on file all offers on a property for one year.

  10. PassingBy

    at 9:56 pm

    When I heard people in carlifornia talking about bidding war over a house for sale, the buyers usually would pick up “cash offer” (I.e. No financing as condition), or even “no inspection” over highest bidding price.
    Don’t know if /how often a buyer would waive the condition on financing or/and inspection in a multiple offer bidding situation ?

  11. John Wright

    at 8:21 pm

    This type of game has been played on me twice in Niagara on the Lake by the same real estate agency. I find a house that, as it happens, has been on the market for quite awhile. I have my own agent, put in an offer (the asking price!) and then find out a mystery buyer has materialized and outbid me by a couple of thousand dollars. Not sure what I should do about this, since I feel locked out my a greedy real estate agency outbidding “outsiders” by a few bucks. Sorry state of affairs in NOTL.

  12. NYDeco

    at 6:50 pm

    This is driving me crazy. I just went through a real estate fiasco where I offered more money, ALL CASH, than the guy that won the house with financing, and somehow lost. I knew it was going to be very difficult to buy the house the moment I walked in with a local agent and recognized the listing agent. I knew from a previous house that she will not answer a single question or walk the house with you if you come with another agent. My agent suddenly got all nervous when he saw her and took me aside to whisper details of the house. I never got a feeling of confidence from my agent even though he knew this house was exactly what I had been looking for and I was ready to buy. The day of the closed bids, the listing agent revealed the house was missing permits for the central AC. For whatever reason, I lost focus and lowered my offer. I lost the house that day, but in reality, I lost it the moment I walked in with my agent. I could tell I was never going to get that house. She stood to lose half the commission and she just wasn’t going to do that. My agent seemed sacred of her which I still don’t get. I almost feel like he might have taken a kickback from her to keep me away. As I said, this is driving me crazy.

  13. A

    at 4:09 pm

    If a Listing agent has a buyer and it’s a competing offer situation the Broker of Record needs to present all offers to the Seller and the listing agent stays out of the process!! Very simple and this should be a RECO policy
    Lots of shenanigans go on out there. I’m a realtor and would insist Broker of Record steps in! It’s interesting when you as a realtor insist on Broker of Record stepping in the Listing Agents mystery Buyer disappears!

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