Toronto has a problem. For the past several months, or longer, there has been a shortage of freehold listings in the first-time and move-up markets. You will get different answers depending on who you talk to, but the main culprits include; low-interest rates, the Land Transfer Tax, tighter government regulations and higher consumer debt. The real answer is probably E, all of the above. Unfortunately for buyers the old saying rules…Desperate times call for desperate measures.
Recently one of our agents sold a condo for a young couple anxious to get into the housing market. Their goal was simple; parley their extraordinary talent for decorating and renovating. They did it to their condo and now wanted to do it with a house. Start small and slowly increase their net worth the old-fashioned way…buy a home with good bones, renovate and sell, then buy something bigger and do it all over again. It has been done successfully by many talented individuals over the years. But here is the problem. The couple in question have been watching the market for some time. They have heard the countless stories of wild bidding wars and are now convinced that the only way to win is by working with the listing agent. Their thought is that either they will get it at a lower price or at the very least get the inside advantage at offer night. The example given above should highlight a number of key concerns for both buyers and agents.
First lets look at the process from the buyer’s point of view. You go into an open house and see the home of your dreams. Well, lets clarify… the home of a lot of people’s dreams. So you ask the listing agent to represent you in purchasing the home. Now, aside from the obvious pitfall of asking them to represent both sides of a negotiation, you are signing a buyer representation agreement with the selling agent. It is important to understand what this means, otherwise you could find yourself in a situation where you owe two commissions. More to point however is that jumping from agent to agent will do you more harm than good. The simple fact is that you are hiring an agent to walk you through the process, negotiate on your behalf and in your best interests, keep confidential facts about your motivation to themselves, review competitive properties and help you determine an offering price, arrange and oversee things like home inspections and appraisal visits, and hook you up with contractors or movers and finally, provide a great deal of follow-up service. All these things are tough to do when your agent is also representing the seller especially when there are many people competing for the same home.
There are some basic mechanics about offer night that most buyers don’t know about either. First, if the selling agent is representing you, he must tell other buyer’s agents. He must also disclose if he is lowering commission. The point of this disclosure is to level the playing field for all buyers. That being said, some companies take great pains to ensure a fair and equitable process, so contracting the selling agent just doesn’t make sense if your motivation is to save money.
On the surface, contacting a listing agent seems like a no-brainer, but the reality is that a trusting relationship is the key to a successful home purchase in our competitive market.
Happy Wednesday. Two interesting comments came out of today’s Mastermind centering around the conditionally sold status of properties, both worth mentioning here. In the first discussion, an agent had a client who was interested in a home that was recently sold conditionally on financing and a home inspection. The agent said that he had tried to book an appointment on the house despite its status and the listing agent had refused the request. He felt that the conditions would be met and the deal would firm up therefore showing the house would just be a waste of time. As it turns out, the deal firmed up BUT it should be noted that not every deal firms up. In fact, there was a time when deals, both conditional AND firm, fell apart all the time. It got me thinking about those unsteady deals… You know, the ones where the buyer asks for a couple of extensions on the conditions. Something doesn’t sit well. The buyer is simply buying time. What can you do? As an agent the job is simple. Pick up the phone and rustle up another offer. But wait, you can’t sell a house to two people. No problem. The second offer is conditional on the first deal falling apart. It’s worth the effort and as we move further ahead in our sales cycle, and see more conditional sales, you need to be prepared to entertain a different kind of “multiple offer”.
Here’s another one. An agent finds herself in multiple offers on a loft condo. Unfortunately the listing agent’s offer is accepted (big surprise). Ok, I will suspend judgement on how that happened, but what was surprising about this scenario is that seven days passed before the conditional deal was reported on TREB. Just so we are clear, TREB rules are pretty clear on this, conditional sales have to be reported (posted) within 48 hours. Yes, sometimes it takes a bit longer, like you’re waiting on a cheque, but 7 days? Checking with TREB’s DIS or Data Integrity Service, the fine, if convicted is a couple of hundred dollars. Let’s back up a second….I’ve got a lot listing, the phone is ringing off the hook, it’s sold fast but I can land a whole bunch more leads if I drag my feet on reporting it sold. I can hear the phone call now….”oh hi, yes that’s our listing. Well actually we just received an offer on that but as it turns out there is another one in building that we will be getting.” I only wish getting leads like that cost me $100.
It seems like this is just another trick of the trade we need to watch out for. FYI, I’ve got TREB on speed dial.
Happy wednesday. Two interesting conversations that arose from this week’s Mastermind group revolve around the same topic. It must be something in the air. In one situation, an agent talked to a long time friend about his future house hunt. The friend was quiet blunt in his belief that he will only buy through a listing agent. My agent came to me looking for some good bullet points so he could formulate the perfect rebuttal.
In the second situation one of my agents got a last minute call from someone interested in her listing. He was interested in putting in an offer but only as a customer. The customer then insisted on getting information on the owner’s reasons for selling, wanted all kinds of assurances from the seller on work done, wanted to know the seller’s story, and a host of other pertinent information. He also wanted to get our agent to reduce her commission. As it turned out, there were two other offers and our agent made it very clear to the other agents that she had an offer and that the buyer was only a customer and that there was no commission cutting.
In the continuing hot Toronto market, buyers are looking for two things….an inside advantage to win in multiple offers AND to save a bit of money along the way. So what do you say to someone who thinks dealing with the listing agent is a better way to go? For starters, be careful what you wish for.
We are seeing buyers contact listing agents more often than ever before so this is clearly the time to ask the question. The reality is that no matter how you slice it and dice it, it is very tough to represent the interests of two competing entities especially when the forces of multiple offers add to the equation. There are several ways around it but the point of this post is to simply remind us all of our fiduciary duties along the way. We need to take extra precaussions and take more time. In the end, you want everyone to feel like they were treated fairly.
Sure there will always be agents who will use the “home field advantage” to double their commission. Unless RECO makes some tough decisions on this matter, it is going to keep happening and ethical agents will continue to draw the short straws. We can only hope that those who get caught face stiff penalties. So, for now, let’s focus in on the topic of representation and what that exactly means.
We talk about this basket of ‘fiduciary duties’ that we owe to a client, but what does it really mean? In plain language it means that we owe our clients honest accounting, competence, confidentiality, good faith and full disclosure, loyalty and obedience. I think we can all find examples of how our duty plays out with our clients on a daily basis. A customer, on the other hand, is not owed the same duties however he must be dealt with fairly, honestly and with integrity. I would be the first to argue that these terms can have a broad range of meaning. Common sense should dictate here so when in doubt simply imagine standing in front of a judge answering questions about what you said and to whom.