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Posts tagged ‘multiple offers’

25
Jun

Did Real Estate Get It Wrong On Who Pays The Commission?

rewrite the rulesWhen I think of some of the shenanigans that go on these days between agents and clients I can’t help wondering if our industry got it wrong. Did we made a fundamental mistake when everyone agreed that the seller should pay the listing and buying agent’s commission? If we could go back in time and re-write the rules, would we be subjected to stories we hear about today?

Think about some of the issues that we deal with on a daily basis. Agents are pitted against each other to offer comparable services for lower commissions despite the fact that they are the ones who lay out the most capital and accept the biggest risks. Buyers are looking to save on their home purchase so they contact the listing agent in hopes of gaining the inside edge. Multiple offers are rampant ( a condition of the market ). One may even argue that new business models (offering rebates or mere posting services) don’t solve the fundamental problem that exists…. The agency relationship.

One could argue that true agency, where buyers and sellers pay their respective agents for services rendered, doesn’t exist when only one person pays the bills. Did our industry get it wrong? It’s a question that comes up every time I hear about a buyer agent asking a listing agent to reduce their commission to make a deal happen or when a listing agent’s own offer miraculously wins in a multiple offer.

In a true agency relationship the seller would contract a listing agent to market a home including all the basket of goods and services that go with it, as well as ensure that the transaction went smoothly. The selling agent would have a unique understanding of the neighbourhood because he or she would be hired because of their local knowledge not because they were offering reduced commissions for doing two sides of a transaction. The seller and the agent would be free to negotiate a fee and the law would stipulate that the listing agent could not represent a buyer thus eliminating chances for error or corruption.

In a true agency relationship the buyer would contract a buyer agent to find a home, negotiate a sale price, and work with the listing agent to ensure a smooth transaction. The buyer’s agent would be duty bound to provide expert and professional service and work in the best interests of the buyer and be free to negotiate an appropriate compensation.

A few things would need to change. For instance, dual agency, also known as multiple representation would no longer exist. We would not have customers anymore, just well-informed clients. Controversy would no longer exist on how commissions are paid and what incentives are being offered. Flat fees might be more widely adopted and we might see the development of two types of real estate brokerages, those that list homes and those that act for buyers exclusively. Naturally there is the problem of compensating the buyer agent but perhaps bank legislation would have to allow a buyer’s commission to be rolled into the mortgage or sale price.

I’m not suggesting we need to throw out the current system. It’s not perfect but, for the most part, it works.

mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.

4
Jun

Negotiating With The Lowest Offer in a Multiple Offer Scenario

negotiating with the lowest offerImagine this scenario. You are the listing agent holding court in a multiple offer situation. You have five offers on your house which you listed for $699,000. Your expectation was that with any luck you might reach $750,000. Agent Steve’s offer is for $710k, Agent Robert’s offer is for $740k, Agent Susan shows up with $745k, Agent Betty’s clients are $760 and Agent Matthew smokes everyone by bringing in $780k.
You have a couple of choices here assuming all offers are clean (no conditions) and have roughly the same closing date. Choice one, accept the highest offer and break out the bubbly, or roll the dice and send them all back in hopes that you can get even more. Sure you might lose one or two but given the current market conditions in Toronto there is a pretty safe bet that you can squeeze a few more dollars for the sellers.
So in this scenario you send them all back. The conversation goes a bit like this….thanks for all the offers. Frankly they are all pretty close so the Sellers have requested that we give you an opportunity to improve your offers. In this example all the buyers improve their offers. Agent Steve improves to $725k, Robert gets to $750k, Susan’s clients are tapped out and only improve to $752k, Betty brings back $760k and Matthew’s clients have lost too many homes to go home empty-handed so they lay it all on the table with $802,500. So pretty simple decision really…..or is it?
As the listing agent you are in possession of all the offers. There is plenty of time (lets assume irrevocable time is 11:59pm on all offers) so you decide to try something. You call in Agent Steve and have a conversation that goes like this….”Hi Steve great job on the offer but it’s not the highest. However my seller really likes your buyer and wants to make you an offer. We are going to sign it back to you for $820k. I know your clients are waiting outside so I will give you 10 minutes to decide”. If the clients balk you move on to Robert. If Robert’s clients balk you move on to Susan, then finally Betty. If Betty’s client agrees, then they have bought a house. If not, then you still have Matthew’s very good offer.
In this example I have kept it pretty simple and haven’t complicated it with deposit amounts or short irrevocable times which might skew the results but the question remains, is this way of handling offer night appropriately? Do you find any moral dilemma in handling things this way? Ultimately you are getting the most for your client so you are doing a great job, but are you just playing with the other agents to the transaction? It seems that this is a delicate chess game where a lot could go wrong so ask yourself if the risk out does the reward?
We had a big discussion at our company today and couldn’t really pinpoint anything wrong although we did wonder if the listing agent had an ethical duty to let all the other agents know they were in a sign back. sleazy seemed to be bantered around but not illegal. After all is it any different when you have only one offer but kindly ask the Buyer Agent to improve their offer?
I’m sure there will be a lot of discussion to follow on this topic and will certainly add additional comments as they come.

mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and President-Elect for the Toronto Real Estate Board. The opinions expressed here do not reflect the opinions of TREB or Bosley RE.

21
May

Offer Night…Bring Multiple Copies and De-register If You Change Your Mind.

multiple copiesMastermind at my office is always a lot of fun and as the office expands and matures the topics tend to get a bit more technical in nature. That creates a challenge for some of the newer agents whose eyes start to glaze over. So every once in a while I have to reign in the conversation and steer it back to day-to-day operational questions. Like what happens on multiple offer night.
One of the policies that we have at Bosley Real Estate is that if an agent gets an offer on his own property AND is in multiple offers, one of the managers (in this case, me) steps in to represent the Seller. In an era where offers can be signed back multiple times, this is the third best way to handle a situation like this. The first of course, is to categorically refuse to represent a buyer, either as a client or customer, in the transaction. The second is to clearly state that you operate on the “one shot rule” so bring your best offer and be prepared to lose by one dollar. Our system works pretty well. The listing agent presents first then leaves the premises and has no way to know what the other offers are. If the seller wants to send all the offers back the listing agent has no advantage over any other agent thus guaranteeing that everyone remains on an equal playing field. Everyone is treated fairly.
Last week I was called in to manage an offer situation and the result of that process provided a great topic for the following day’s mastermind session.
So let me set the stage. The sellers come to my office and settle in to our large boardroom. We wait while the other agents arrive. There are supposed to be six in total including the listing agent and another agent from my office plus four agents from other competitor offices. All six have registered their offers through the front desk.
So we begin. The listing agent presents first. She brings in four copies of her offer. One for each of the two sellers, one for me and one for herself to refer to. The next Bosley agent presents, with three signed copies. The next agent presents with one copy of his offer which I review with the two sellers straining awkwardly to follow along. The next agent also presents with one copy of the offer but as soon as I turn the page I realize that the buyers have not signed the signature page. The next agent also only has one copy but is missing our schedule A. The final agent doesn’t show up at all or bother to call and rescind his offer.
So with six registered offers only four bring the required and properly executed paperwork, two bring enough copies to go around, one misses essential signatures, one misses the required schedule and one doesn’t even show up. Not good.
Despite the efforts, or perhaps because of the efforts of all the agents, the house sells well over the asking price, but it highlights two critical aspects of the offer presentation. First, it is essential to have enough copies to go around. I think that we often miss this critical step in the heat of the moment. There will be a time in the not-so-distant future when we will be using our tablets to conduct the sale but for now agents should provide multiple copies if only to be polite to all the parties in the room. Second, while you have every right to revoke your offer before the presentation, it is important to follow the necessary protocols. An agent must, at the very least, inform the listing brokerage that they will not be presenting. Sometimes it’s the little things that go along way to a successful transaction.

mark mclean is the Broker/Manager at the Bosley Real Estate Queen St W office and Director at Large for the Toronto Real Estate Board and President-Elect in 2014-15.

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