April 14, 2009
Dual-Agent Roles Cloud Home Sales
Question: If a selling agent neglects to inform a homeowner that a higher bid has been made and chooses instead to sell the house to a person he’s also representing as a buyer’s agent, what rights do the seller — and the higher bidder — have?
Answer: Generally speaking, real estate experts caution buyers and sellers against using the same real-estate agent because of the conflicts it can create. Negotiating a final sales contract involves lots of give and take on both sides, and if your agent is also representing the other party in the transaction, that immediately puts you at a disadvantage. How will you know if the agent is doing more to serve your interests — or the interests of the other party?
Despite the potential for trouble, it’s still common for agents to represent both the buyer and the seller, especially since doing so greatly increases the agent’s commission. In Ontario, such arrangements are legal, though these so-called “dual agents” have to get a “multiple representation” consent of the buyers and sellers first.
The law gets trickier when two agents within the same real-estate company represent both sides of a transaction. In theory, that situation can lead to big conflicts if the two agents, who probably work in close proximity to one another, share information. Such arrangements are allowed without consent of the buyers and sellers, although the agents involved are not supposed to share information.
Although real estate agents have a fiduciary duty to their clients to give them the best possible service, if they’re acting within a sanctioned dual-agency arrangement, the agent is fulfilling obligations that you essentially agreed to in advance.
Obviously, it’s often wise to avoid a dual agency relationship from the get-go. No matter how you handle your sale, be sure to keep all the correspondence between you and your agent, and don’t be afraid to snoop around to learn more about other possible bids — and more about your agent’s reputation. In many cases, sellers don’t even know they’ve been taken advantage of, so it pays to know a lot about your local market, including the recent sales prices of nearby homes, before you get far along in the home-sale process. Doing some research on your agent and on recent nearby transactions can make you a more informed seller — and help keep the agent honest.
February 16, 2008
When a “buyer’s agent” really isn’t
How do you know when your “buyer’s agent” isn’t really?
A couple in California, Marty Ummel and her husband Vernon, recently purchased a home in San Diego and are now suing their buyer’s agent. Marty believes they paid about $175,000 over the actual market value of their new home. So, Marty and Vernon are suing their Re/Max agent for leading them to overpay for their home.
He reportedly: didn’t bother to tell them about other homes in the neighborhood that were for sale for a lower price, didn’t let them see the appraisal, and even used the relationship to be their loan officer — and make another commission.
Not all real estate agents will have the buyer’s best interest at heart. Buyers should ask four important questions before entering into a relationship with a real estate agent:
1. Will they discuss and evaluate the properties you view together and compare each property shown with your ideal property?
2. Before preparing an offer to purchase, will the real estate agent inform you about any defects or problems he or she has observed or in any way discovered?
3. Before preparing an offer on your behalf, will the real estate agent prepare a comparative market analysis, including explanations and documentation, to determine the market value of your potential purchase?
4. Finally, ask the agent to sign a representation agreement that sets out explicitly that they are working for you exclusively.
Under the common law of agency, a buyer’s agent should always provide and discuss relevant valuation information with a buyer client. This certainly includes comparable sales data. However, in Ontario, many agents will ask you sign a multiple representation agreement that limits the liability of the real estate brokerage. Buyers need to understand who they are hiring and under what terms.
February 13, 2008
Buyers sue agent over home price
Marty Ummel feels she paid too much for the house she bought in Carlsbad, California. So do millions of other people in the United States who bought at the peak of the housing boom. What makes Ms. Ummel different is that she is suing her agent, saying it was all his fault.
Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.
Real estate lawyers and brokers say the case, which goes to trial in North County Superior Court in Califoirnia January 28th, is likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.
”When your house appreciates $100,000 in the first six months, you’re not quite as concerned that maybe the valuation was $25,000 or $50,000 off,” said Clifford Horner of the law firm Horner & Singer. “But when your house goes down, you ask: ‘Who might have led me astray here?’ ”
Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.
The long boom that began in the late 1990s put an end to that one-sided world. As prices spiked, buyer’s agents and brokers became popular as sounding boards, advisers and negotiators. The National Association of Realtors estimates they are now involved in two-thirds of all residential purchases.
That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests. The Ummel case poses the question: In a relationship built on trust, where promises are rarely written down and where — as in this case – - there is no signed contract, what are the exact obligations of these representatives in guiding their clients through a sizzling market?
”Agents have a lot of fiduciary duties, but they don’t make money unless they close the sale,” said Joel Ruben, a real estate lawyer in Manhattan Beach, Calif. “In an inflated market, there are built-in temptations to cut corners.”
The defendant in the Ummel case is Mike Little, a veteran agent with ReMax Associates. He will argue that Marty Ummel, who brought the case with her husband, Vernon, is trying to shift the blame for the couple’s own failures of research and due diligence.
”They simply didn’t do what is expected of a knowledgeable, sophisticated buyer, and are now looking for someone other than themselves to take responsibility,” Roger Holtsclaw, an agent who was hired by Mr. Little as an expert witness, said in a court deposition.
Ms. Ummel is 60; Mr. Ummel, 71. With retirement on the horizon, they decided in late 2004 to move from the San Francisco Bay area to San Diego, where they would be near their grown children. Since they were not making the move for job reasons, they decided to take their time and focus on finding a house that was a good value. In a boom, that is no simple task for buyer or agent.
It is clear the Ummels did not rush into a decision: They dismissed one agent and canceled deals on two houses before Mr. Little found them a prospect on a cul-de-sac in a five-year-old luxury development. A deal was struck with the owner, herself a real estate agent, for $1.2 million.
Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.
A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.
Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.
The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal. Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”
”And you believed that?” asked David Bright, the lawyer who represents both Mr. Little and ReMax Associates, which was also named in the suit. “Yes, we trusted Mike Little,” Ms. Ummel replied.
Mr. Horner, the lawyer, said valuation is a tricky area for brokers. “Brokers aren’t appraisers,” said Mr. Horner, one of the writers of a guide to suing brokers. “They have no obligation to opine about value. But once they do, it becomes a gray area whether it’s puffery or a misstatement of a known fact.”
Most people who made a bad real estate deal might wince and move on, but people who know Ms. Ummel describe her as unusually determined. She spent a year picketing ReMax offices on weekends.
Mr. Ummel, an administrator at Dominican University, gave her his permission to pursue the case, on one condition: “Don’t tell me how much the legal fees are.” So far, the bills come to $75,000, more than Ms. Ummel’s annual salary as a fund-raiser at California State University in San Marcos.
That persistence has put the Ummels at the forefront of a developing legal question. When buyers have sued their agents in the past, the cases focused on problems with the property itself, often alleging failure by the broker to disclose a known hazard or maintenance issue. After reviewing litigation records for the last five years, the National Association of Realtors could find no cases that revolved solely around the question of valuation.
Ms. Ummel’s original suit included the appraiser, who was accused of skewing his report to make the Ummel’s house seem worth the purchase price, and the mortgage broker. Modest settlements have been reached with both.
In a brief phone interview, Mr. Little called the case “ridiculous,” adding: “The lady’s a nut job. I didn’t do anything wrong.” Mr. Little said that contrary to Ms. Ummel’s claims, the suit was motivated mainly by the declining market. “When people see their home values and assets declining, they always feel there’s someone to blame,” he said. “This is a dangerous time for all of us in the industry.”
The agent declined several requests to expand on his remarks. His lawyer declined to be interviewed. So did Geoff Mountain, a co-owner of ReMax Associates, which owns the office that the Ummels were dealing with.
Both sides have hired appraisers who have combed the surrounding development. Mr. Little’s appraiser concluded the four-bedroom, 3.5-bath house was worth $1,150,000 to $1.2 million in the summer of 2005. The Ummels’ appraiser said it was worth $1,050,000.
The outlines of Mr. Little’s defense can be seen in his lawyer’s lengthy deposition of the Ummels. Even in a relatively new development, Mr. Bright said, no two houses and no two deals can be seen as identical. For instance, a pool does not necessarily add value because “some buyers like it, some don’t.”
Mr. Little never showed the Ummels the house down the street because the backyard could be viewed from other houses, the lawyer said, and the couple had said they valued their privacy. Ms. Ummel disputes saying this.
The agent who left the flier that led to the case, Margaret Hokkanen, is sympathetic to Mr. Little. “People are responsible for their own decisions,” said Ms. Hokkanen, who has been subpoenaed as a defense witness. Her husband and partner, John Hokkanen, is more ambivalent.
”We have seen so much misrepresentation over the last five years,” he said. “So I appreciate where these buyers might be coming from: ‘I’m a lowly consumer, you’re certified by the state of California, you didn’t do X, you didn’t do Y, and I got hurt.’ ”
The Ummels may be on the leading edge of the law, but they are unlikely to be alone for long. With the market falling, many homeowners owe more on their mortgages than their houses are worth. And many of those deals involved brokers who are required to carry professional liability insurance, presenting a tempting target for angry buyers.
”If you put someone into a property at the top of the market, you look really bad if it goes down,” said K. P. Dean Harper, a real estate lawyer in Walnut Creek, Calif. “There are a lot of letters going out from lawyers to real estate agents saying, ‘My client would never have purchased if you had properly evaluated the market conditions and the value of the property.’ “
February 10, 2008
Who’s the boss?
Brace yourself for a shock. “Your real estate agent may not always have your best interests at heart.”
Picking the right real estate agent is one of those critical issues that can cost or save you thousands of dollars. There are very specific questions you should be asking to ensure that you get the best representation for your needs. Many agents would prefer that you don’t ask these questions, because the knowledge you’ll gain from their honest answers will give you a very good idea about outcomes you can expect from using them. Let’s face it — in real estate, as in life — not all things are quite like they seem.
Hiring a real estate agent is just like any other hiring process – with you as the boss. It’s critical that you make the right decision about who will handle what is probably the single largest financial investment you will ever make.
Do you really need an agent? Over 96% of buters use an agent. Why? An agent can help you access the most Toronto homes for sale using the Multiple Listing Services (MLS®) and other sources of information such as previous sales and property assessments that are only available to Realtors. Your real estate agent will also guide and advise you through the entire home-buying process.
However, not all brokerages or all agents are the same. Your choice of agent can greatly influence:
- the number of properties you have to choose from;
- the quality of information and guidance you receive;
- the price you pay;
- the quality of the property you buy;
- the condition of the property you buy, and
- the resale value of your home in the future.
The types of real estate agents:
Exclusive Buyer Agent – [100% for the Buyers]
Only a very few real estate brokers, are true, exclusive buyer’s agencies. They work exclusively for buyers and never work for sellers. Why should this matter to you?
They help you explore more listings because, having none of their “own” to favor, they exhaustively research all properties listed with all other companies without bias. They research and skillfully negotiate 100% on your side so that you get the best deal possible.
And, they give you honest advice that you can trust, because you know they are 100% on your side, 0% on the seller’s side. But sadly, very few active agents qualify as true, Exclusive Buyer Agents.
Seller’s Agency – [0% for Buyers]
This used to be the norm, where the entire brokerage firm worked only for sellers. They could claim they fought to get “top dollar” for their seller clients because they had no agency obligations to buyers.
But this type of strict, 100% seller agency is fading. It still exists whenever you call an agent directly who is advertising a property (the “listing” agent). All agents, when they act as “listing” agent, still work 100% for the sellers interests, and many consumer advisors counsel you to never contact a listing agent directly.
Except when acting as a listing agent, most agents and brokerage companies have gone to a “mixed” agency format, described below. “Mixed Up” agency is a more apt description!
Traditional (Mixed) Agency – [50/50 "deal makers"]
Over the past few years most realty firms have gone to a “deal maker” mode. The firm and its agents claim to work as both seller’s and buyers agents.
The problem is, however, that many times the firm and its agents will work as both buyer and seller agent at the same time! This creates a “dual agency” where the firm and its agents have an obvious conflict of interest.
Who is protected when a conflict arises? The sellers? The buyers? Or the agents? Which client do they negotiate for, which against? What happens if there is a problem and you, as the buyer, want to cancel the transaction but the buyer wants to hold you to it?
Does “your” dual agent assist you or the seller? Generally you, as buyer, assume the greatest risk in a “dual agency” scenario. After all the seller is paying the commission fee. The odds of conflicts become greater. And brokerage firms earn the highest commissions when they represent both parties and agents have an incentive for selling “their own” listings.
So, ‘multiple representation’ or dual agency gives minimal protection to the buyer, yet agents and brokerages are drawn toward it to maximize their compensation.
Many consumer groups advise using a Exclusive Buyers’ Agent — “It only makes sense to have 100% loyalty and representation when buying a home.
February 6, 2008
The real buyer’s agent
There are literally thousands of real estate agents in the Toronto area. As a homebuyer, you have a great choice. But only an Exclusive Buyers Agent works for you, the buyer, at all times.
We are exclusive buyer’s agents:
We don’t list properties.
We don’t sell properties.
Instead, we help you find and buy your ideal home, on your terms.
We always put your interests first and negotiate in your favor for a lower price and a better deal.
Who’s representing your best interests? Who’s working for you? The best way to save money and protect your interests is to retain an experienced, exclusive buyer’s agent who will work solely for you.
There are many different types of agents, but only exclusive buyer’s agents are full-time advocates for buyers.
Exclusive Buyer’s Agents
Exclusive buyer’s agents never list properties and never represent sellers. By retaining an exclusive buyer’s agent, you can count on 100% representation, loyalty, and confidentiality 100% of the time. Not to mention, exclusive buyer’s agents never convert to a dual agent.
Listing Agents
Listing agents represent sellers. They have a signed listing agreement with the seller to get them the highest price and best terms for their property. They regularly list properties, advertise them, and hold open houses. And although listing agents may also serve a buyer, the buyer is a customer—not a client. Therefore, buyers cannot expect a listing agent to promote their best interests or keep their information confidential. Most importantly, a listing agent’s sole objective is to sell you a house.
Dual Agents
Dual agents represent both buyers and sellers. This situation creates a conflict of interest, because the agency is representing opposing sides of the transaction. Neither the buyer nor the seller can count on loyalty or confidentiality. So who’s benefiting? The agency, of course. They’re getting paid double commission!
Buyer’s Agents
Everyone wants to call themselves a buyer’s agent. Yet most so-called buyer’s agents also list properties and spend most of their time selling homes, not representing buyers. They practice dual agency and are NOT exclusive buyer’s agents. If a buyer wants to see a home listed by their brokerage company, the buyer’s agent becomes a dual agent representing both the buyer and the seller. How can someone fully represent two opposing parties at the same time?
As a Buyer which would you prefer?
A listing agent who only represents the seller?
A dual agent representing both the seller and the buyer at the same time?
A buyer’s agent who may eventually become a dual agent at some point during the process?
An exclusive buyer’s agent who only represents you, the homebuyer?
Wouldn’t you rather get full client-level service at all times? Don’t risk overpaying for a home! Get an advocate on your side of the negotiating table.
An exclusive buyer’s agent will always be on your side.