In Is Your Agent Ethical? Part I I explained the unethical nature of kickbacks, specifically from home warranties. Today I want to talk about a common and possibly unethical practice in the actual selling or purchasing of a property.
Like the home warranty issue, another “gray” area is the Coming Soon listing. It’s essentially a pocket listing that is not available for showings, yet the listing is published to the MLS and some of its syndicated partners (e.g., Zillow). An agent is allowed to put a sign on the property and advertise how they normally would as long as the house is not shown. Sometimes this generates sight-unseen offers where the property is pending before the listing goes “active.” This may aggravate buyers who feel like they didn’t get a chance, and while a sight-unseen offer may sound nice to a seller, consider the alternative: as a seller who would likely receive multiple offers, wouldn’t you feel more comfortable entering into a contract with buyers who have actually been inside your home?
That being said, Coming Soon listings work to build-up as many interested parties as possible prior to the actual listing date. This can be an important feature if, for example, the property will be listed over a holiday weekend when home-buyers may make other plans. There can be a time and place to market a home as Coming Soon, and even though they have become the norm (at least in the Hidden Springs market), Coming Soon listings still give me an “icky” feeling.
Beware the Boilerplate
The main problem with Coming Soon listings is that they tend to benefit the real estate agent as it increases her chance of snagging an unrepresented buyer (usually from Zillow) and potentially doubling her commission. Here’s how it works: when sellers sign a listing agreement, they agree to pay their agent a total percentage, let’s say 6% for example. The boilerplate in the listing agreement states that the 6% is split equally between two agents involved in the transaction, and if there is not a 2nd agent, the listing agent takes the whole pot by default. That is quite an incentive for a real estate agent to find a buyer who is not working with an agent!
Where things can go wrong…
When a seller reviews the listing agreement, they will see a provision that specifies what happens when their agent “acquires” a buyer themselves (e.g., when a buyer is unrepresented), and the seller will agree or disagree to their agent being a dual agent. But there’s more to it than dual agency. There is a sneaky way to have one agent working a transaction where she is not considered “dual,” and this is when buyers essentially represent themselves as your agent’s “customer.” If you think about it though, the buyers are still working directly with the seller’s agent. Technically the agent is still loyal only to the seller, but with twice the commission on the line, the agent is extremely motivated to make the deal work no matter what.
Needless to say, there are potential problems when a buyer’s agent is not involved and the seller’s agent works both sides. When an agent is dealing with both parties, whether she is considered a dual agent or not, it is very difficult to stay impartial. Even a highly ethical agent caught in the middle of a two-sided transaction might let something accidentally slip during a casual phone call. Agents are in the business of being relational, solving problems, and having answers, so we might say a yes when we should say no. We aren’t really comfortable telling people, “I don’t know,” and it’s certainly not in our vocabulary to say something like, “I can neither confirm nor deny.” While it’s not impossible, it is very difficult for an agent to ethically deal with two opposing parties.
The Dual Agency Work-Around
A note on dual agency: The National Association of REALTORS® found a way around its ethical complexity by mandating disclosure. This means an agent is allowed to act for both buyer and seller as long as both buyer and seller agree to it in writing. But this doesn’t really change anything, right? This makes dual agency legal, but not necessarily ethical. And does a seller know their rights when their agent presents them with an offer by an unrepresented buyer? Do they remember they already agreed or disagreed to the dual agency clause? Or that there is the sneaky, customer/client arrangement of being a two-sided agent without being a dual agent? Will a seller feel pressured into allowing their agent to work both sides with a great offer on the table?
What Can You Do?
So what is a seller to do if they receive an offer from an unrepresented buyer? Here’s the nice thing about real estate: aside from Fair Housing and license laws, everything is negotiable. Speak with your agent about your concerns. If you previously agreed to dual agency, you could ask for a listing amendment stating that you do not agree. If your agent says that she can still be your agent and the buyers can represent themselves, there is nothing wrong with insisting the buyers use their own agent if that makes you more comfortable. In fact, your agent can even refer the unrepresented buyer to one of her associates for a referral fee (a kickback that must be disclosed to the buyer). If your agent becomes argumentative or your feel like you were led to agree to something you didn’t understand, call her broker.
The REALTOR® Code of Ethics dictates that real estate agents must always act in their clients’ best interests, so the question arises: while not unethical in itself, do Comings Soon listings encourage agents to put their interests ahead of their clients? And even more so, is there really a need for Coming Soon listings? Some MLS’s prohibit them. Of course, the Boise-area MLS (Intermountain MLS) does not.
In conclusion, you may want to think twice about asking your agent to list your property as Coming Soon, or avoid hiring an agent who encourages it. There is also nothing wrong with asking the agent how many times they have been the only agent in a transaction. Some REALTORS® do Coming Soon’s serially and won’t be able to give you a number; beware!
If you’re having fun reading about unethical practices in real estate, you’ll probably love my blog on open houses!