It’s time to get serious about consumer protection

By now most people have watched or heard about the CBC Marketplace episode exposing unethical behaviour in the real estate industry. CBC reporters posed 
undercover as real estate buyers and with a hidden video camera exposed listing agents discussing rigging the transaction by secretly revealing the highest competing bid. The reporter (as a potential client) got an unfair advantage in that they knew exactly how much they had to pay to buy the property. The agent’s motivation was to earn a higher commission – up to double or more! – by representing both sides of the deal. This behavior goes completely against the rules that govern our industry.

RECO's Deputy Registrar and the Minister of Government and Consumer Services, who were both interviewed by CBC, were surprised when shown the videos exposing this unethical behaviour. Consumers and agents, though, have known for a long time that this behaviour goes on. Many even know who the culprits are but, unfortunately, it is hard to prove without a paper trail. 

One agent wrote on her blog"Our team has an internal (and top-secret) list of agents who we know or highly suspect of rigging bidding wars, and we’ll do our best to avoid making offers on their listings because we know their own buyer will almost always win the bidding war. And yes, there are top agents on that list."

This happens. It should concern everyone, and it has to stop. Not every agent is guilty though, so many feel the CBC episode paints us all with the same brush and - that’s not fair. There are tens of thousands of ethical and professional agents who do their best every day on behalf of their clients, but there are enough who don't, making this a problem which should be dealt with immediately because, every day it happens to another unsuspecting consumer.

Someone once told me, when it comes to things like this, “sunshine is the best disinfectant” meaning more and more transparency will go a long way to helping solve these types of problems. We can change things by acknowledging and bringing issues like these out in the open where we can collectively find solutions to make things better, especially for the consumer.

We as agents often think to ourselves before submitting an offer, “can I trust the listing agent to be fair?" The answer is, it depends on the listing brokerage's rules 
(every brokerage has their own rules) and more importantly, the listing agent's ethics. We shouldn't have to be asking ourselves this question.

"The way it works now is effective as long as everybody is being honest and working with integrity." RECO's Deputy Registrar to a CBC reporter.

Within the real estate profession, as with all of life, not everyone acts honestly and with integrity. With consumer protection and big bucks at stake, the transaction should be governed by clear industry standards for all and not depend on the listing agent's moral character. After all, this is typically one of, if not the biggest financial transaction of peoples’ lives.

The problem isn’t just with “rogue” agents. As seen in the Marketplace piece, buyers sometimes seek out listing agents who might bend the rules and give them a tip on what to pay to get the house. In a low supply market, which we have been in for quite some time, this happens more regularly. Having been shut out multiple times before, buyers are so desperate to buy, they will resort to almost anything. But the buyer isn’t breaking any rules. The listing agent is, however, by participating in rigging the system to make a higher commission.

Some people suggest eliminating multiple representation completely by disallowing 
the listing brokerage from ever representing both buyer and seller. This approach is impractical and contrary to the listing brokerage's fiduciary obligation which is to get the highest price for the seller. Here's why:

  1. Brokerages often have hundreds of agents and many may have a buyer for the brokerage's listing. If multiple representation were to be eliminated, the seller would suffer because you’ve eliminated all of that brokerage’s agents from competing, resulting in fewer offers submitted and generally resulting in a lower sold price.
  2. Sellers expect their agent to have a  roster of potential buyers or the marketing tools to tap into and find them a buyer. Since many buyers are not contractually committed to any one agent, the listing agent who knows the house best, has an opportunity to sell the buyer on the house which is precisely why the seller hired us. Sellers do not expect their listing agent to hand over a potential buyer to another brokerage.

Furthermore, eliminating multiple representation will not abolish transaction rigging. The listing agent who has a buyer could simply refer their buyer to a “friendly” agent from a different brokerage and earn an additional 25% to 50% referral commission anyway. And if the listing agent is unethical and motivated by money, s/he could still tip the agent from another brokerage representing his buyer on what to pay during offer presentation under this current system.

The answer is not to eliminate multiple representation but to call on government to update the legislation by plugging loop holes that allow the system to be rigged and to implement standard industry procedures. 

One of my concerns is, government and RECO are going to run with this and make changes to the legislation without fully understanding the problem. Social media, shared within the real estate community, sums up our collective concern:

"Once again we'll see people who don't truly understand the problem determining what the solution should be."

When there are multiple offers and multiple representation, there has to be a way to ensure the listing agent's buyer doesn’t have an advantage over the other bidders.

We send people to outer space, fly airplanes at unfathomable speeds, design self driving cars, yet we can't create a system of selling real estate that can be trusted? This is unacceptable.

An automated electronic system should be developed for the submission of offers, including the listing agent's own, that would ensure all offers are properly registered and stamped and presented to the seller simultaneously. That way the listing agent doesn’t get an advance look at competing offers, making the process fair and square. 

If, after having reviewed all submitted offers with their listing agent, the seller decides to send all or some back for a second round as is often the case, the system would allow this.

To improve things further, the conflict inherent with multiple representation can be mitigated by requiring a different agent from the same brokerage to represent one side of the deal. No single agent should be allowed to represent both the buyer and seller.

There are many details that need to be worked out. We just have to be open to the idea.

This electronic system concept would benefit everyone:

  1. It benefits the seller because fair competition ensures the seller gets the highest price by including all buyers - not just the listing agent's buyer.
  2. It benefits all buyers because they all have equal and fair opportunity to buy the house.
  3. It benefits all buyer agents and their client as well in so many other ways; the system can notify participating agents if there is multiple representation beforehand, of the total number of offers being submitted and if one brokerage is representing multiple buyers. This is information buyers are currently entitled to, before their offer is submitted, but it is not always forthcoming in a timely way, or if at all, by the listing agent.

Ultimately everyone will have more confidence in the system and there isn't any better reason than that to make change.

So how do we mobilize to effect this change? As a group we have power and this power comes with speaking out, sending emails, letters, contacting your MPP, RECO, TREB, OREA and making our voices heard.


We deserve a system we can trust when making the biggest financial transaction any of us will ever make.
 

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11 Responses to It’s time to get serious about consumer protection

  1. Alec says:

    I agree with you Josie. There should be a lot more transparency in real estate. It’s horrifying what some agents are able to get away with. A few bad agents are poisoning the reputation of the whole profession.

    Reply
    • Josie says:

      Yes that is correct Alec. Except these few are more than “just a few” and they are doing lots of damage. Thank you for your input.

      Josie

      Reply
  2. Jaime da Silva says:

    I couldn’t agree more.
    Too often RECO simply puts out “guidelines” with the hope that we as Realtors will act ethically.
    Unfortunately, the shear amount of completion and dollar values have, and will continue to get in the way.
    Your idea of a “system” to deal with offers would be a great start! And no, it’s not rocket science.
    Sometime I fell like organized real estate simply doesnt want to deal with these issues: it’s almost as if they feel like these circumstances are only happening because of our busy market. If they just wait it out things will settle down and multiple offers etc will go away and then hopefully this problem.
    Short sighted.
    That is all!!!!
    (BTW- thanks for writing and sharing this)

    Reply
    • Josie says:

      Thank you for your input Jaime. The current system HAS to be improved. It is unfair, and has too many loopholes that are used to rig the system. Consumers can’t just rely on a system that can be trusted only if agents “act nicely”, as RECO’s Deputy Registrar stated. We can do better because this system is unfair, it breeds corrupt behaviour and it doesn’t even have an adequate punitive system.

      Reply
  3. Barry Lebow says:

    Josie, this is well written, logical and bang on. As a Realtor who is also an educator the education system has been terrible for too long. Graduate agents are ill equipped to work with the public. We need an overhaul and OREA has failed terribly as having a monopoly on education in Ontario.

    Reply
    • Josie says:

      Barry you are so right. I know you have spoken out about this for a long time. The level of education required to get a real estate license is embarrassing and appalling. Keep speaking out about it Barry. Maybe it will improve in our lifetime.

      Reply
  4. michael says:

    A couple of other possible solutions:

    first, we could make all offers open and transparent to all in an open auction system. that way there is no information advantage.

    second, you could adopt a system similar to what josie recommends in this article without the allowance of sending offers back for a second bid. in this case, i would suggest adopting a strategy similar to google where the winning bidder doesn’t actually pay what they have bid – but instead pays some incremental amount above the bid of the second place bid.

    both of these methods address the equity of information and also have an additional benefit. safeguarding against artificial price escalation that can be created when one bidder is so emotionally attached to a product that they bid irrationally above the product’s true value. To use an extreme example, if their are 10 bids on an item and nine cluster between $10 and $12, while one bidder is willing to pay $20, chances are the resale value of that product is between $10 and $12. Not $20.

    Of course, you could also just outlaw double-ending

    Reply
    • Josie says:

      Michael I am completely in favor of an open bidding system and have written about this topic before. I think, though, the chance of getting the powers that be to agree to an open bidding process is next to nil. Your idea of a google type bidding process, in my opinion, is excellent and I have discussed it before with others. In the meantime, until a progressive Minister and Regulator come into power, we should at least plug the loophole inherent in the current system that allows unethical listing agents to manipulate it to their advantage.

      Reply
      • Alec says:

        Really there should be online software created by Trebnet which all agents have to use for multiple offer situations. The winning bidder should be selected automatically. I can’t believe that Trebnet doesn’t have the will to bring its own agents under control. The technology to manage tenders online has existed for awhile. Why is Trebnet not leading the market instead of following it, waiting for legal action?

        How to handle second offers/rounds is another matter. Whether they should even be allowed. Presumably in a multiple offer situation the whole point is a single round of sealed bids.

        Reply
        • Josie says:

          You are right Alec. It is unbelievable that an online software is not in place. I have received a number of comments from software companies who have said that they approached TREB and OREA but their leaders are against any online offer submission. With regard to dealing with second rounds, you know that anything can be done if the will is there.

          Reply
  5. I totally agree with you Josie.

    Reply

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