It isn’t a secret that the real estate industry is not well respected. According to Forbes Magazine, real estate agents rank 23rd on the list of most admired professionals below actors, stockbrokers and politicians.
Why is this so? Research reveals that ‘home’ comes second only to ‘mother’ as the word in the English language that is closest to our hearts. Therefore, buying or selling a home is a major emotional event. Yet some real estate agents treat it as a financial transaction involving lucrative commissions and nothing more. This makes it enticing for greedy real estate agents to place their interest above yours and prey on the naive, uninformed or simply trusting. Although real estate agents have a disciplinary board through RECO, no industry can fully legislate ethics: this means the onus is on you to do your homework before choosing an agent.
I believe educating the public about the potential problems that can arise is critical in order to protect consumers from dishonest and unethical practices. The following are some of the most egregious problems I have encountered. Hopefully this awareness will provide you the knowledge to protect yourself:
- An agent intentionally gives an overinflated appraisal of your property to get the listing and, shortly thereafter, asks you for a price reduction. This can be quite damaging, particularly if you bought another house counting on a dollar amount for your current one which does not materialize. So what do you do? You stay up at night worrying, you eventually reduce the price because you have no choice and forego the vacation, the new car or the kid’s lessons.
- An agent promises you a sale price above the list price. Don’t believe this just because it’s what you want to hear. Ask yourself “can my real estate agent see into the future?” The answer is obvious. Your agent cannot possibly know the price that a buyer – who hasn’t even seen your house yet – will pay. As well, there are swings in the market that are unpredictable as happened this fall, when Toronto’s hot market “balanced out” leaving most of the bidding wars behind. Your agent should not quote you an overinflated or unrealistic sale price just to get the business. Use recent comparable sales and common sense NOT wishful thinking to assess the truthfulness of your agent’s prediction about the sale price of your property before you decide to use this agent.
- A listing agent who excludes other agents when they have their own offer from their own buyer. Imagine this: your house is listed for sale at $799,000. Agent A presents you an offer for $807,000 and your listing agent presents one for $805,000. Your listing agent contacts their buyer in private and suggests they can procure the house if they offer $808,000. What is wrong with this? When an agent represents both buyer and seller, as in this case, the listing agent is breaking rules by suggesting to their buyer the price to offer. If the listing agent were representing your best interest, he would advise you to send both offers back and ask both buyers to improve their offers in fair competition. Agent A’s buyers may potentially jump to $820,000 but the listing agent, motivated by making double commission, curtailed competition and broke the rules. Did your listing agent work to get you the highest price? I don’t think so. If this ever happens to you, send both offers back and insist your listing agent present his offer before he sees all other offers first, on each round, and stay alert during negotiations.
- A listing agent with a support team who lists your house and then disappears. I bumped into an acquaintance who told me she had listed her house with a brokerage, six months before, but she had not seen her agent since the day her house got listed. This elusive agent has a slew of junior, less experienced assistants to serve you while she/he is concerned with volume and signing up the next listing. Before you hire a “team” to sell your house, ask the team leader 1) who will be your main contact person 2) how often will you hear from the team leader 3) who will perform the open houses 4) who will show your house to potential buyers 5) who will negotiate the offer? If the answer is not acceptable to you then interview other agents.
- An agent disappoints you after you sign a Buyer Representation Agreement. This document signifies that for the term of the contract, the buyer has engaged a brokerage to work exclusively on his/her behalf at finding a property. A brokerage is mandated to ask their clients to sign this document at the earliest possible time and binds you to pay a commission to the brokerage during the term of the contract. If you are unhappy with your agent you can ask the brokerage to set you up with another agent or request the brokerage release you from the contract. There are no assurances this request will be granted, so it is advisable you checkout the agent before signing this document and limit the term of the contract so you will be relieved of the obligation within a short period of time.
- An agent who discourages you from including an inspection condition in your offer. I recently received a call from a distraught consumer whose agent convinced her to forego the inspection condition in a multiple offer situation. After closing she discovered the house was riddled with asbestos, knob and tube wiring and many other maladies that will cost many thousands of dollars to remedy. This buyer was a recent immigrant and had no idea about the laws or procedures for buying property in Canada. While sobbing profusely she said “why did my agent do this to me? I trusted her”. After she moved in she tried in vain to contact her agent to no avail. Her agent had received her commission and was long gone.
The occurrences of these serious matters could be lessened if consumers did more due diligence before hiring an agent. Some of the following suggestions may help you avoid these pitfalls when dealing with real estate transactions:
- Interview an agent whose For Sale sign you see in your neighbourhood repeatedly. Then take further precaution and knock on the doors of the homes that have the agent’s sign on the lawn and ask the homeowner about their satisfaction with that agent. Just because an agent is active in your area doesn’t guarantee they are ethical. I have met many excellent area experts and a few unethical ones as well.
- Sometimes people use an agent they met at an open house or through their child’s school or the agent is a friend of a friend. These are all perfectly fine ways to meet your agent, but don’t ever feel obligated to work with an agent because you know him or her personally. And even if they’re a lovely person socially, they may be very different in a business context. If you entrust the biggest financial transaction of your life to someone whose business ethics you know nothing about, you may be asking for trouble.
- Before you sign a listing, it’s advisable to ask for references. Since no agent would willingly volunteer an unhappy client as a reference, don’t bother calling those proffered by the agent. Instead, ask for the owners’ contact information of the ten most recent homes they’ve sold; and YOU should be the one to decide which one(s) to phone – with the homeowners permission of course. Most people will not mind giving a reference if they are happy with their agent. Make sure you ask this person specific questions about the agent’s performance and confirm with them that it was a recent transaction (you want to make sure it’s not a three year old reference).
- It’s critical you read and understand every document you sign. I can’t tell you how many consumers get into trouble because they don’t read what they are signing.
- If you’re elderly, or you’re helping an elderly person sell their home, make sure a close family member is involved with every single aspect of the transaction. A study led by Shelley Taylor, a professor of psychology at UCLA, in fact suggests that age-related changes in the brain (< Click underlined article) make elderly people much more trusting and therefore among the most vulnerable to unethical practices.
- Ask your agent to give you a written marketing plan – with dates included, that details all the activities they will perform to sell your house. You can insist the plan be attached to the MLS Agreement and that the contract will be terminated unless the marketing activities are performed as the agent committed to in writing. (Consult your lawyer to draft a clause that can be binding.)
- Before you choose an agent, visit Real Estate Council of Ontario’s (RECO) website and review the published disciplinary hearing cases. RECO publishes these to protect you against agents who have broken the rules.
Ultimately, if you’re ever subject to unethical behaviour by an agent, you should report that behavior to the Real Estate Council of Ontario. RECO receives thousands of complaints regarding agent misconduct and adjudicates in order to protect you. If you succumb to apathy, and let the misconduct go unreported, you are giving the agent the passport to do it over and over again to someone else.
The majority of real estate agents are professional, abide by the rules and provide the consumer with enormous benefit. But unfortunately the misdeeds echo louder than the good deeds which gives us all a bad name.
The bottom line is the consumer must exercise due diligence before hiring an agent because ethics cannot be legislated. But, although the industry can’t force agents to be ethical, we can make you aware of the pitfalls so you can protect yourself. The more educated you are, the less likely you will hire an unethical agent which will hopefully run some of the bad agents out of town.