Since 1996 the real estate market in Toronto has, for the most part, been a seller’s market. This intense period of buying and selling real estate introduced positive industry changes with the advent of the “Buyer Agency Agreement” giving buyers representation they did not have before and consumer access to more information on the internet to become better informed. But, is the actual process of buying and selling real estate a better or fairer process? Is it as transparent as it should be?
The real estate industry has made many strides but transparency in the transaction process is still fraught with loopholes. The Real Estate Council of Ontario (RECO), the governing body that monitors real estate agent conduct, receives many consumer complaints involving the multiple offer process.
What are some of the flaws? How many of you participated in a bidding war and the process left you confused and irritated? What can we do to improve it? I believe standard industry rules and mandatory transparency would go a long way towards assuaging consumer sentiments towards the industry and ensure a fairer and more orderly process.
- Make it mandatory for the buyer’s agent to register offers through an online registry system and set a time limit to do so at least 2 hours before presentation time. Have you ever submitted an offer knowing there were 4 offers and were told, sometimes only after the property sells, there were in fact 6 or even just 2? A buyer agent has a fiduciary duty to update you with the total number of offers BEFORE presenting your offer allowing you to change your price or withdraw your offer. But allowing last minute offers makes this fiduciary duty difficult to fulfill. Furthermore allowing last minute offers, sometimes with 30 minute irrevocable, places all participating buyers under intense pressure to make financial decisions that will impact their whole life in just minutes. Is this orderly and sensible?
- Make it mandatory for the listing brokerage to provide all buyer agents with a WRITTEN LIST of brokers and agents also offering on the same property BEFORE OFFER PRESENTATION or implement an online registry system. How many of you participated in a multiple offer and were left wondering “were there really multiple offers on the property”? Full disclosure, through a written list of participating brokers and agents, would go a long way to providing you the protection you deserve.
- Make it mandatory for the listing agent, who has their own buyer, to present their offer to the seller first, before they see any other buyer’s offer. Currently, there are no mandatory industry rules that prevent an unscrupulous listing agent from suggesting their buyer increase their offer price slightly more than the highest offer on the table and have it accepted by the seller – all to earn a higher commission. If the listing agent had allowed fair competition to take its course, the property would potentially have sold for a higher price.
Sometimes when a buyer senses questionable behavior during the multiple offer process they withdraw their offer and this too can cost the seller tens of thousands of dollars. So the lack of a standard process for multiple offer presentation leaves both buyers AND sellers vulnerable.
The real estate industry is filled with reputable and professional agents. Nevertheless, it is naive to think all brokers and agents are ethical. It’s like saying corruption doesn’t exist and all is right in the world.
So what can you do to protect yourself?
- Ask friends and relatives for an agent referral. The name of the agent you use should be a pillar of integrity; someone you are certain would not compromise their reputation just to make a sale.
- Investigate the agent’s reputation. Unethical agents usually leave a trail of unhappy clients.
- Insist on full disclosure of participating brokers in a multiple offer situation. Also ask "does the listing agent have their own offer"? How is he/she handling the presentation process to ensure their buyer isn’t given an unfair advantage? Has the listing agent disclosed if he/she is cutting commission, as they are required to do?
- The moment you suspect questionable behaviour, ask questions. If you're not fully satisfied with the answers, you may want to reconsider whether or not to proceed with an offer. Go with your instinct. There will be another house.
- Insist your agent present your offer personally, instead of fax or email, if possible so he/she can represent you properly.
Buying a home is typically the biggest financial transaction people make. So why, in this day and age of greater transparency in almost all financial sectors of business, has the Real Estate Industry not embraced change in the name of greater transparency?
Until standard industry rules are implemented, it is up to you to do your due diligence before hiring an agent, to educate yourself about the process, know your rights and to be able to walk away from negotiations if you suspect unethical or unfair behaviour. Ultimately change within the industry will come because you, the consumer, insist on a fairer and more transparent process. That’s the beauty of living in a democracy.