Many of us have come across listing agents who list properties on MLS at an overly inflated price right? This wastes the listing agent’s time, the seller’s time, the buyer agent’s time because generally this over priced property will not sell. BUT, is this unethical or unprofessional to do? Well let’s see.
While surfing the internet, I stumbled on an interesting case on OREA’s EDGE June 2009 newsletter and, although the case is a few years old and the property in question was probably on the outskirts of Ontario (due to the price point), it intrigued me. Here’s the story:
- Salesperson A appraised a property for $100,000. A week later the seller contacted him and offered him the listing but the seller insisted the property be listed at $229,000.
- Salesperson A was not busy so he accepted the listing at the seller’s price of $229,000.
- During the term of the listing the seller sold it privately for $220,000 and the listing brokerage had no involvement with the private sale, did not receive any commission and the deposit was held by “The Vendor”.
- The property had never even been shown during the time it was listed with Brokerage A.
- 18 months later the subject property went into foreclosure and the mortgage company determined the subject property was now worth $65.000.
- RECO receives a complaint from the company who held the mortgage stipulating that the printout of the MLS listing which was provided to obtain the mortgage was listed at $229,000 and was misleading. The mortgage company complained to RECO that they relied on the asking price of the MLS listing to issue the mortgage.
After reviewing the complaint, the RECO panel concluded that the listing agent acted in an unprofessional manner when he listed the property at a price that he knew was overinflated.
RECO’s conclusion was that Salesperson A thereby breached the following Rules of the RECO Code of Ethics and was fined $7,000.
Rule 1(2) – Ethical Behaviour– A Member shall endeavour to protect the public from fraud, misrepresentation or unethical practice in connection with real estate transactions.
Rule 10 – Misrepresentation or Falsification – A Member shall not make any statement or participate in the creation of any document or statement that the Member knows or ought to know is false or misleading.
Rule 42 – Competence – A Member shall render conscientious service with the knowledge, skill, judgment and competence, in conformity with this Code of Ethics and the standards which are reasonably expected of Members. When the Member is unable to render such a service, either alone or with the aid of other Members, the Member shall decline to act.
Rule 46 – Unprofessional Conduct – A Member shall not engage in an act or omission relevant to the practice of the profession that, having regard to all the circumstances, would reasonably be regarded by Members or the public as disgraceful, dishonourable or unprofessional.
I have to admit I was shocked by this ruling as was one other blogger agent and a blogger lawyer who reported on this matter as well. There are many questions that arise like why did the mortgage company not do an appraisal before issuing the mortgage? Since when does an MLS listing printout constitute an appraisal? Why is the listing agent held liable? Why does "caveat emptor" not apply in this situation? BUT all these questions don’t matter do they because RECO is the one that rules on such matters and RECO found the LISTING AGENT to be culpable.
I had another thought when I read this ruling that can be relevant in today's market. Let's say an agent lists a property at $899,000 and it sells for $875,000. Before the transaction closes the mortgage company appraises it for $775,000. Is it conceivable the buyer (who now has to come up with a higher down payment) or the seller (if the property does not close) could file a complaint with RECO that the listing agent knew the property was drastically overpriced and listed it anyway? It is conceivable and, based on this RECO ruling, the listing agent in this example could receive a fine. No? What do you think?
The lesson we can learn from this is - don’t list properties that you know are drastically overpriced (not supported by comparable sales) because anyone can complain to RECO at anytime about anything. Since we are bound by a code of ethics and a law that is monitored by a governing body we cannot control (RECO), the best thing an agent can do is not take drastically overpriced listings.
It’s not worth risking a $7,000 fine.