There are a few topics, questions, and just… issues that don’t quite rise to the level of needing a full post but aren’t so small that a tweet would cover them. I thought I’d touch on some of them on this lovely sunny and hellaciously hot afternoon.
Many of these are taken from emails and conversations. Others are taken from social media. Where necessary or useful, I will link to such things, but for the most part, this is an invitation to conversation with you all. Comments will be open to the public.
Let’s do this.
“At Buyer Request”
The first topic comes from an email. A reader, again who asked for anonymity, sent word that his brokerage has filed a complaint with the real estate commission against another agent for steering.
It appears that the buyer agent left feedback that went something like this (paraphrased from the original):
Decided not to show per buyer request. They won't pay agent fee so will go see property that pays agent fee. If this changes with seller let me know if they are still looking.
Poor grammar and poor writing are both very suggestive, but that’s the feedback which was forwarded to the state real estate commission.
The issue here is this: How will the buyer agent prove that the buyer requested not to see this house?
We know from my series on steering that there are coaches and brokers who are telling agents “it’s not steering if the buyer does it.” The idea is that since the agent has to sign a buyer agency agreement going forward, and this buyer agency agreement is going to put the buyer on the hook for the agent commission if the seller doesn’t pay, the buyer will choose not to see houses that don’t offer a commission.
Ok, let’s just say that’s fine. There are issues with it, but let’s just say it’s okay.
You are the buyer agent who just got hauled up in front of the real estate commission who accuses you of steering. You say, “I didn’t steer; it was the buyer who requested not to see that house.”
How are you going to prove that?
I suppose you could have the Commission haul your client (former client?) up to the witness stand to testify. That’d do wonders for your client relationships, right? Maybe you can get him to write a letter stating that he did that.
If not, then you have to have something that proves that the buyer told you not to show him that house because the seller isn’t offering enough compensation. Might want to start working on yet another form to stick in front of the buyer.
But even if you do provide a piece of paper from the buyer saying, “I don’t wanna see houses that don’t offer compensation” you are still going to have to explain to the commissioners why you didn’t explain that you can request compensation in the offer and that therefore, the buyer should tour the house to see if he likes it.
There is a whiff of breach of fiduciary duty, loyalty and care going on there.
Something to think about.
Renegotiating the Buyer Agreement
Closely related is this topic, that has popped up in my own comment thread, but it’s been sorta out there in social media for a while now.
The idea is something like this:
Agents are now required to have a signed buyer agency agreement before a tour.
This BAA must specify a ceiling on compensation, i.e., you can’t get paid more than what the BAA says. Let’s say it’s 2.5%.
Your client loves a house where the seller is offering more than the limit in your BAA. Let’s say 3.0% and a free trip to Maui for the agent.
You go to your client and say, “Hey, let’s redo the BAA so I can get the extra money and the free trip to Maui.”
Your client agrees and executes a new BAA that says “3.0% and any free trips to Hawaii.”
One commenter on my thread writes this as a response to another:
I've been to three different seminars/conferences in the last two weeks. This question has come up every time (not shocked to see you bring it up). The legal answer has been consistent. The buyer's agent and buyer can agree to whatever they want to agree to. If the buyer wants to sign a new buyer agency agreement because the payout is higher, then so be it.
It's crazy how fast relationships can be formed between agents and clients. I can certainly see a BUYER initiating that conversation. "I understand the seller is paying out more than our contract. Do you want to sign another (higher) one so you can get paid more."
Of course, I can also picture a discussion starting with the buyer's agent, "I'll sign an agreement at X% but if the payout is more, we'll sign another one...as long as you don't have to pay out of pocket."
Unless buyer benefits directly, they'll sign another contract in most cases, regardless of who brings it up.
Who knows, the Realtor might even suggest they split the difference. "If the seller is paying more than what our contract is, let's sign another agreement and split the difference." A $500,000 at .5% is $2,500. Split between the buyer and agent is $1250. If I were a buyer, it wouldn't even be a decision. I'd do it immediately.
My question — which you should verify with your attorney — is how these three scenarios play out if and when you get sued by your client for malpractice and breach of fiduciary duty.
Scenario 1: Buyer initiates conversation. You say, “Well, thankye sai, I will happily sign another BAA so I can get paid more.” Have you breached your fiduciary duty of loyalty, yes or no?
From Schneiders & Associates, a business law firm:
1. Loyalty: Fiduciaries must demonstrate unwavering loyalty to the individuals or entities they serve. This means avoiding conflicts of interest, refraining from self-dealing, and always acting in the best interests of the beneficiaries.
Even if your client offers to let you get paid more, if you are supposed to put his interests above your own, are you supposed to (a) see if you can get the price reduced by 0.5% or (b) execute a new BAA so you can pocket the money?
Scenario 2: Agent initiates the conversation. Agent says, “Yo, Buyer, can we redo our deal, cuz the seller’s offering more than what we agreed to.” Um, I think most rational people would have no problems finding a breach in this scenario.
Scenario 3: Split the Difference. Agent says, “If the seller is paying more than what our contract is, let's sign another agreement and split the difference.” So it isn’t you, the client, gets to keep the full 0.5% (if offered via concessions, let’s say) but that you will get half of this “windfall.” Self-dealing? Conflict of interest? Acting in the best interests of the client?
I’m not sure that any of these is kosher under agency law. And my recovering broker wife thinks all of the above scenarios are shady as hell. (Now, if you’re not a fiduciary but some kind of a transactional coordinator under your state’s laws, I suppose anything goes.)
Another something to ask your attorney about.
The Concessions Field in the MLS
This became a hot topic in our latest Industry Relations Podcast, but I still don’t quite understand the legitimate purpose of a Concessions field in the MLS.
Ed Zorn’s answer to my questions ultimately came down to, “Having the Concessions Field makes it easier for me to regulate.” So this was an administrative issue?
Regulate what? I think I’m counted as an expert on the MLS. I’m not sure what exactly the MLS is supposed to regulate here after the Settlement. It isn’t cooperative compensation — that’s all gone now. Is it “proper offers of concessions?” What is the MLS supposed to regulate that they need a Concessions field?
I brought this up on a recent Industry Relations episode, and it bears examination. The MLS had to regulate/administer cooperative compensation because there were a number of MLS rules that dealt with offers of compensation. Post-Sitzer, there are no MLS rules dealing with compensation, and I’m not aware of any MLS rules that deal with concessions.
Importantly, if there are MLS rules that deal with concessions, I’m not sure how valid those are since concessions — by definition — are between the seller and the buyer, neither of whom are members of the MLS. So what is the rule that the MLS has to enforce here?
Furthermore, here’s what I know from talking to brokers and agents, including my recovering broker wife. Every real estate transaction, unless the listing clearly states that the house is sold “as is”, is subject to requests for concessions. Every agent knows this. Every agent knows that after a tour, after the inspection report, she is going to call the listing agent (or put into the offer) and ask for repairs, for concessions, for extra time, whatever. That’s the whole point of negotiation.
So if the MLS had no field, not even a checkbox, and is entirely silent on the issue of seller concessions, the assumption on the part of the agents will be that concessions are in play. If they need buyer agent compensation from the seller, they would know that they can ask for that in the offer, just like they would ask for a new roof, or new appliances, or money to repair whatever.
So what is the point of the MLS Concessions field where listing agents can put in things like, “Seller offers 3% concessions?”
If you are a listing agent, what is the use case for this Concessions field? Your job, presumably, is to protect the interests of your client the seller. What is the advantage to your client to giving away leverage even before the negotiations have begun?
Marketing, you might say. By letting buyers know that your seller is offering 3%, you are incentivizing the buyer to come look at your seller’s house. (Keep in mind that the whole legality of all of this is premised on the seller making an offer to the buyer, not to the agent.)
If that’s true… then the MLS is the worst vehicle for communicating that, right? Since no buyer and no seller can join the MLS and have an account there. If the goal is incentivizing buyers, then it is Zillow and Redfin and Homes.com that should have Concessions fields, not the MLS.
“Well, you see Rob, the MLS is merely a conduit to Zillow and Redfin and the other portals so that’s why the MLS needs a Concessions field.”
Okay, I’ll buy that. Let’s be clear then that those arguing this are effectively saying that the primary value of the MLS is as a data conduit to the portals. So the MLS needs a Concessions field simply to convey the info to the portals, which is where buyers and sellers get the information. There can be no special access to agents, and that whole “easier to regulate” thing gets fishy quick since there can be nothing to regulate as a mere conduit of data.
We’ll see if that’s how it works out. And I still maintain that if four years from now, 97% of the MLS Concessions fields say, “The seller offers 2.5% in concessions” that somebody big somewhere is getting sued.
Related: Negotiating Down
And that whole line of discussion made my mind go someplace new.
Say the local MLS has a Concessions field. You can enter percentages or numbers there, “simply to convey the info to Zillow.” Fine.
You tell your client, “I got a strategy to get massive traffic to your house.”
You then put into the MLS Concessions field, “10% concessions.”
Buyers and buyer agents come flocking, and there’s a bidding war. You call the winning buyer’s agent and say, “Okay, I think your buyer has the best offer, but… we have a multiple offer situation and we’re going to drop concessions to $100.”
So many questions here.
Does the buyer agent have to convey your counteroffer to the buyer? (I would think so, or the agent is in breach of fiduciary duty.)
If the counteroffer with the $100 concessions is still a good deal for the buyer, and the buyer is getting into his dream home, is the buyer agent duty-bound to advise the buyer to accept it?
Is there any kind of a problem for the listing agent? Procuring cause issues? False advertising? Anything?
Can the MLS penalize the listing agent for putting 10% into the Concessions field, but then dropping that to $100 in negotiation? If so, on what basis?
The whole point of the Concessions Field, as I understand it, is that it is being offered by the seller to the buyer, not by the listing broker to the buyer broker. Accordingly, concession amounts are always negotiable, both up and down. And I’m not sure I see how the listing broker or listing agent is subject to any kind of discipline by the MLS or by the Association for what the seller offers the buyer in course of negotiating a deal.
Related: Negotiating Up
Now let’s look at the reverse scenario.
The listing says “$100” in the local MLS Concessions field. The buyer agent shows the house and the seller wants it. The house is listed at $1M. Buyer agent stands to make $25K from the transaction as his BAA says 2.5% fee, with the buyer on the hook.
The buyer agent convinces the buyer to submit an offer for $1.25M (“It’s a gem of a house and there’s a massive bidding war”) but requesting that the seller pay the buyer agent 2.5% in Concessions. That’s $31,250 in buyer agent fee.
The listing agent has gotten his seller 25% over asking, and his own fee (assuming 2.5% commission) went from $25K at list price to $31,250. He’s all for it, as is the seller. Paying $32K to get $250K is a no brainer for the seller.
The buyer gets his house, but at 25% over asking… but then again, $1.25M might be the market. It’s hard to tell since he was willing to pay it, which means others might be too.
The question is whether the buyer agent here is liable to the buyer for breach of fiduciary duty.
I would argue no. Yes, it’s all fact-dependent, but if there is a genuine bidding war going on, and the buyer agent advises the client on how to win that bidding war, including getting his fee paid for by the seller, as long as the buyer is aware of all of the moves being made, I think the buyer agent is in the clear here.
Not A Wrapup… More of a Fade Away
Since this was a random list of issues, thoughts, and questions… there’s no real wrapup per se. If there is one, it is that we have yet to really engage in dialogue, debate and discussion on the details of the new system we are being forced into. Far too often, otherwise smart people are ignoring the fundamental issue, which is that real estate brokers are fiduciaries of the buyer and seller. (Unless they do the transactional thing, which is an abomination unto the REALTOR Movement.)
I am genuinely curious what the community thinks on these issues, or on any other issues. The comments are open. Have at it!
-rsh
Rob,
I raised the question regarding protection from accusations of steering if a buyer chooses not to view property that does not offer buyer agent compensation. An attorney advised me to include this directive in writing, as part of the buyer brokerage agreement, ensuring the buyer signs to acknowledge and agree with the directive.
I totally agree about the "concessions" issue. It's yet another detail that shows how ill-conceived the NAR portion of the settlement was.