Unethical Practice
#7:
Agents who tip their clients' hands.
Sellers are almost
always willing to accept less than buyers are willing to offer.
It would be unusual, after all, if a buyer's top price happened to
be exactly equal to the absolute minimum that a seller would be
willing to accept.
This gray area--the
difference between what a buyer is willing to pay and what a seller
is willing to accept--is usually awarded to the side that does the
best job negotiating the contract.
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Agents,
I've found, are often not good negotiators--and this shouldn't be
surprising. Being a good negotiator involves being willing to
risk losing a deal in order to squeeze more money out of the
opponent. This often makes sense for buyers and sellers, but
it's not a good business practice for agents. A sellers' agent
who tries to get the other side to give up $10,000, for example,
stands to increase her commission by only an additional $100 to
$200--but risks losing her entire commission if the other side
refuses. A buyers' agent has even weaker incentives, since he
not only risks losing his commission by driving a harder bargain,
but his commission actually goes down if he
succeeds.
Most
buyers and sellers seem to know this, and most insist on calling the
shots in the negotiations. But agents sometimes reveal what
they know about their clients' bargaining positions in order to
speed things along. Here are some of the
questionable practices I've observed:
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It's
the rare agent who will call another and whisper, "Hey, my
buyer's top price is $560,000" or "My seller will accept
$500,000." But agents often reveal more than they should.
Negotiating home prices is
like a high-stakes poker game. Professional poker players put
on poker faces (and often sunglasses) during games in order to avoid
giving "tells" about the strength or weakness of their hands.
And that's how you want your agent to play--revealing little while
learning a lot.
Unfortunately, many agents
are sloppy players. For example, I've found that I can usually
learn something about a seller's bottom line by calling his agent
and saying, "I have a buyer who wants to offer $490,000--is it worth
the trouble of writing such an offer?" (Assume the asking
price is $550,000.)
Here are the kinds of
answers I often get:
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"No, I don't think so--I don't think he'll even respond to
an offer below "$520,000." The tell: the seller
will probably respond to an offer of $520,000 or more.
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"Go ahead--but expect a
counter." The tell: Our side probably won't get
rejected if we start low. The seller probably hasn't
received any other offers yet.
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Here's how you want
your agent to play
"price-negotiation poker." |
Here's how many
agents actually play. |
Sellers' agents also sometimes
exploit information about offers they receive:
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The agent might share
the offer price with his own buyer, so that the buyer
need only bid a small amount over the next highest bid.
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The agent might share
the offer price with a colleague, in hopes that the colleague will
reciprocate on a later deal. That way, the colleague's buyer only needs
to bid a bit over the next highest bid in order to win.
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The agent might use her access to information about offers to try to recruit
buyers. For example, an agent might say to a prospective
buyer that she is in a special position to put the buyer on
top--hinting that her buyers will be able to learn what rival
bidders are offering.
The last gambit is
especially damaging to sellers. I've had buyers refuse to make
offers if they thought the listing agents intended to stack the deck
in favor of their own clients. Why waste time on a
rigged game?
Suppose you're selling a
home in a subdivision and--out of desperation--you accept an offer
for $300,000 even though your asking price was $350,000.
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This is super-hot
intelligence, and your agent's colleagues will be dying to know
about it so that they can alert their clients to the upcoming
low sales comp. If competing sellers in your neighborhood
learn that you accepted $300,000, for example, they'll likely
want to lower their prices immediately--say to $320,000--in
order to get a quick sale before your sales comp becomes public information.
Agents are supposed to keep
the details of accepted offers secret, but many spill the beans.
Sharing this information is
great for your agent's brokerage and golf buddies, but it's bad for you. If your deal fails--and many
do--your agent's indiscretion will make it much harder for you to
get a better offer from another buyer. |
How to protect yourself
In a world of emails and
faxes, there’s no longer any good reason for offers to be funneled
through sellers’ agents. Ask your agent to instruct
buyers’ agents to submit their offers directly to you and only to
you by either email or fax. After the offer deadline,
you can sit down with your agent and go over the offers.
Controlling your agent’s
access to offers not only ensures against the agent having loose
lips, it can also give you a strategic
advantage in negotiations.
The reason is that in
multiple-offer situations, agents often get phone calls from other
agents asking about the other offers. I find that agents often
share more information than they should, and I suspect that most
sellers would be better off keeping their agents in the dark.
Consider these scenarios:
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You get no
offers. If another agent calls to ask if you’ve received any
offers, your agent can honestly say, “I don’t know—the seller is
collecting all offers.”
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You get a low
offer. Call your agent and say you’ve gotten an offer, but
don't disclose the amount. The agent
can then call other agents to say there’s an offer on the table. If
they ask what the offer is, the agent can say “I don’t know—the
seller is collecting all the offers.”
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You get an offer
that’s at or above asking price. Here, you might want to tell your
agent more information about the offer, so the agent can tease out
higher bids.
Important: It's fine
to keep your agent in the dark about offers, but never okay to lie
to your agent about them. Lying about offers is a material
misrepresentation that can result in a lawsuit.
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Play your cards close
to your chest. Don't ever tell your agent how
much you're willing to pay or accept for a home.
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When you accept an offer, ask your
agent to promise not to reveal it to anyone outside of the
transaction. Most agents, I believe, will
honor an explicit promise.
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Sell "For Sale by Owner" (FSBO). See my website,
FSBOPrimer.com, to
see the arguments for and against selling FSBO.
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