The Double-Ending Listing Agent in a Bidding War
Now, that’s UNFAIR.
As you know, we have a “hot market” in Toronto this Spring.
Bob secures a listing from Winnifred. An evaluation is conducted, and the agents in his office think the property should sell in the range of $1.1 million.
So, the natural reaction would be to list this property at $1.2 million and get it sold.
But, Bob is not really content with that approach and the commission it will generate. He wants to “work this listing”. Bob convinces Winnifred to list at $870,000. She is concerned about listing so low, since she has been convinced that her property is worth $1.1 million. Bob tells her, if she receives an offer that low she can just refuse to sign it, and then there’s no problem (or at least, so he says).
Bob wants enough time to host a “public open house”. The agents from his own office already know about the property and the other agents who work the area know about it from the MLS.
Bob hosts two open houses over Saturday and Sunday.
He gets two interested potential buyers who don’t have their own agents. He immediately signs them up to a Buyer Representation Agreement offering to:
- Provide them with the inside track to the seller
- Reduce his commission, if they deal with him
Mistakenly, they think that they are better off with Bob than anyone else since they will be on the inside track with him.
What’s wrong with this picture?
Bob does know that Winnifred wants $1.1 million for her house.
Bob suggests that his buyer clients offer something over $1.0 million because the value of the other properties on the street will support that. All in all 30 bids are generated including two from Bob.
Bob’s first client, Mary was attracted to the property because she thought it would go for $870,000 or less. Her best offer is prepared at $920,000.
Jim follows Bob’s lead. He offers $1.0 million for the property.
Bob “stages” the presentations himself. He comments negatively about closing dates, and the deposit for several of the other bids. The top offer is $1,050,000. He tells Jim to up his bid, if he wants the property. He guesses that the top bid could go to $1,070,000, so he presses Jim to increase.
Jim again follows Bob’s lead. He attempts to offer $1,070,000 million for the property.
Bob appreciates that the bids will be close. He tells Jim “….you know that I cannot tell you what the other bids are…”. BUT, HE FROWNS, looks down over his glasses and says “…do you really want this property?”
Jim goes to $1,071,000 and he is the high bidder.
Frank, whose client submitted the $1,070,000 bid, is furious. The other 28 bidders go away.
So, what does this mean? Winnifred sold her $1.1 million property about $30,000 short of the mark.
Frank won’t participate in any of Bob’s future “staged presentations”. Jim is happy, he got the house.
Bob is happy, he got the commission from Winnifred for selling, the commission from Jim for buying and a new client, Mary. Mary was signed up to a 12 month contract, meaning that Bob will receive the commission if she buys anything in the next year.
What happened to some of the other agents in Bob’s office? They refused to participate. They knew that they either had to work with Bob or go home. So, they waited for the next deal. And, this may be why Winnifred lost out on that last $30,000.
But, the next day, the headlines read: “House Sells for $200,000 over Asking!”
As an industry, we do need some better rules, some fairness in the bidding war process.
Brian Madigan LL.B., Broker