Dirty Behavior: A Broker Lies
A: The real estate industry has such a bad reputation because of the behavior of dirty agents who lie, mislead, and conduct business to the benefit of themselves without any regard or respect to who else is involved in the transaction. While it may come down to dollars and cents, what this broker (I will not name names or firms) just did to me and more importantly, my clients, represents everything that is wrong with this industry! My hope is to expose this behavior as an example of the business practices of some and as proof that the tarnished reputation of real estate agents is warranted. My other hope is that the hard working, honest, and ethical brokers out there get rewarded for their services provided and stick to their principles.
IMPORTANT NOTE: What this broker did is 100% legal and can be argued as acting in the best interest of her client while in violation of the code of ethics laid down by REBNY. I am not complaining about the legal aspect of this situation. Rather, I am complaining about the lies and misleading statements that the broker handed out to my clients and attorney while a signed contract + 10% deposit sat in the sellers attorney office for 8 days as she checked into whether another offer was genuine. The broker admitted to this and I even have a saved voicemail proving it. Ultimately, she went with the other offer that was higher without ever giving us a chance to know what was going on or counter to. Rather, we were kept at bay and lied to that the signed contract was en route to the sellers to get countersigned, while all this went on.
REBNY MEMBER CODE OF ETHICS
Standards of Conduct
TIMELINE OF EVENTS
MON JAN 29th - My clients submit ALL CASH offer of $275,000
The News: OFFER ACCEPTED OF $275,000
WED JAN 31st - Deal Sheet Created.
LATE THU FEB 8th - Docs received for buyer attorney to do diligence.
TUE FEB 13th - Buyer attorney finishes diligence within 4 business days. Overnights contracts to buyer although this was when we had the ice-storm on entire Northeast.
THU FEB 15th - Buyer gets contracts in afternoon. Ice storm delayed delivery.
MON FEB 19th - Buyer signs contract and FedEx's in 10% deposit to their attorney.
TUE FEB 20th - Buyer attorney receives signed contract + deposit and messengers to seller's attorney office!
WED FEB 20th & TUE FEB 21st - Multiple calls into Broker verifying contract receipt and inquiring about seller countersigning so I can proceed with board package. No response.
Later on FRI FEB 23rd - THE LIES BEGIN..! Broker explains that contracts were sent out to BOTH party's required; one of whom is in MASS and one of whom is in CALIFORNIA. We are told that they are en route and waiting to be countersigned.
MON FEB 26th - Broker calls my cell to tell me "contracts were received by seller attorney and being sent out to get countersigned"? I question that this information is old news and that seller attorney had signed contract since last TUESDAY! I also question that we were told on FRIDAY by both her and seller attorney that signed contract was en route to sellers to get countersigned.
WED FEB 28th at 7:21PM - THE DAMAGE IS DONE. Broker calls me to apologize and tell me that seller got another offer last week and that she decided to take it. She also admits to lying to me and that she decided NOT to tell me what was going on because she had to verify that the offer was genuine. All of this while my clients signed contract + 10% deposit is sitting at seller's attorney office, never sent anywhere.
HOW IT USUALLY WORKS
NYC is a very fast marketplace and is a different animal than most other parts of the country. After almost 3 years of conducting business as an honest and ethical real estate agent in Manhattan, I can tell you firsthand that 100's of times I have been in a situation where I wanted to show an apt to my client where a offer was accepted and a contract out. The listing broker's response EVERY TIME to me was either:
1. "We have an offer accepted and a contract out. We are showing for BACKUP ONLY"
2. "We have an offer accepted and a contract out. We are no longer showing and have a backup."
Even in bidding war situations where multiple bidders are fighting for the same place there is a level of honesty and ethics that governs how the process works. In bidding wars, a best & final deadline is set and all bidders get a chance to submit their highest offer. As the deadline passes, the seller selects the highest and best offer and sends a contract out. During this time the buyer is given a chance to generate a signed contract of sale!
In this case, the behavior of the broker was nothing short of scummy, dirty, shady, sneaky, and unethical and goes against the very CODE OF ETHICS that REBNY attempts to enforce to keep this industry somewhat honest. The real victims here are my clients who did everything by the book, in a timely manner, and were simply lied to and misled that the deal was proceeding while the listing broker had other intentions. We never had a chance.
UrbanDigs Says: The broker did nothing illegal and I understand that. However, this is a matter of principle and morality of which this broker obviously has none of. If the broker came out right away AFTER our signed contract + deposit was received by the seller attorney and stated, "..we received a higher bidder, but will at least give you a chance to re-negotiate the contract price before we proceed, otherwise we will go with this higher bidder", I will have no problems and there would be no follow up! But that is not what happened. It is the lies and misleading statements that this broker used which was in clear violation of the only oversight this industry has to protect against unethical behavior. It's a shame and I feel awful for my clients who lost attorney fees, two other apartments of interest that are now gone as this situation unfolded, and their future home. When will it stop?
Posted by Ashwin Kapur
Mon Mar 5th, 2007 12:42 PM
This has happened to me as a buyer as well. The only way to prevent this sort of thing is to shine some sunlight on what is happening, ie name and shame. If you name the seller's broker, this is going to warn other buyers and buyer's brokers and creates a real disincentive. If you don't name the other broker that broker just got away with really slimy conduct and only the reputation of brokers in general has been damaged.
Posted by Russ from South Carolina
Mon Mar 5th, 2007 12:47 PM
What your industry needs is for more brokers and their management to adopt (and use in practice) an old saying, attributed to Robert Bosch , a German industrialist from the 19th century: "It's better to lose money than trust."
Posted by ARDELL
Mon Mar 5th, 2007 12:52 PM
Would need to know the asking price to comment.
Posted by REBlogGirl
Mon Mar 5th, 2007 12:59 PM
Quite slimy, if I do say so myself! I think you are right not to name names here, however, look at what XBroker did- he started a secondary site for a "hall of shame" for mortgage brokers that were bilking their clients. The site is completely on the up and up and makes sure the statements are true before posting them. An enterprising young Realtor might do the same to shame other unethical Joes out of the business.
Posted by More Cowbell
Mon Mar 5th, 2007 01:17 PM
We employ two schools of thought in this world, and depending on which you believe in, it will dictate how you feel about what transpired here:
-People are inherently good and honest and deserve respect from the onset of any relationship, both personal and professional.
-People are inherently evil and the world operates as survival of the fittest. Respect is not something granted, it is earned.
How does this relate to what happened here? Simple. Noah is disappointed because he granted respect for a counterparty who clearly lacked scruples. Not only is his commission lost, but his faith in the fellow brokers he works with on the daily basis is going to suffer as well. And it happens every day, in every business. And the more it happens, the worse the business community becomes because unscrupulous behavior becomes common place, and worse, accepted. It’s a vicious cycle (like Fat Bastard eating because he is unhappy and being unhappy because he eats).
If Noah was underhanded as well would the deal have ended better for his client? If Noah didn’t respect the other broker and threatened to pull his clients bid, would that have helped? Did Noah’s trust and honestly actually HURT him here? It might have. And that sucks.
This is the unfortunate business environment we deal in today.
My wife and I are very actively pursuing a purchase in Manhattan. It’s hard enough trying to find our dream home without knowing we have to deal with crap like this. I’m beginning to think this process will turn out to be more painful that holding my scrotum up to a belt-sander.
Wish me luck.
Posted by John K
Mon Mar 5th, 2007 03:03 PM
This is terrible!
I posted an entry about it in my blog, but I am unclear on something. It may be the difference between how things are done in NY vs. Boston.
f you had a signed offer, doesn't this create a legally-binding contract? I realize you needed to get the P&S signed 10 days later, but the first contract (offer) is binding as well, isn't it?
The unethical part is quite clear - there seem to be several things that would be against any code of ethics, regardless of state.
The holding of the buyer's check is especially appalling, if not unethical or illegal. The law (or regulation) is that any money held by the seller's side must be deposited within 24 hours. However, this is only if a deal is "accepted" - by which I think it means signed by both sides.
A gray area, perhaps.
Naming names? Hmmm. I guess I'd do it if it happened to me, because I'm like that, and because I work for myself and don't need worry about the reputation of a national company.
The sellers are to blame as well, since they may have ordered the agent to do what they wanted. It doesn't sound like this is the case in this instance, however.
Posted by dipping toes into real estate
Mon Mar 5th, 2007 03:06 PM
I say name and shame - there is NO need for seller brokers to be so duplicitious. Hmmm, we could do a bit of reverse engineering. We know the apt would have been around $275 on the original offer, andthe broker is a woman,
http://www.streeteasy.com/nyc/sales/manhattan/price%3A-275000?page=1&sort_by=price_desc
which could be
http://www.elliman.com/Listings.aspx?ListingID=808325
http://www.corcoran.com/property/listing.aspx?Region=NYC&ListingID=830520
Just a thought....
Posted by Christine
Mon Mar 5th, 2007 03:30 PM
Noah - What about the attorney? He sent out double contracts, and had one signed already in his office.
Poetic justice woould be the higher offer falling through because of lack financing.
Posted by Doug Heddings
Mon Mar 5th, 2007 04:09 PM
Hey Noah,
Surprise, surprise! An unethical agent in our profession. You and I have discussed this and I know we're on the same page as far as exposing this type of stuff. As far as naming names, it becomes a legal issue and opens us up for possible liability if we do so.
Perhaps this agent is savvy and knowingly delayed, lied, and manipulated the situation to benefit her.
Perhaps, she followed directions of her seller thus lying, delaying, and manipulating on the seller's behalf.
Perhaps she's just an absolute moron...oh...no "perhaps" here.
The unfortunate part is that we will never know her motivation and can only speculate. Tha said, there is no question that she mishandled this process and was incredibly deceptive. I would also guess that she was protecting what likely was a direct deal that yielded her double the commission. All the more reason for restructuring the way we do business in manhattan. I think that direct deals should be abolished all together and the DOS should require each party (buyer and seller) to have separate representation with each agent receiving half of the commission. Way too much gray area and room for temptation as it is currently structured. Also breeds horrible mistrust within the industry. NO MORE DIRECT DEALS! BTW, 95% of my business is representing sellers and I feel very strongly that a buyer should have their own rep in a transaction.
Posted by spaceboy
Mon Mar 5th, 2007 04:23 PM
I'm frankly surprised the agent did that... hope it had to have been a much higher offer. Don't a startling number of contracts fall through?
Posted by ed
Mon Mar 5th, 2007 04:24 PM
I agree with Doug, you got screwed because the other offer came in without another broker.
When I was first trying to buy an apt. i had a broker representing me, and lost out on 2 different deals because other buyers didn't have brokers.
Went solo after that and eventually found something.
Posted by Doug Quance
Mon Mar 5th, 2007 05:12 PM
I'm with John K on this one...
When you have an accepted offer, is this not a binding agreement in NY?
Here in Georgia, buyers have been known to sue sellers for non-performance when they change their minds about selling once they are under contract.
We have a due diligence period, as well... but if you're a seller under contract, you can only decide not to agree to any further concessions... you can't decide to unilaterally withdraw from one agreement to enter into another.
That's crazy!
Posted by SteveOMS
Mon Mar 5th, 2007 08:08 PM
I slightly disagree with Doug, I don't think a buyer should be requried to be represented by a broker. If a buyer or seller wants to go without represntation they should be allowed to. I do believe that if a buyer doesnt have a buyers broker that the sellers broker should NOT get double the commision the money should be retained by the seller in the transaction (and in return the additional money will factor into make a offer more competive and benifiting the buyer as well)
Steve
Posted by Doug Heddings
Mon Mar 5th, 2007 08:51 PM
Good point Steve. Difficult to "force" someone to use an agent. Again, as someone who represents mostly sellers, i would still like to have buyers represented by a "certified" buyer's agent. It makes for a much smoother transaction and no conflicts of interest. Don't forget that a buyer without an agent is working with a seller's agent whose allegiance is to the seller. If you're a savvy buyer, that's great. If not, a savvy seller's broker will "win" and you may pay more money than if you had representation.
Posted by Noah
Mon Mar 5th, 2007 09:04 PM
SteveOMS - You have to understand why Doug is saying what he is saying.
The only logical way to eliminate the flaws in this type of situation is to somehow make it so that the listing broker has no vested interest in whether or not a buyer is using a broker or not. However, this has a major flaw. If there is a 6% / 3% structure or similar, whereas the listing broker makes exactly the same, the seller still has a benefit to choose one buyer over another. Net net, the seller could choose the direct buyer who bid slightly less than a buyer using a broker.
What Doug says is that there is a fixed commission, and that each and every deal MUST have a buyer broker involved. If a direct buyer comes in and shows interest, the listing broker will advise them to hire a broker to represent them in the transaction. That way, every buyer is treated fairly, all agents make the same, and the seller has no vested interest in choosing one buyer over another.
However, this system would require oversight via regulations. Its a bright idea, but likely not a feasible one to make real. I wish it did.
Posted by Noah
Mon Mar 5th, 2007 09:22 PM
And I would like to add that if a system like this would ever come about, that it would come at the expense of the size of the commission we are used to now.
Should Doug bring this to reality, I have a feeling the total commission standard would be closer to 4%, split evenly between both representing brokers.
Thoughts?
Posted by Dan Green
Mon Mar 5th, 2007 10:38 PM
This reminds me of the Jerry Maguire-Team Kush quote: "You know, because I was pretty moved by that whole 'my word is oak' thing".
Money makes people behave strangely; too bad for your clients.
The good news is that Real Estate Karma can swing a huge mojo. Everybody gets theirs, eventually.
Posted by Peter Comitini
Mon Mar 5th, 2007 11:54 PM
Hi Noah;
I'm glad that you've taken the high road of discussing the issue, without naming the agent or brokerage. An ethics hearing at REBNY is the venue in which this case should be fully vetted. I think that our blogs can be great places to discuss issues, but once we give into slinging mud (justified or not) the public perception won't be much better for the profession. Instead of encoraging transparency, broker blogs would begin to echo the kind of dirty tactics that many politicians use to influence elections— shady facts, overtures of impropriety, character assassination, etc...
You can take pride in the way you operated here. You worked for your customer diligently and lost, because of someone else's bad behavior. Unfortunately, that happens. I understand your frustration, but the bigger picture is that an agent's year of production is not anchored by any one deal; and if you care this much about winning for your customer, and operating with integrity, then you will be having a very successful one for sure.
I must however, disagree with our friend Doug Heddings that each side of a deal should arbitrarily be required to have broker representation. That's a position which assumes the very worst in people, and tries to impose a limited profit regulation to compensate for that assumption; which I think is by and large false. It is entirely possible for a listing agent to market an apartment, do a direct or a co-brokered deal, even with multiple bids, and work ethically as well. It happens every day. Sharing how that builds up a solid brokerage practice like the one Doug has, is more the direction I'd like to see this discussion go.
FYI, 75% of my business is in representing sellers. I get referred, hired and re-hired, because I am an advocate for my client's interests ahead of my own. How effective my marketing services are and how fairly I play, really does matter to them. Again, it's not about any one deal, it is about how I run my practice overall that grows my business. How much I get paid is a simply not the real issue. Direct deals are not unethical, but people can be. The problem is not in commission structures. More rigorous standards, greater educational requirements to obtain & maintain an agent's license, and more serious oversight and consequences for rule violations by the Department of State, are far better responses in my opinion.
Posted by Noah
Tue Mar 6th, 2007 06:54 AM
Thanks Peter and you make great points! Doug makes some good points too and its important to note that both sides share the same goal; for a more ethical workplace.
With that said, I did talk to REBNY and was told by John Doyle that this broker was in clear violation of their CODE OF ETHICS and this is a legitimate case. However, I can't file the complaint. The powers that be at my company must do that and I have a hard time believing that they will follow through on this. I'll certainly try, but I think this case ends here.
For me, I feel I got more justice by publishing this situation than by any complaint being filed anyway, as Im not sure what, if anything, the complaint will result in.
Posted by LLayne
Tue Mar 6th, 2007 08:43 AM
Laws regarding submitting an initial offer versus actually signing a contract are two different things and I believe they vary depending on state, you may not be bound by the offerm only the contract(check that).
Posted by Doug Heddings
Tue Mar 6th, 2007 10:16 AM
Peter and Noah,
You are both top notch professionals. That said, Peter is naive if he thinks that most operate with the same integrity and ethical standards as he. I have too many examples over the years of situations just like the one Noah speaks about here. And although I appreciate trying to maintain a positive perspective on our industry, it's a challengin task indeed.
I'm not suggesting for one moment that a direct deal can't be done ethically, but all too often money clouds judgement and the best interest of the seller is NOT the agent's primary focus. to pretend otherwise is ludicrous. I see it all the time. I have had it happen to me numerous times. Most recently, I had a buyer bid $6M (all cash) on a condo that the broker sold for $5.4M!!! It was indeed a direct deal for the agent and this agent cost the seller a HUGE amount of money. This isn't heresay, it's fact and calls for reform in our industry. I'm not suggsting I have the answers but I think it's wise to put this out there so that perhaps the public whom we serve, and maybe even our industry itself, can do more to prevent this kind of thing from happening in the future. The current system breeds mistrust and needs to be changed...thsat much I know.
Posted by jan
Tue Mar 6th, 2007 11:39 AM
Ugh, this hits close to home. The fact that an accepted offer is not at all binding until a contract is signed is absolutely ridiculous. I had an offer accepted on a co-op recently, only to find out a week later that I'd been outbid and the seller was going with the higher bid (one I couldn't match). And this after my attorney had already received an offering plan! I know this is totally legal, but still absolutely heartbreaking.
A week later, the seller's broker came back with tail between her legs--the deal fell through on the higher offer so here I am again awaiting a contract to sign. This time I am not holding my breath. Truth be told, I want to tell the broker to go screw herself, but I don't want to have to hit the open house circuit and ride the roller coaster all over again. Again, I know this is all legal, but let's face it, this is not just an investment--it is the place I am going to spend at least the next 4-5 years--it will affect every facet of my life--so it's hard to just take it all on the chin.
Well, now I've had a taste of the Manhattan real estate market--I'm far more jaded now and less emotional about the whole thing. Which is good, I guess.
Posted by newbie
Tue Mar 6th, 2007 12:59 PM
While I see Doug's point on the advantages of buyer's using a broker, I also feel that requiring it would be a mistake because having the buyer decide gives the buyer's agent an incentive to work harder.
You can argue that competition between buyers agents could address this, but honestly if a law/regulation requires a service at a fixed % it could turn this business practice into a racket and ultimately the customer suffers.
My vote is for higher professional standards & greater transparency.
Posted by Noah
Tue Mar 6th, 2007 03:44 PM
Few things I have to say.
Doug - Wow! That example you gave is incredible! I cant imagine how you felt after experiencing that and knowing what the place sold for. When did your client submit the 6M bid? Was it after this 5.4M was accpted with contracts out, before, or during same time in bidding war?
Newbie - Doug is saying that higher professional standards will never work, ever. At least that is why I think he believes so strongly in eliminating direct deals, and requiring each party to have their own representative.
However, I dont think that is a realistic thing to make happen. I dont think it will be that bad having the buyer required to have representation, as I think the effects of this type of setup seem to offer more positives than negatives. I think fixed commissions will be lowered should something like this ever happen.
Technology on the other hand will improve at a fast pace and will lead to more transparency in the future. I mean, look at how blogging has made real estate more transparent. We are talking about these situations in real time. No doubt, it will evolve to even farther reaches as time goes on. It will be fun to be a part of it as I think technology advancements show the greatest chance of making any change!
Posted by ARDELL
Tue Mar 6th, 2007 07:10 PM
NY needs to fight for binding contracts from the getgo the way everyone else does it. If a higher offer comes in before the contract is binding, the seller really has to take the higher offer unless the difference is negligible. Most states bind the seller at the time he accepts. It is not fair to buyers to have their accepted offers not binding on the parties...until.
And while you are at it, get that time is of the essence clause in from the getgo too. No other state has these types of problems. How the heck is someone supposed to give notice on their rental or hire a move, with no date carved in stone?
Posted by Peter Comitini
Wed Mar 7th, 2007 12:10 AM
A few points about the various threads here:
Noah is correct in that Doug and I have the same goal in mind, but the approach is quite different. I'm interested in raising standards, whereas Doug is seeking to regulate behavior. It is an overreaction. It strikes me that it could be damaging to my livelihood to start limiting the incentive of profit, in a legitimate transaction. It's not that I'm naive about the fact that some will act unprofessionally; but I do have the view that it is a few bad apples not the whole orchard. I've been doing this long enough to have been burnt too. Doug's proposal just seems heavy handed and penalizes honest agents. Its perhaps more naive to not see that it is an idea which is dead on arrival anyway. I doubt that the industry would ever adopt it voluntarily, and would in fact fight it tooth and nail if it were attempted to be imposed by legislation. The idea of raising standards is far more practical and implementable. There might even be some forms of regulation where we would agree. For example it should be illegal for a brokerage to offer discounts to favor their own company's buyer agents or the listing agent, rather than co-broker the property— since its in the best interest of consumers to have a more level playing field.
Noah, I did not know that individual agents could not file complaints at REBNY, I think that's outrageous. Many professional organizations have arbitration processes on disputes and complaints available to individual members. This is exactly the kind of increased oversight I'm speaking of, and that our industry should be supporting better as a whole. If we can't regulate and clean house by ourselves, then someone else will.
Finally, permit me to try to explain (and I'm not an attorney) why business practice is the way it is here. in New York City; we do not take a binder upon acceptance, as the details of the final contract of sale have yet to be fully negotiated. The contract of sale is the only binding agreement. It would limit the rights of the seller to not be able to rescind the acceptance, when the buyer can, and would give the buyer a degree of control over a property which they do not own, thereby limiting the rights of the owner of the property. NYC practice is simply to say it's not a deal, until its a deal. Both parties may have a legitimate right to sue for specific performance if the fully executed contract is breached. The flavor of whom this practice might advantage, depends on a buyer's or seller's market. Either way, the law recognizes the rights of the owner to control their own property. That being said, Noah recognized up front that the breach was ethical not legal.
Posted by Doug Quance
Wed Mar 7th, 2007 07:06 AM
Amazing.
The state that leads the nation in financial matters is clearly behind in regards to these contract issues... and MLS issues, as well.
It's simply hard for me to get my mind around the idea of an offer being accepted... but that doesn't MEAN anything...
Posted by Chris Lengquist
Wed Mar 7th, 2007 10:44 AM
I've been following this blog for a while now and it is VERY apparent that NYC has a very odd set of real estate rules compared to the rest of the country. At least from an outsider's point of view.
Noah, Keep up the fight. When you believe the best in people you will sometimes get messed over. Your clients are hiring you because they believe in you and the standards of practice you've developed. I've had odd things/decietful things happen to me here in KC as well. Sadly, it's just part of working with humans.