Home Buying in Needham>Question Details

Dave, Other/Just Looking in Needham, MA

is this unethical or just irresponsible? yesterday, my brother/fiance put in an offer at $1k over asking

Asked by Dave, Needham, MA Mon Apr 21, 2008

(through buyers agent). today, they found out they lost the house because someone else had a bid around the same price as theirs but they offered 20% down, which tipped it in their favor. the other offer came from a buyers agent in the same office as the listing agent. my question is this, isn't irresponsible to not ask for counter offers? my brother has since put in a backup offer $20k higher than his orginal (he really wants this house and has been searching for seven months). it just seems like a strange coincidence that the other offer was $1k greater than asking in this market (needham, ma), which leads me to believe that the listing agent just told the buyers agent from her office where to put the offer. why else wouldn't she encourage a bidding war? thanks for any input.

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The listing agent has to submit all offers to the seller and may offer guidance, but the final decision rests with the Seller. Even if the listing agent encouraged the seller to counter offers received, if the seller is in a hurry to sell, he may be inclined to accept the first and best offer he receives. What if the other offer had the best terms --- like shorter contingency periods or a shorter escrow, higher initial deposit?

A difference of $1K over asking price may not be perceived as significant as another offer with a substantial down payment. The rationale is that the buyer with the larger down payment is in a good financial position to close the transaction. Sometimes, it's not about price as much as a guarantee that the sale will be completed. That's why it's important to consider all the terms (initial deposit, down payment, buyer investigation period, loan contingency period, etc).

Hope this helps.
3 votes Thank Flag Link Mon Apr 21, 2008
Here are the 2 things worked against you here:

1) The downpayment. In this market sellers are looking for strong buyers because they don't want to take the risk of their bank not coming through with a commitment right before closing.

2)In house deal. Sounds like it was an internal deal which means the office was likely chasing that full commission so they may have advised the seller to take the other deal (or, like you said, given the other buyer broker the inside scoop) so as to make more money. This kind of unethical behavior happens all the time and it is because the agents get paid % of the sale price (i.e. incentivised to do the selfish thing).

Regardless I agree with you 100% about this seeming like a shady ending. Unfortunately this kind of in-office behavior happens all the time in the industry ... the listing agent should have been working hard to get their seller the best and highest deal and so he/she should have approached both buyers again and asked for a "best and final" offer. This is one of those cases where unfortunately we can only speculate and may never know officially. I do like that your brother submitted a back up offer of 20K over asking because by law that listing agent has to show the seller, and unless the seller has absolutely no clue they will immediately ask their agent why he/she advised them to sign the other offer when their was another buyer willing to go so high. That should smear some mud in their faces :)

Anyway, hope that helps. Good luck with everything!
2 votes Thank Flag Link Tue Apr 22, 2008
No, it isn't irresponsible for the sellers to ask for a counter offer. There they are, trying to sell their home. Two offers come in, both at or above the asking price. One is more solid than the other, offering 20% down. The seller has two offers, one somewhat more attractive than the other. The seller takes the more attractive offer. I'm not sure who's being irresponsible: The seller for accepting an offer that meets their needs? The seller's agent, who may or may not have suggested that the seller counter. Perhaps "a bird in the hand is worth two in the bush," as the saying goes. Why risk losing a potential buyer (or both potential buyers) by "encouraging a bidding war"?

If your brother and fiance really wanted the property, they should have presented their strongest offer in the event that events unfolded as they, in fact, did.
2 votes Thank Flag Link Mon Apr 21, 2008
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
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TerritoryRE, my mouth dropped while reading your answer. Your accusatory answer is absolutely out-of-bounds and also happens to be factually incorrect. First, to intimate that the listing agent and the selling agent are in bed with each other after reading a post on the internet is rediculous. Second, and more importantly, you being a licensed real estate agent should know that offers to purchase are only presented until one has been accepted specifically in order to avoid these types of shananigans. Here is the text directly from the Greater Boston Real Estate Boards' Agreement for Exclusive Right to Sell:

Once an offer has been accepted in writing and a transaction is pending, the Broker shall have no obligation to market the property or present further offers to the Seller unless otherwise agreed in writing.

I understand your obvious bias due to knowing a bit about your business model. That's fine. Just please get the basics of real estate contracts correct before espousing your knowledge and opinions on real estate message boards

Now, to answers Dave's question. Dave, I agree with most of the other answers here. As a listing broker i would definately take the offer with the higher downpayment considering all things were equal. I, on the otherhand, would probably have told both buyers to come in with their "highest and best" offer making sure to explain to each of the competing buyer agents that the offer were very close in price and terms. As I stated earlier in this post, your increase may or may not have been presented to the seller. I would've told my sellers about it but circumstances warrant. If the situation warranted I would've explained to the seller all of his or her options thouroughly. Good luck and take care, Jon
Web Reference: http://www.bowenboston.com
1 vote Thank Flag Link Thu Apr 24, 2008
Sorry to hear your brother lost out.. but i do agree with the other responses.. that in this market with the current lender requirements, not to mention idiocyncracies, the listing agent may have felt that there was no sense in giving a counter offer (or bidding one against the other) to a buyer with mimimal down payment. And, also, let's give the seller a little credit for having the intelligence to choose the best offer, regardless of any possible motive of a listing or selling agent within the same office. To assure this doesn't happen again, if your brother feels confident he's very qualifed, he may consider taking out the mortgage contingency on his next offer. Good luck to him and his finace!
1 vote Thank Flag Link Tue Apr 22, 2008
I'd be inclined to urge my seller to take a deal with more money down rather than less in this market. I was talking to an attorney friend of mine who said he is seeing 2/3rds of mortgages, even refinances, fall apart in the eleventh hour with little or no explanation other than banks are nervous and "just not doing it".

Agents are bound by law to present any offers on a property. A buyer's agent may cry foul play but the fact is that this is a very difficult lending environment. If your brother wanted it so bad he might have put his best foot forward out of the gate and avoided a competitive bid situation.
Web Reference: http://www.provestre.com
1 vote Thank Flag Link Tue Apr 22, 2008
I'm not sure if this applies to this particular sale, however one of the biggest deal breakers lately is the appraisal process. By putting 20% down the house will not have to appraise as high because the bank is lending less on it. Just because someone is willing to get into a bidding war and make a higher bid doesn't mean a bank will lend the money to them for the property. Also by putting 20% down you bypass the PMI which also has to agree to the appraised value before it will agree to insure a property.

If an offer came in $5000 less and was putting 20% down, I would lean towards that offer over a full price offer putting down 3-5%.
1 vote Thank Flag Link Mon Apr 21, 2008
Good afternoon Dave:

In this market financing is more important than markets in the past few years. The other offer was judged to be stronger. There is risk to a bidding war as a certain % of buyers will walk from it, so you only attempt it if the seller wants the risk to get more money for the home or the offers are substantially the same.

Perhaps a more prudent offer would have been $1,000 over asking not to exceed the highest number your brother was willing to offer (It looks like $20,000 more). This would indicate to the seller a stronger likelihood of a higher bid.

Regards,

Rob
1 vote Thank Flag Link Mon Apr 21, 2008
The situation might look unethical or irresponsible from the outside, but looking at it from the Seller's perspective, a thousand dollars over asking price is not nearly as attractive as a 20% down payment. The Buyer with a large down payment is much more likely to close escrow on time, and without complications. Every day that goes by poses more of a risk that a Buyer could lose their financing, especially if they have a high loan-to-value. Most of the 100% financing plans have been eliminated and the 97% financing plans are growing scarce. It sounds as though the Seller accepted the offer that was deemed the most likely to close.

I would be curious as to how your brother would know the details of the accepted offer. Normally this sort of detail is kept private until after the closing, and could only be disclosed with the Seller's permission.
Web Reference: http://www.SNHhome.com
1 vote Thank Flag Link Mon Apr 21, 2008
Dave,
LIsting agents have a fidiuary obligation not to disclose any other in formation. The buyers agent co-incidental was working in the same office. Here is my suggestion have your Brother be represented by a Buyer's agent--everything would be explained by the agent and it's no cost to him. I would gladly speak to him. I work for Century 21-Commonwealth with 17 offices. The largest in New England, if he wuld like professional representation have him call me 617-429-4812. This is my direct cell #. By the way I reside in Needham.
0 votes Thank Flag Link Wed Dec 1, 2010
What you are suggesting isn't strange at all ... Those types of bad business practice happen all the time in real estate. The office makes more money if they sell their listing it to their buyer and a lot of good ethical agents believe that tactic is definitely unethical, especially since they are doing things that are NOT in the interest of their seller clients (not living up to their fiduciary duty) but rather doing things that benefit their nominal interests. That said, hard to know exactly what happened since we can't hear the listing agents side or see proof that they steered the seller towards their buyers offer. Usually there is a "best and final" opportunity but the seller doesn't have to offer this to the bidding home buyers and since the other offer was "stronger" because of 20% down financing they have reason to just take the other buyer's offer and move forward. You could always try and have your brothers agent request to see the other offer from the listing agents office but to my knowledge they legally don't have to show you or tell you the terms.

Bidding war situations can be very emotional and frustrating for buyer's because there is so much unknown.
If you have any further questions feel free to email us help@territoryre.com
0 votes Thank Flag Link Wed Jul 22, 2009
Hi Dave,
Not knowing the details, it sounds as though the seller may have felt that the lower offer was a stronger offer. Was your brother putting down less than 20%?
Thanks, Mary.
0 votes Thank Flag Link Tue Jul 21, 2009
Dave,
I understand your point. The listing agent's job it to pursue the highest price for the home from the most solid buyer. Even in this buyers market there are homes that sell well over asking price because they are priced right.
You see, Dave, there are 3 types of properties on the market today.
1. Great Ready to move in homes priced at or below market value
2. Foreclosures and Short Sales
3. Overpriced homes stuck in "languishworld".

Sometimes listing agents encourage the seller to list below market to create urgency and bidding wars. As a result, this usually drives up the house price to fair market value.
If the house that your brother and fiance wanted was outbid, it isn't up to the listing agent to ask for counter-offers. It is up to the seller to ask the listing agent to solicit counter offers. So perhaps the seller just wanted to take this offer because he needed to close quick or whatever other reason.
Does this make sense?
0 votes Thank Flag Link Thu Sep 11, 2008
Everyone is entitled to an opinion. I never said anyone was in bed with each other, I was however identifying the reality: the listing agent and in house selling agent are nominally incentivised to do the deal in house. So, when Dave's story starts to go conspicuously downhill - he specifically points out the issue with the in house broker, etc - it was my opinion that the in house relationship (along with the down payment) may have had something to do with it. I received 3 calls last week from buyers working with listing agents who felt their interests were not being protected because the agent was clearly incentivised if they paid more for the property and they had a legal duty to protect and guide the seller, not them. Even with the disclosure sheet they didn't understand. These calls are heartbreaking and unfortunately it happens.

Also, I love that you come after me with an assumption (and opinion) of your own. Unless you are the listing agent on this particular deal or know the listing agent and had access to the contract, you are assuming that their agreement had this language you quoted below and/or was an exclusive right to sell relationship/contract. There are other contract options for sellers. Again, that is contractual language that the seller must agree to and sometimes they don't ... " unless otherwise agreed in writing." Also, not everyone uses the GBREB's written contracts, as the state does not require or mandate that you do so, and you, Jonathan, should know that as a licensed real estate agent.

Anyway, your response seems to be slightly aggressive. Not sure this is the right platform for you. I apologize if my response rubbed you the wrong way - I see you are in fact a listing agent yourself (and represent both parties in transactions?). I am sure you are a great agent - there are a lot out there :) - who would never let an in-house deal steer you into unethical behavior but it happens a lot and there is no need to hide that from Dave or anyone else reading this post. It's just another opportunity to educate home buyers.
Web Reference: http://www.territoryre.com
0 votes Thank Flag Link Fri Apr 25, 2008
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