a troubling line potential sellers hear from agents all the time

having nothing to do with pajamas (really)
The Real Deal has a puff piece in the June issue that was featured on their web page last week, Doing deals in pajamas, that has a dog-bites-man ‘news’ quality about it that is perfectly captured in the sub-heading: “In today’s market, brokers say living on-site can help secure a listing as well as drum up business among neighbors”. Ya don’t say!

I wouldn’t bother to snark about it if that’s all there was, but the article includes an agent quote that is so typical and so dangerous that it deserves discussion.

In the Bad Old Days in Manhattan residential real estate practice, this was an innocuous statement:

When [name withheld to protect the possibly innocent] met with the seller, “I presented him (with) the work I’ve done in the building,” she said.I have a roster of people looking to buy in the building.”

In the Current Enlightened Era of informed agency discussion (ha!), that red statement translates like this:

You should hire me to squeeze as much money as possible from the most qualified buyer because I have interested buyers who already think I am working on their behalf.

That’s not something I would brag about. That is something that suggests the agent and/or the seller don’t really understand the fiduciary obligations that should be involved with an exclusive listing. And that is something that implies that the seller does not understand how cooperation among brokerage firms works.

But even in the Current Enlightened Era of informed agency discussion I hear this stuff all the time; at least, every time when I talk to a potential seller about a listing, as they invariably ask “do you have a buyer?” and often comment that “so-and-so [a competing agent, who may actually live in the building!] told me that she has a roster of people looking to buy in the building.”

a seller should never hire “an” agent to bring a buyer
I will get to the ethical issues in a bit, but let’s start with practicalities. Any seller who hires any REBNY agent to exclusively represent a listing also hires every other REBNY agent to bring a buyer, thereby to share in the sales fee. A 50/50 split of the sales commission should be enough incentive for anyone, especially someone with a roster of people (already) looking to buy in the building, to bring a buyer to another agent’s listing. (Ignore for purposes of this discussion the possibility that the listing agreement can allocate the sales fee on a different basis than 50/50.)

To use the example in TRD, how likely is it that the pajama agent at 101 Warren Street (with that roster of people looking to buy in the building) would not help one of those buyers buy any listing in the building, regardless of who the exclusive listing agent is? If these are real buyers … zero chance, approximately. That agent, representing the buyer, will earn exactly as much as if she represented the seller and another agent brought the buyer. Exactly.

Structurally, REBNY firms cooperate in order to give buyer agents a significant dollar incentive to bring buyers to other agent’s listings. In the Bad Old Days of ‘pocket listings’ listing agents were not so willing to share fees and sellers did not have the sophistication to insist that fees be shared, so REBNY (finally) changed the rules to require cooperation (belatedly joining the long-standing and universal practice of residential real estate brokerage in Manhattan America).

The ethical issues seem to me so obvious, but the fact that agents often say things like “list with me because I have a lot of potential buyers for your property” proves that they are not.

not slamming that agent
I did not use the agent’s name from TRD because it is possible that she fully informs all of her clients in a completely ethical manner and would have explained how she does that if only TRD had been interested.

There may be other ways to do this in a completely above-board manner, but I can think of only two:

  • the agent has already told that roster of buyers that if she gets a listing, she can only act as a dual agent if she also gets the informed consent of seller, of course
  • the agent has already told that roster of buyers that if she gets a listing, she will only act as agent for the seller (or will do so if the seller does not consent to dual agency), so the buyers will have to be prepared to either work with another agent or agree not to be represented

In the first case, the agent faces the challenge of persuading the seller that the seller does not want the full fiduciary representation that the seller would otherwise get (a topic I addressed when I talked about the Warburg president’s epiphany that dual agent is not a good thing for consumers, or agents, in my May 16, the Warburg guy wants to take the Dual out of Agency in Manhattan residential real estate).

In the second case, the buyers are the ones who ‘give something up’ for the benefit of the agent: either they agree to dual agency if the seller also agrees, in which case, neither party has the full fiduciary representation they would have otherwise; or they agree to be unrepresented and understand that the agent (thought to be ‘theirs’) will act only on behalf of the seller; or they agree to work with another buyer agent, giving up whatever benefits they thought they had by working with the original agent in the first place.

(There is a whole ‘nother level of agency fog here that I will just mention: many lawyers [and possibly a court, or the Secretary of State] would take the view that once an agent worked with a buyer as his/her agent, and has shared information that the buyer would not normally share with the seller, it is impossible for the agent to give up that buyer to work with a seller who may do business with that buyer; the concept is “once a fiduciary, always a fiduciary” unless both agree to dual agency. But let’s not go there….)

In that second case, why would any fully informed buyer agree to this arrangement? And, if the agent has to ‘give up’ the buyer, what is the utility to the seller of retaining an agent who has that roster of buyers?

meanwhile, back in the real world…
Remember the seller conversation I mentioned up top? The fact that all sellers typically ask “do you have a buyer?” of agents they are interviewing as potential listing agents, and that they often comment that “so-and-so told me that she has a roster of people looking to buy in the building.”

The dirty little secret here is that sellers say these things because they have been conditioned by the Manhattan residential real estate industry to think that it is in their interests if the agent whom they want to be 100% in their corner also has some relationship with buyers. The shame of the Manhattan residential real estate industry should be that sellers (and buyers!) think this way. The challenge of the Manhattan residential real estate industry is to change these perceptions, though this is rarely acknowledged (which is why The Warburg Guy’s public epiphany was so welcome).

If you were a seller and a potential listing agent touted all the buyers they have who might be interested in buying your property, wouldn’t you worry about who that agent would really represent if you signed an exclusive listing agreement? Shouldn’t you??

To put it in colorful terms, beware agents in pajamas (so long as you understand that ‘pajamas’ is a metaphor for divided loyalty).

© Sandy Mattingly 2012

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