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Jim Klinge
Cell/Text: (858) 997-3801
klingerealty@gmail.com
701 Palomar Airport Road, Suite 300
Carlsbad, CA 92011


Category Archive: ‘Ethics’

Listing Agent’s Fiduciary Duty

In hopes of finding some legal clarity on the listing agents who practice the Coming Soons and Sold Before Processings, I came across this example at the DRE website – we see these happen regularly:

The requirements of law governing the relationship between agent and principal is to the effect that the agent cannot be allowed to profit at the expense of the agent’s principal, no matter whether the result is reached by misrepresentation, concealment or other fraudulent device.

In the case of Rempel v. Kells the court held that an agent obtaining profits by fraudulent conduct and concealment from the principal is not even entitled to recover expenses incurred by the agent in connection with the transaction. The duty of a real estate broker to disclose material facts known by him to the seller employing him was again confirmed in the appellate court case, Jorgensen v. Beach ‘n’ Bay Realty, Inc., (1981) (125 Cal. App. 3d 155)

In Jorgensen, the listing broker presented an offer to his seller that was only about 7 percent less than the listing price. The broker presented the offer on behalf of a speculator for whom the broker hoped to act in future transactions. When the broker presented the offer, he informed the seller that he was also acting on behalf of the offeror and was therefore a dual agent in the transaction.

The seller wished to counter offer on the price, but the broker recommended that the seller not do so. The seller followed this recommendation. The sale was consummated. Shortly thereafter the purchaser resold the property through the broker at a 13.5 percent profit.

In reversing a nonsuit for the broker, the appellate court held that the broker did not fully discharge his fiduciary obligation to the seller by simply disclosing that he was acting as a dual agent in the transaction.

It was the broker’s duty to disclose all material facts known to him which might have affected the seller’s decision to accept the offer. The court suggested that the facts known to the broker which might have affected the seller’s decision included (l) the fact that the buyer was acquiring the property for investment purposes and (2) the fact that the broker had a substantial personal stake in negotiating a bargain purchase for the buyer. (Field v. Century 21 Klowden-Forness Realty (1998) 63 Cal.App.4th 18).

Link to DRE (pages 182-183)

Posted by on Jun 21, 2018 in Ethics, Jim's Take on the Market, Listing Agent Practices | 3 comments

More on Pocket Listings

The standard knee-jerk response about pocket listings is to insist that some sellers don’t want to be on the open market for personal reasons, and that’s fine. In reality, those should be limited to major Hollywood icons who are unsure of how much their star-power adds to the price of a home, AND those who are flat-out bamboozling the buyer – like these sellers, who just sold this property off-market for $11,000,000. The buyer’s agent has been in the business for two years and this is his only sale ever on his Zillow profile!

The sellers paid $7,195,000 for it 8 months ago after 1+ years on market:

If the sellers are fully aware that they are engaging in an off-market deal, then fine. But most are being duped into thinking they are on the open market, but then all of a sudden – whiz, bang, boom, whoosh – and there is an offer on the table that is good enough to get them on their way.

It moves so fast that they never realize they weren’t on the open market.

Posted by on Jun 7, 2018 in Ethics, Jim's Take on the Market, Listing Agent Practices, Realtor, Realtor Training | 5 comments

FTC and DOJ Realtor Workshop

The FTC and DOJ conducted a workshop this week about the competitiveness in real estate.  There hasn’t been much press coverage, but Rob has summed up the bulk of it here:

Link to Rob’s Blog

The actual proceedings can be seen here on the FTC Facebook page:

Link to FTC FB

In San Diego County, you can’t say there isn’t enough competition.

There are around 20,000 realtors, and last month we only sold 3,288 houses and condos!  You can list your home for sale on the MLS for as little as $95, and every agent offers their own service/commission package for the consumers who are willing to shop around.

The main beefs:

  1. Commissions aren’t disclosed.  The realtor community will fight hard to keep the actual amount of our commissions private, but it’s not that big of a deal.  The buyer-agent commission is disclosed in every MLS listing, so it’s just the seller-side – which is disclosed, and agreed to, by the most important person – the seller!  But if they were disclosed to the general public, we’d probably find that there isn’t as much difference between traditional and discount agents as we thought.
  2. Commissions haven’t changed with higher pricing. An ivory-tower professor ranted on and on about this topic, and cited two ancient studies of other industries that weren’t applicable. She needs to do a current study of actual commissions taken from the closing statements for accurate comparisons.
  3. Decouple the commissions, and have the buyers pay their own agent.  While this sounds like a great way to lower the buyer-side commission in theory, it ignores two critical facts.  A) Sellers are offering a reward, or bounty, to buyer-agents to sell their home, and should have every right to do that, and B) the likelihood of an agent being able to steer a buyer towards a home just because of a higher commission is extremely remote.  If the FTC didn’t agree, then publicly displaying the buyer-side commission could help, and allowing rebates pretty much covers it – no other change needed.

What wasn’t covered:

A. What you get for the money.  If the FTC and DOJ wanted to impose one thing to help the consumer, it would be requiring that every agent publish the exact services they provide for the money, and their actual recent experience in selling homes.  Realtors have fought every attempt at publishing the sales history of individual agents, but have somehow allowed Zillow to do it openly.  I think it’s time that consumers know the truth.

B. Enforcing the rules.  With no enforcement, there are no rules.  The FTC and DOJ could at least publish their opinions on pocket listings so agents know what is legal, and what’s not.

A couple of people mentioned that they should do another workshop with actual realtors working the street.  I’m available!

Posted by on Jun 7, 2018 in Ethics, Jim's Take on the Market, Listing Agent Practices, Realtor, Realtors Talking Shop | 0 comments

Ethics and ‘Sold Before Processing’

The selling of listings prior to MLS input has happened since the beginning, but in the era of inventory desperation, we’re now seeing companies openly advertising ‘previews’ of their listings before they put them on the MLS.  Before long, the MLS will just become the market of last resort, much like Loopnet is for the commercial brokers.

Home sellers expect and deserve open-market exposure, but nobody in the business wants to give up the hope of double-ending a commission, or making a quick deal and moving on to the next.  Many of these off-market deals involve an outside buyer’s agent, which is really mind-boggling that listing agents are so lazy that they are willing to compromise their fiduciary duty to their own seller just to make a quick buck.

Frankly, this issue is only going to get worse.  Redfin (dozens of times) and other disrupters are doing it too, and we are heading towards having only one agent per sale – which sounds efficient, but will sellers get full exposure?

 

Here’s a solution for those agents who insist on doing it, and a way to ease into a more-ethical era (hopefully):

DON’T PUT THEM IN THE MLS – EVER.

For agents who say that they have to input their listings per the rules, give me a break. You already broke all the other rules, don’t go holy roller on me now.

Here are the benefits of not inputting your off-market sales onto the MLS:

  1. Other agents won’t have to explain to their waiting buyers why they didn’t get a chance to make an offer.
  2. Other agents won’t think you’re a sleazebag.
  3. Other agents won’t be encouraged to do it too.
  4. You won’t leave a trail of evidence for the district attorney.
  5. Help preserve the MLS and our business.

How bad is it? An agent who sells 100+ homes per year recently told me that half of their listings sell before MLS-input!

Did you have special circumstances that required an off-market sale, and you insist on MLS input? No problem – mention the special circumstances in the remarks so others don’t jump to their own conclusions.  But special circumstances are rare – most common and unsuspecting residential home sellers deserve open-market exposure.

We’d like to believe that realtors are ethical – heck, we have a Code of Ethics!  But when tempted to make a quick and sexy off-market deal, most agents can’t resist, even if it’s not in their sellers’ best interest.  I’m convinced that the vast majority of agents don’t even know the difference.

Posted by on May 30, 2018 in Auctions, Ethics, Jim's Take on the Market, Realtor, Realtors Talking Shop | 3 comments

How Buyers And Sellers Get Screwed

Another reason for the industry to commit to full transparency and the auction method of selling homes – our Code of Ethics doesn’t help much:

Q: I submitted an offer for a buyer client that was near the full listing price and asked the listing broker if any other offers existed. The listing broker said no. The next day the broker called me and told me the property sold to a different buyer. Shouldn’t the broker have told us that there were multiple offers when the other offer came in and given my client the opportunity to modify the offer?

A: This is one of many misconceptions about handling multiple offers. The primary provision in the Code of Ethics related to multiple offers is Standard of Practice 1-15, which says “REALTORS®, in response to inquiries from buyers or cooperating brokers, shall, with the sellers’ approval, disclose the existence of offers on the property.” You asked if there were any existing offers at the time you submitted and the answer was, apparently, no. Nothing in Standard of Practice 1-15 or any other part of the Code requires the listing broker to go back to any or all other buyers who made an offer should one or more additional offers come in after your offer was submitted.

While it might seem that listing brokers should be required to go back to all those other buyers if other offers come in, a seller may choose not to take that action and may choose another direction to negotiate a sale. It may also seem that going back to previous offers would always be in the best interest of a seller. But, from the seller’s perspective, there might be both price and non-price terms of the other offers that are more attractive. The seller might not want to risk that the later, better offer may be withdrawn in the time it could take to reinform the other buyers and allow them to change their offers.

One tip for cooperating brokers in multiple-offer situations is to ask the listing broker about other offers on more than one occasion during the negotiations. It’s no guarantee that you will hit the right time, but it might give you more information for your buyer client in the negotiation on high-demand properties.

Link to Article

Posted by on Mar 30, 2018 in Ethics, Jim's Take on the Market, Listing Agent Practices, Realtor, Realtor Training, Why You Should List With Jim | 7 comments

Real Estate Tip Line

Our San Diego MLS quietly removed our complaint button recently.  I’m sure they had heavy volume, but they aren’t the realtor police – nobody is.  Hat tip to SM for sending this in:

VANCOUVER – The province is hoping to make it easier for you to report suspected misconduct in the local real estate market by launching a new tool.

A new anonymous tipline has been launched by the Real Estate Council of BC, as part of, what it describes, a way to protect potential homeowners.

“This is a way for people who have information about potential misconduct of real estate agents, that perhaps they’re uncomfortable identifying themselves, they have this as a tool to report information to the council anonymously,” explains Executive Officer Erin Seeley.

The tipline is one of the recommendations made by an Independent Advisory Group two years ago. “The council set up this group as a way to report on the improvements the Real Estate Council can make in overseeing licensees and in protecting the public.”

This new tool allows people to report things like a conflict of interest, failure to disclose information, or even the mishandling of money.

There is a complaints process already in place and Seeley adds the new tool is part of the process currently available to the public.

“It’s anonymous, it’s more accessible with the 1-800 number, and it’s a secure forum,” she says. “And it allows people, regardless of whether they’re a real estate licensee or a consumer, they can use this to report misconduct and not have a fear of reprisal.”

Seeley says just like the current process, all complaints are investigated and reviewed to determine whether a full investigation is required. “If there [are] grounds for misconduct and evidence, we’ll take action as appropriate through the channels of investigating. We have administrative fairness and natural justice as key parts of our process.”

Processes to resolve complaints are available, and if a case warrants it, Seeley says hearings can be held by a tribunal.

“We have financial penalties, significant penalties up to $250,000 for licensees per infraction under the Real Estate Services Act.”

According to Seeley, the council receives a number of complaints and has investigated claims of significant misconduct in the past.

Link to Article

The only recourse around here is to file a complaint with the Association of Realtors, and have the Ethics panel hear your case.

I did file a complaint recently, which meant I had to compile and submit six copies of the evidence. The agent was found guilty, and received the maximum penalty for a first-time offender – a letter in their file for 12 months.

Posted by on Mar 19, 2018 in Ethics, Fraud, Jim's Take on the Market, Realtor, Realtor Training | 1 comment

Strict Code of Ethics?

Want to know how serious the National Association of Realtors is about our ‘strict Code of Ethics’?  They paid for this ad:

I love Phil Dunphy when he is playing a realtor on the show Modern Family, but this is different – he is representing the agents on the street in these ads.

We have a few seconds to impress upon the consumer how serious we take our Code of Ethics, and that’s the best we can do?

Posted by on May 22, 2017 in Ethics, Jim's Take on the Market, Realtor | 0 comments

Market-Rate Sellers

Marc Davison suggested here that we re-brand the word ‘realtor’:

http://www.inman.com/2017/02/14/the-case-for-killing-the-term-realtor/

He was met with the usual drivel from agents, some of whom mentioned the big difference between a real estate licensee and a Realtor is that we subscribe to a strict Code of Ethics.

But if we’re going to re-brand the name Realtor, then let’s stop the charade about ethics.  Realtors have stood by idly while their fellow agents have fleeced the banking industry with fraudulent short sales.  We intentionally deceive consumers by re-inputting our listings to make them appear like hot new offerings.  We make off-market deals and boast about them in the MLS that they were ‘sold before processing’, when every realtor has signed an agreement to share their listings with each other.

None of that is ethical, and if you participate – or stand by and watch others participate and do nothing about it – then you’re not an ethical agent.

Let’s put an end to it.

Either be ethical, or let’s stop saying we’re ethical, when we’re not.

Because the industry is so fragmented and independent, we’re not going to get a million agents to be ethical when you can double your commission by telling sweet little lies.

But we could educate sellers on the truth, and save our jobs.

The auction format would help to drain the murky cesspool of home selling.  Buyers and sellers would enjoy full transparency, and everyone would have a shot at paying what they think a property is worth.

Auctions would invigorate the marketplace!

But sellers are leery of the idea, and they don’t want to give it away.

Here’s my idea:

The MLS is a dinosaur, and has been complicit in the fraud.  Instead, let’s take this idea straight to Zillow – they already have different categories of listings on their website: Pre-foreclosures, Coming Soons, Make Me Move, etc.

Let’s add a new category: Market-Rate Sellers.

First, we properly educate a seller by having them read and understand the definition of a property’s value.  We give them this disclosure:

A property’s value is defined by how much a ready, willing, and able buyer will pay for it.  After proper marketing, I am willing to sell my property for what the market will bear.  Signed, Seller.

Why don’t we already have this piece of education?  Because sellers think they determine the value, and agents do nothing to convince them otherwise.  Instead, we encourage the idea just to get the listing.  Is that ethical?

If a seller is stuck on his price, then they go into the Make Me Move category.  No problem, I take listings like that – and I might get lucky some day.

But for the sellers who want to control the entire process and move promptly, we will have a solid game plan to get them top dollar now:

The Slow-Motion Auction:

  1. Tune-up house.
  2. Open house for 5-10 days.
  3. Buyers engage in open bidding at the house on X date.

Sellers and buyers deserve to have this full transparency, and the ethics it would impose on agents will save our jobs.

Posted by on Feb 20, 2017 in Auctions, Ethics, Jim's Take on the Market, Listing Agent Practices, Zillow | 11 comments

Ethics Violation

For the first time ever, I’m going to file a complaint against another realtor.  In this case, the listing agent discounted her commission so her buyer would win, even though my all-cash buyer had a higher offer.

It is in the vaunted Realtor Code of Ethics that any different commission deal needs to be disclosed to the buyer-agents:

7.22 Dual or Variable Rate Commission Arrangements. The existence of a dual or variable commission arrangement shall be disclosed by the listing broker by a key, code or symbol as required by the MLS. A dual or variable rate commission arrangement is one in which the seller or owner agrees to pay a specified commission if the property is sold by the listing broker without assistance and a different commission if the sale results through the efforts of a cooperating broker, or one in which the seller or owner agrees to pay a specified commission if the property is sold by the listing broker either with or without the assistance of a cooperating broker and a different commission if the sale results through the efforts of a seller or owner. The listing broker shall, in response to inquiries from potential cooperating brokers, disclose the differential that would result in either a cooperative transaction or, alternatively, in a sale that results through the efforts of the seller or owner. If the cooperating broker is representing a buyer or tenant, the cooperating broker must then disclose such information to his or her client before the client makes an offer to purchase or lease.

Of course, when taking the listing most agents don’t think they are going to discount their commission to screw another agent out of a deal, but once they get into the heat of battle, they lose their mind and forget.

Or they never knew it was against the rules.

The maximum penalty is a letter in the agent’s file for six months, so there isn’t a big deterrent to being unethical.  They say that the reason the MLS exists is to ensure cooperation and compliance between agents, which sounds good – right up until money is on the line.

I wonder how many agents have read the Code of Ethics?

Posted by on Feb 10, 2017 in Ethics, Jim's Take on the Market, Listing Agent Practices, Realtor, Realtor Training | 20 comments

Screaming Towards Single Agency

Zillow and our local MLS provider Sandicor reached the Great Impasse a year or two ago when they couldn’t agree on terms under which Sandicor would keep feeding our listings automatically to Zillow.  Agents complain all the time about Zillow’s inaccuracy, but it’s our own fault – agents have to handle them manually, and many are unaware.

But Zillow out-foxed Sandicor, and went directly to the big franchises and made their own deals to obtain their listings.  Zillow is now reaching out to the little guys too – they called me and offered to upload my listings direct from the MLS, and all I had to do is sign one form.

What’s the point?

Zillow has the killer instinct, and will throw their weight around to get what they want.  They are willing to cross the line occasionally too, evidenced by their $130 million settlement in the Move, Inc. lawsuit, and their frat-house employee lawsuit they settled for around $5 million.

I mentioned briefly that the brokers are attempting to build a portal to rival Zillow, but it’s a waste of time and money.  Zillow already has the eyeballs, and they get it about advertising. Any new portal would have to build a better mouse-trap AND advertise as much as Zillow just to catch up.

Or deny listings to Zillow.

But Zillow has already out-smarted any attempts to block listings, because they have gone to the brokers directly and cut their own deals.  The Zillow Team realtors are going to stick with Zillow, not go to some broker upstart portal.

But here’s the catch:

The Broker Public Portal promises to send leads back to the listing broker.

It is all they have to offer the brokerages, and it sounds tempting, because no listing agent wants the three-headed monster (Zillow’s three outside agents) advertising on their listings.

But such a system would encourage more in-house, dual-agency transactions.

It is where the industry is heading, whether it is ethical or not.  Zillow is already way ahead with their ‘Coming Soon’ ads, and every real estate trainer is prodding agents to ramp up advertising of hot new listings prior to MLS input.  Unfortunately, NOBODY talks about the listing agent’s fiduciary duty to the seller to expose the home to the entire marketplace via the MLS.

I see 2-3 listings per day being inputted as ‘Sold Before Processing’, the realtor marketing sessions tout that ‘deals are being made’ at their private meetings, and most brokerages offer their agents a better commission split if their listing is sold in-house.  The ethics of exposing a listing to the entire marketplace via the MLS is being ignored.

Dual agency is tricky for most, and it can be messy too if something goes sideways – the agent is squarely in the sights of every lawyer.

With the tight inventory, agents don’t feel the need to share their commission with an outside agent – especially one who might make repair requests or screw up the closing somehow.  It will be better to hog the listing, make higher commissions, and have easier closings.

We are screaming towards single-agency, where the buyer will get no representation.  If they want advice, they can pay for a buyer’s agent themselves, or just get dragged to the finish line by the listing agent’s clerks.

Hope you like the price and condition, because if you don’t, the next guy will.

Posted by on Jan 24, 2017 in Ethics, Jim's Take on the Market, Listing Agent Practices, Realtor, Zillow | 3 comments