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Double Ending the Short Sale vs Giving the Seller Highest and Best Shouldn’t Be a Dilemma
This article titled: Double Ending the Short Sale vs Giving the Seller Highest and Best Shouldn’t Be a Dilemma, was written by Elizabeth for another publication back in the sorry years. Enjoy. — JaCi Wallace
Many Sacramento listing agents are receiving multiple offers, and not just on REOs or short sales. Any attractively priced, well appointed home in a desirable Sacramento location is likely to draw the attention of more than one buyer. The listing agent plays an important role toward helping the seller figure out which offer to accept because the highest offer isn’t always the best offer.
On top of that, sometimes the listing agent will bring his or her own buyer to the table. In that case, the agent is operating in dual agency but it does not relieve the agent from protecting the seller’s interests.
Take, for example, California taxation on debt forgiveness. Although the federal government will not tax mortgage debt forgiveness on an owner-occupied dwelling in 2009, the state of California is no longer exempt. The exemption expired Dec. 31, 2008. That means it is extremely important for a short sale listing agent to get the seller the highest price. A higher price equals less debt forgiveness. The lower the short fall, the lower the tax.
Yesterday an agent emailed to say she was about to write an offer on one of my Sacramento short sale listings. I told the agent that a buyer had expressed interest in writing an all-cash, full-price offer, so she would need to beat that offer. Fortunately, the buyer hadn’t yet contacted me directly to write the offer, so I had no fiduciary relationship to the buyer. Giving the seller highest and best as a listing agent means exactly that.
The thing is I don’t know if most agents would sabotage the chance to double-end their own deals just to net the seller more money, but that wasn’t my first thought. I was focused on getting the seller the highest price. After I clicked “send,” I watched my chances of earning twice the commission slip silently away. I thought about it before I clicked the send button, so it’s not like it just dawned on me, yet it was the right thing to do. I don’t think we can ever go wrong in this business by listening to our conscience and doing the ethical thing.
Having been on the other end as a buyer’s agent, I’m wondering how many agents would agree with me. Giving the seller highest and best is what we do.
Call us today Weintraub & Wallace Realtors at RE/MAX Gold. We can be reached at 916-233-6759.
How to Double End a Listing Without Listing the House
The process I am about to describe to you, how to double end a listing without listing the house, is not something your broker’s legal team will want you to read about. I am not promoting this particular system as much as sharing stories that happened to me 40 years ago when I first started selling real estate. Many of our activities back in the 1970s would have lawyers today running for the closest bottle of scotch.
Yup, today this would involve practicing risk management on overload. Legal liability up the wazoo. Yet, I’m gonna tell you anyway, because that’s just the kind of person I am. A troublemaker. With a capital T that rhymes with B and stands for bad influence.
You might not think of me as a bad influencer because I generally try to do good things, but let me say, soon as my junior year in high school ended, my probation officer (didn’t every kid have a probation officer back in the ’60s?) insisted I leave my group home in Wayzata and find other living arrangements. Because I was . . . you guessed it . . . a bad influence. I encouraged other kids to take control of their lives and question authority, and that was bad.
Back to this situation. So, the way an agent could double end a listing without listing the house is to first find sellers who want to sell but do not have an agent. Sometimes these sellers are called FSBOs, which stands for For Sale By Owner, pronounced FizzBo, or they could be a referral or some guy who walked into an open house and mentioned wanting to sell. I called them from the newspaper classifieds. You could find them today on Zillow. These are people without representation.
In the 1970s, when I obtained my real estate broker’s license and began selling, double ending a listing seemed like a good way to go. Today, not so much. Today I would say double ending a listing is asking for trouble and I do not work with buyers anymore. I represent sellers. But back then I didn’t know any better. Dual agency was also more common than it is now.
The reason this worked so well, to double end a listing without listing the house, was because some sellers were very resistant to listing. But they were not resistant to selling. Much like today, actually. I sat down at many a dining room table to tell sellers I was not there to list their house; I was there to buy it and assign the sale to one of my investors.
Unsecured promissory notes were used as a down payment, again, rife with legal problems today. I paid the sellers their asking price, too. Because I discovered we could make money at list price. We did not need to buy low and sell high. That is a fallacy. Even created my own purchase agreements in 3-part NCR so they appeared official. I knew enough from my years in escrow to know when to remove prorations from the sale agreement. Sort of the big print giveth and the little print taketh away.
The agreement I signed with the sellers was in my name or assignee. I often wrote the contracts to close in 7 days. This was very appealing to a seller. Full price and fast closing. Most of all, I performed. I transferred all my purchase contracts to investors. Which meant when I called them to say I found an investment property for them, it meant it was already in escrow.
There was no showing of homes. I showed one home. The home I just bought for them. If they didn’t want it, another investor would take it, but they almost always accepted the assignment without questioning. I was the professional, and they were just the guys with a bit of cash. There was a certain amount of respect for what I could do.
Not like today. Today many buyers think they know everything. After all, they watch HGTV.
What about a mortgage? There were no new mortgages. Interest rates were too high. Rates were 18% at one point. I bought the property subject to the existing financing. Often, the down payment was between 7% and 10%. If it was 10%, the seller would get the 3% difference, because 1% went to closing costs and 6% to commission. Just because I wasn’t listing the property did not mean I did not write a commission into the purchase contract.
Today, the commission, though, is not part of the contract.
I created my own form to transfer my interest in the purchase contract to the investor. It’s a wonder I wasn’t ever sued for practicing law without a license. No investors qualified to buy the home. No credit reports. No disclosures, no preapproval letters, no proof of funds.
In addition to taking title subject to the existing mortgage, sellers would receive, for example, a second trust deed for the balance of their interest. They didn’t want the trust deed, most wanted cash.
I had another group of investors who purchased trust deeds at a discount. On a straight note (with simple or compound interest accruing, no payments), the balloon payment was typically 3 to 5 years. I sold those at a 30% discount to the seller, pocketed half and gave a 15% discount to the investor. The investor got a great yield and everybody was happy.
If this hurts your head, well, it is fairly creative, and remember, this was from a time when an agent could do many things an agent cannot do today. If you could come up a plan, it was most likely executable as long as you weren’t breaking any laws, and we did not have laws like we do today.
The sellers knew what were doing. They knew the paper was created and sold in a second transaction, and there could be liability with the subject-to due to alienation clauses, which could result in an acceleration clause. Sellers did not mind that I was paid to sell their trust deed and I received a standard real estate commission for double ending the sale.
Because, like I said earlier, they did not want to list their house.
But I look at that type of transaction today, which seemed so normal and ordinary during the creative financing years, and I can’t hardly believe it myself. Kids, don’t try this without legal advice. Some things from the past belong in the past.
Today, everything I do is to protect my seller’s interests. And I’m a lot wiser.
Buyers Who Call Listing Agents Now Have More Ways to Sue Dual Agents
Who isn’t looking for more ways to sue dual agents in California? I hear from a lot of real estate clients around the country who are upset with their agents, and many of those complaints center on dual agency. They read an article I wrote about dual agency or contingencies or some other legal matter in real estate and call. In case you don’t know, in simple terms, dual agency occurs when the seller’s agent is also the buyer’s agent. This is when sellers find out too late that paying their own agent to represent a buyer might not be in their best interest. Or, buyers discover that trying to manipulate a listing agent into divulging confidential information may have backfired. By attempting to buck the system, buyers may end up with no agent advocating for them.
The new document that will most likely cause more lawsuits by encouraging parties to sue dual agents in California is the revised Agency Disclosure. Its formal name is Disclosure Regarding Real Estate Agency Relationships. I say this because I know from observation how lackadaisical many listing agents are. So many just don’t consider ramifications or cause and effect much less consequences. In fact, it is so tough to be a dual agent that I prefer to pass on it.
Dual agency is not good for sellers nor for buyers and the only people who think it is are the dual agents themselves. Further, the main reason dual agents like dual agency is because they make twice the commission. No wonder some consumers hate real estate agents. It’s rare that dual agency is better for the parties. Usually the opposite.
New language in the Agency Disclosure sets out pretty clearly the confidentiality requirements. Agents are always required to keep this sort of information confidential (without written authorization), but in dual agency, they sometimes forget. Below is the verbiage, with the new changes in bold:
“In representing both Seller and Buyer, a dual agent may not, without the express permission of the respective party, disclose to the other party confidential information, including, but not limited to, facts relating to either the Buyer’s or Seller’s financial position, motivations, bargaining position, or other personal information that may impact price, including the Seller’s willingness to accept a price less than the listing price or the Buyer’s willingness to pay a price greater than the price offered.”
Agents are often made privy to confidential information about why sellers are selling, which is none of anybody’s business but the seller. This reduces dual agents to pretty much transaction facilitators. They can’t represent either party very well. The downside is buyers might think they don’t need representation but they certainly do. Never had a buyer say, “oh, we didn’t need you guys.” Just not gonna happen.
But what will happen, mark my words, is more parties will decide to sue dual agents because the agents will, without hesitation, disclose confidential information. I know this surely as the sun sets in the West.
The Story of Closing 4800 Westlake Parkway in Natomas
4800 Westlake Parkway #1805 is one of 8 three bedroom units.
People tend to believe that all agents are the same, but the owner of 4800 Westlake Parkway knows better. She bought this condo in Natomas from my team member, Barbara Dow. So when it came time to sell, she listed with Elizabeth Weintraub. That’s because I take the listings for the team. I am a listing specialist. My team members are exclusive buyer’s agents. This is how I predict real estate will be in the future. Agents will pick a specialty and not try to do dual agency nor work both sides of the street.
The seller was a little confused as to why, but she went along with our strategy. Soon enough she figured out why she hired me as her Sacramento listing agent. It became clear early on. Not only do I sell a lot of homes in Sacramento, but I pride myself on producing spectacular results. I am very analytical. No way do I just stick my finger in the air and say, oh, the wind is blowing gently this morning, so the price for this condo at 4800 Westlake Parkway should be XYZ. I consider the comparable sales but I also take into consideration market demand, Bay Area buyer views, price point and more.
When you look at the square footage of this condo, it comps out around $256,000. Yet, I suggested a list price of $269,000, knowing full well there are no comps to support it. Sometimes I say forget the comps. Look at the market. Now, that’s not to say another agent could take that price and run with it, because no other agent markets the way I do. My systems are my own. I always go a few steps beyond what I should do. This is part of what makes me different.
We received an offer that was $4,000 lower, which was too low in my opinion and the seller agreed. The following day, we received another offer at $3,000 over list price, based on conversations with the buyer’s agent. I helped to guide the agent to that number. I also talked with a resident who disclosed an amazing fact. She told me there are only 8 three bedrooms in the entire complex! That statistic alone meant a higher price, in my mind.
After we went into escrow, the buyer asked for repairs. Buyers often do this because they don’t want to listen to their buyer’s agent and they think there is no harm in asking. To help facilitate the transaction, I sent do-it-yourself websites and instructional materials on how to do the repairs the buyer asked for herself. This made the buyer feel comfortable and she backed off the request for repairs.
However, when the appraisal came in, it was $5,000 low. I talked the buyer into splitting the difference in cash, so the seller still sold over list price. It meant that the buyer brought in more money to close. Also, there were no credits, no repairs. We closed escrow yesterday. The seller made a nice profit over the 5 years she rented out the condo and gained $100K+ equity upon resale. We steer our investment clients in the right direction.
I should mention that I listed this condo at 4800 Westlake Parkway while I was in Hawaii last month, and I also sold it from Hawaii. This is now the highest priced sale at 4800 Westlake Parkway. Think about this when you look for your next listing agent. I was able to do all of this without even looking at the property myself, much less being physically in town. Sacramento Realtors are not all the same. Call Elizabeth Weintraub at 916.233.6759 and put 40 years of experience to work for you.
Are Double-Ending Listing Agents Bad News for Sacramento Sellers?
Double ending listing agents tend to cost the seller money.
Double-ending listing agents have been around since I started in the business in the early 1970s. They are still in the business today. Whether they will survive the real estate shake-up in the future, like 10 to 15 years from now, is doubtful. The reason I think they’ll eventually vanish is because they are a bad idea to start with. Time will only make them worse. I also believe sellers are becoming more sophisticated. They are wising up.
Although, at least in Sacramento, double-ending listing agents happens fewer times than one might think. It’s just not all that common.
There are unscrupulous double-ending listing agents who do everything in their power, generally at their seller’s detriment, to ensure they will get both sides of the commission. They do it so innocently that most sellers never even know what’s going on.
When I look at a listing and see the following things, it’s fairly obvious to me the listing agent is trying to double-end the transaction. For example, there are almost no photographs. No photographs means buyers will call the listing agent to get more information, and then the listing agent can represent them. Or, the listing will not allow a buyer’s agent to call the seller for showings. The listing will state: call listing agent. Then the listing agent will not answer the phone when Coldwell Banker lights up. Or the agent will only return voicemail from buyers. Or, the agent makes showings very difficult, like only between 3 and 4 PM on a Thursday.
If you think this isn’t going on in Sacramento real estate, I’ve got some swamp land in Florida to sell you.
Naive sellers might think they are getting a good deal if their double-ending listing agents also represents the buyer. Even if I ask: if you were suing your husband for divorce and demanding alimony, would you use your husband’s lawyer? If your son was on trial for murder, would you hire the prosecuting lawyer as your own? Dual agency is not a good idea.
Some double-ending listing agents offer a discount, too, when they take both sides of the commission. Are sellers getting a break or are they getting taken to the cleaners? The smart sellers reject this notion of dual agency. They figure out that hiring a top-notch listing agent who only represents their interests is the way to go, and instead of making money, they lose money by hiring a discount agent intent on double ending.
When you see a big price drop or a home that sold for a lot less than the list price, often it’s the transaction in which the agent represented both the buyer and seller.
That’s why buyers call me all the time and beg me to work with them. They expect me to throw my sellers under the bus when my intentions are the opposite. I intend to maximize my seller’s profit, not reduce it for my own personal gain. To do otherwise is dishonest. To expect me to be dishonest is insulting.
There is a reason discount agents don’t get paid the same as others. You take top listing agents whose average sales ratio might be 103%, meaning they sell their listings for 3% more than list price, and all of that hogwash about double-ending saving money goes right out the window. Double-ending listing agents tend to cost money. But it’s every seller’s right to choose lousy service and bad representation if that’s what they want. It’s a free country.
