Ontario’s provincial government is seeking industry input on the issue of multiple representation.
Here is my background. I have been a full-time Realtor for over 36 years. I have owned and operated small and large independent and franchised brokerages. I currently co-own and operate a large brokerage with over 900 salespeople and multiple locations across the Greater Toronto Area. I have served on Professional Standards and Discipline committees for various boards and the Real Estate Council of Ontario.
I have first-hand knowledge of the types of complaints and consumer concerns that arise from multiple representation transactions. I have a lot of experience and perspective on this issue from all sides and all stakeholders, and therefore my views are not just those of a “self-serving Realtor”.
Before I make my recommendations, I think it is important to address the circumstances that have brought this issue to the public’s eye and drawn the attention of well-meaning government MPPs. This spring a CBC Marketplace segment ran an undercover sting operation to see how honest a Realtor would be about the details of other offers in a multiple offer scenario, if the agent was representing both the buyer and the seller in a transaction.
Out of nearly 50,000 licenced real estate registrants in the GTA, instead of choosing 10 random agents, the CBC chose 10 agents that had the most “double ending” transactions (whereby they represented both buyer and seller) and then posed as potential buyers and asked the agents what would be the benefit of buying the home through them versus another agent. Six of those agents said they would disclose or “give them a nudge” as to the details of any competing offer so they would have an advantage over other buyers with competing offers.
Obviously these actions constitute a major breach of the Realtor’s professional ethical obligations and is prohibited by the current rules and regulations of our profession. However, as with any profession, a few unscrupulous people can tarnish the reputation of an entire industry.
This event/scenario has been widely reported in the press. Even the Ontario Real Estate Association has helped raise public awareness of the issue with high profile press releases and editorials condemning the actions of those Realtors and asking the government to impose harsher penalties for those agents willing to break the rules.
The problem in the video seems clear. If an agent represents a buyer and seller, then that buyer has an unfair advantage over other buyers with competing offers. On the surface, the solution seems clear also. Ban agents from representing a buyer and a seller.
Banning double-enders won’t work
Will that solve the problem? No, it won’t change a thing, as it does not address the intended objective, which is to help “protect/improve” consumer rights during real estate negotiations.
The issue is not that an agent representing a buyer and seller in a single transaction (with no other competing offers) creates a problem. The rate of complaints per thousand transactions in traditional multiple representation situations are fewer than the number of complaints in transactions where the agent does not represent the buyer and the seller.
Why is that? Unlike a civil court action whereby one party will win and one will lose, in a house sale with one buyer and one seller, the parties have a common objective, which is to reach a mutually accepted agreement. If the buyer does not get what they want they will not go ahead with the deal. If the seller does not get what they want, they too will not proceed with the deal.
During the negotiations, there is always full transparency as to what is being offered in respect to price and terms. In this type of transaction both parties can make informed decisions based on the terms of the offer being proposed to them (private information about the parties is not disclosed). The only time a deal can be reached is when both parties have settled on mutually agreeable terms.
Often the listing agent is the ideal person to help the buyer reach an informed decision because they have firsthand knowledge about the property or the area (especially in remote areas or for unique types of real estate), which the buyer may benefit from, while there are other instances where each party is better off being represented by their own agent. In either case, the consumer should have the right to choose whom they feel could best represent their interests.
Some listing agents may agree to reduce their commissions if they double end a deal, thereby saving the consumers money. Despite its best intentions, the government would be reducing consumers’ rights by taking away their right to choose whether they may buy a property through the listing agent, or whether they must seek out another, perhaps less qualified agent to represent them.
The government has already conceded there are many scenarios where banning double ending would be unfair to consumers and they are proposing to develop a list of exceptions and exemptions to such a ban, but that will only create more enforcement issues and confusion.
Keep in mind that out of a thousand transactions there will always be some consumers who are not happy with the deal they made, but the point is having one agent represent both sides of a transaction does not increase the risk of having an unhappy consumer.
When it comes to multiple offers, it is an entirely different matter. You inevitably will have winners and losers. In the current system, often all the parties feel some degree of issatisfaction even when the listing agents are not double ending the deal.
Often in multiple offer scenarios the winning buyer wonders, “Why did I win? Did I overpay?”
while the parties submitting the unsuccessful offers think, “There must have been some favouritism!” Or, “I would have paid more than the winning offer!” The sellers who hear that “other buyers were willing to raise their offer” become upset that they were not given the opportunity to obtain the highest price possible.
When the listing agent in a multiple offer situation double-ends a transaction, suspicions and mistrust are amplified.
So, should double ending be banned at least in multiple offer scenarios? You would think so, but that still would not help. Why not? Again, lets go back to the CBC video. The issue was not that those agents would be unfair to their own buyer, the issue was they would be unfair to any buyer who was not their own.
Now let’s assume that double ending was already banned. What would those “unscrupulous” agents have done? They would have simply told those buyers, “I can’t represent you but if you deal with my buddy Mr. X agent, I can give him a nudge about what the other offers are.” At the end of the day, nothing would have changed to prevent that unethical conduct.
To solve this issue, we need to realize that the consumer complaints and the current public mistrust with our industry is not due to the practice of double ending but with the current multiple offer process, where often all parties leave the negotiations feeling dissatisfied whether there was double ending or not.
A paradigm shift
Is there a change to the act that the government can introduce that will solve the problem 99 per cent of the time? (No law can ever solve everything 100 per cent). The answer is yes, but it requires a major paradigm shift as to the way multiple offers are handled.
Currently with multiple offers, agents are not allowed to disclose the content of an offer with any other buyer. This rule is not in place to protect a parties’ privacy because the buyer’s identity is confidential. This rule has been put in place to prevent an agent from “shopping” an offer around to other buyers and giving them an unfair advantage to beat that offer.
But as we saw in the CBC’s video, that rule does not stop unscrupulous agents.
My recommendation is simple. Mandate full transparency in multiple offers. For the same reason that double ending has not been a big problem where there is only one buyer and one seller (because there is full transparency as to all the terms being negotiated) wouldn’t it be ideal if all parties in a multiple offer scenario were afforded the same transparency?
The government should mandate that all parties have full disclosure as to the current and best offer on the table. That includes the price and the terms (sometimes the terms are more important to a seller than the price).
The other buyers will then have an opportunity to beat that price, improve on their terms or leave the negotiating table knowing they had the same “fair and open” opportunity to compete for that property as anyone else. At the end of the day the best offer wins. What is unfair about that?
While passing a law to ban double ending may make for a great sound bite for the government, it will not solve the core issue and will only serve to hurt consumer rights. I strongly believe that a better solution is for the government to mandate full transparency in multiple offer scenarios. I am confident that consumers and agents alike (once they get over the shock of the paradigm shift) would not only welcome but cheer such a change.
Is there a downside to this proposal? Yes. Some sellers (and agents) would argue that with full transparency some sellers would lose out on super eager buyers who were willing to pay “way, way” more than anyone else. My experience has shown, however, that often those eager buyers are not so eager to close on those transactions when they realize they overpaid and can’t get a mortgage because the home will not appraise. Even if they can get the financing they often feel like they have been taken advantage of, resulting in a disproportionate rate of complaints and litigation against their agent (whether the agent double ended the deal or not).
I submit that for every agent and seller who thinks they can get more money from over-eager buyers under current rules, there are 10 sellers who would get more money under the transparent approach, resulting in more satisfied consumers and much lower odds of consumer complaints or litigation.