Ethical Dilemma (agent) - Posted by TylerF

Real Estate Investing
#1

Posted by Judy on January 23, 2002 at 17:57:33:

In Illinois at first contact with the seller you would have the seller sign a disclosure stating that you are not representing them as a agent and if they want representation they should seek their own agent. Then when you sign the contract to buy with them also include your status as Agent/Buyer. I would also have them sign a disclosure stating what you think the house is worth although it is not what your willing to pay and that you intend to make a profit. You are then OK to proceed. The more disclosure the better.
Judy

#2

Ethical Dilemma (agent) - Posted by TylerF

Posted by TylerF on January 22, 2002 at 10:35:27:

Hello all. I am a long time lurker of CRE online and I find this site to be very useful. I thank all people who have contributed to the wealth of information this site has to offer. This being my first post, please bear with me.

The question I have involves me(an agent in training) and investing. Lets say I have a seller who tells me that they have a house they want to get rid of. They are asking 100k for it. They tell me that they will take 90k and run. I know that the value of the house is more than 100k. I also have a buyer who wants a house in that price range, but I see the profit potential that this house has. I want to buy it for the 85-90k that the sellers will sell for and sell it for the 100k to the buyers. I know that this is a subject that has probably come up before, but with the inside track I have on houses, how can you take advantage of these deals and be able to sleep at night. What should I do? Should I buy it for the 90 and sell it to another buyer for the FMV, or just hook these two up and do the deal regular and collect my comission(which will be way lower than the investment profit)?

#3

Re: Ethical Dilemma (agent) - Posted by David Krulac

Posted by David Krulac on January 23, 2002 at 07:38:15:

Tyler,

As the agent you have a fiduciary role with your client the seller. That means that the seller’s interest takes presidence even over your own interest.
So you must operate strictly in the seller’s interest.
That is why many people who want to be investors chose NOT to be licensed.

If you want to buy your seller’s property, particularily below market then you must disclose fully to the seller that you are buying beow market and plan on making a profit on the deal. For your protection this should be in writing signed by the seller. Often the seller will say I just want out and will take your below market offer for expediency sake.

The key points are fully disclose to the seller, and put it in writing to prevent memory fades.

Good Luck

David Krulac
Central Pennsylvania

#4

Re: Ethical Dilemma (agent) - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on January 22, 2002 at 21:37:33:

Tyler F-----------

I would suggest that you tell your potential sellers what you can probably get them for the property in what lenght of time. Point out that the lower prices sell faster and ask them to pick a listing price to suit the speed with which they sell.

I would suggest that you talk with your broker about this and get his/her guidance. It might be valuable to talk to some other experienced agents or brokers, also. But you definately, in my opinion, want to listen to your broker.

You will find later that your knowledge of real estate values and procedures will allow you to make very good acquisitions without any ethical dilemmas.

Good InvestingRon Starr***

#5

Re: Ethical Dilemma (agent) - Posted by TRandle

Posted by TRandle on January 22, 2002 at 21:11:13:

Tyler,
I may get slammed, but I disagree with the sentiment of the other responses. It’s difficult to tell whether you’re describing a hypothetical or not. As GL stated, as long as you disclose everything in writing, I don’t see a conflict if you don’t have a listing agreement signed.

I also am not an agent and am not well versed on the agent’s duties to the client, so take this lightly. If the seller has signed off on the fact that you’re an agent, that their house is worth more than they’re selling it to you for, that they know you’re acting as a principal in your own interest, and that you plan to resell the property for a profit, where’s the harm?

Again, I’m not qualified to respond, but I would think this level of disclosure would be standard operating procedure for any agent acting as a principal. I know that one of my friends/competitors in my area does this level of disclosure routinely. However, if you had signed a listing agreement to represent the seller, then it might not be viable.

My one cent…

#6

Re: Ethical Dilemma (agent) - Posted by Ben (NJ)

Posted by Ben (NJ) on January 22, 2002 at 17:02:50:

What if you showed it to your buyer and he wasn’t interested for whatever reason? Then maybe you could buy it and feel better about yourself at the same time.
I am not a real estate agent so I am not well versed in your fiduciary obligations but I don’t see a conflict as long as you are not turning away a ready, willing and able buyer.

#7

Re: Ethical Dilemma (agent) - Posted by GL(ON)

Posted by GL(ON) on January 22, 2002 at 16:45:14:

What you are describing is ILLEGAL.

When you agree to represent the client you must put his or her interests first. If you ever did what you describe, buy a house cheap and immediately resell it and put the profit in your pocket, they could SUE you in court and they would win. Because if you knew someone would pay more it was your duty to get that price for your client.

The only exception would be if you disclosed EVERYTHING to the seller (your client) and they signed an agreement to that effect. Even then they could come back later and say you cheated them and talked them into something.

#8

Is it an Ethical Dilemma? - Posted by Brent_IL

Posted by Brent_IL on January 22, 2002 at 15:20:12:

The value of the house in your example isn’t even at the $100,000 level until someone is willing to put up $100,000 to buy the property, so why worry about making an alternative offer early on?

What would be wrong with asking the sellers?

“You say if I bring you an offer for $90,000, you’ll pay our commission, take the money, and run. $90,000 less a 6% agency commission of $5,400 leaves $84,600 for you to pay off any liens on the property. Perhaps I can make it easy for you. Mr. Seller, I?ve been looking for a property like yours because (fill in the blank). How about if I buy your property as a private individual for $84,600, and we forget about the selling commission? That’s a worry-free sale and more that fair, isn’t it”?

You’ve certainly disclosed that you are a real estate agent.

Your broker may be less than excited, so a contribution to his retirement fund might be in order.

When I was an agent it was my experience that the folks who would settle for $90K would say they couldn?t take a penny less than $100,000. The newer listing agents would swear to the sellers that they, alone, could get $125,000 for the house in an attempt to buy the listing. Your clients may be more open about their aspirations.

#9

Re: Ethical Dilemma (agent) - Posted by Al - So Cal

Posted by Al - So Cal on January 22, 2002 at 13:10:25:

You do the right thing. Theres Feduciary Responsibility at stake. I have been screwed by so many agents as an investor over the years its a joke but have done many great
deals. But when I worked the business with a license
I worked for the client totally.
Theres always great deals out there. Dont sell you
integrity-especially over pocket change.

#10

Re: Ethical Dilemma (agent) - Posted by tyler

Posted by tyler on January 22, 2002 at 14:01:37:

Thanks. Does this happen a lot? I would never turn on a buyer or seller, but I’m sure there are agents out there who would.

#11

Re: Ethical Dilemma (agent) - Posted by Al-So Cal

Posted by Al-So Cal on January 22, 2002 at 17:36:48:

I like my area and have no big complaints because you
operate with commissioned sales people and things will
happen. It`s the nature of the business.
But…I can spot shenanigans immediately and will look up an owner and call him immediately and burn
his listing agent if there is any funny business.
Should write a book for sellers on what can happen.
But this is a very small percentage all the transactions that take place.

#12

Re: Ethical Dilemma (agent) - Posted by TylerF

Posted by TylerF on January 23, 2002 at 07:52:28:

I have never done this, and by the replies I have gotten, will never do this. Now that doesn’t mean I won’t invest another way, but I will not “Go behind the back” of my buyer or seller. I see it happen sometimes, that’s why I was wondering about the legality of it. Thank you for the replies.

Tyler