Guaranteed Buy program... is it ethical?

igorzAugust 5, 2009

Here the real situation. All names are fictional.

The buyers B, represented by RE agent A, let (walk) into house. On the dining room table of the home was a flyer by The X Team which stated "Buy This Home and The X Team Will Buy Yours!" As the buyers B need to sell their home in order to buy another, they asked agent A to check into it. Agent A did as requested and found out that the twist is that The X Team must have both ends of the deal before they will "buy yours". As agent A is representing the B' on the buying side, and pledged to do what's best for them, this forces A to give up on them as a client and turn them over to the X's Team. If agent A don't, then the agent A not doing the best for clients, and frankly they would probably give up A's services and change to H if it made for a guaranteed sale of their current home. Pretty clever strategy.

Does this seems like a "semi-illegal" if not outright unethical method of taking clients from buyer agents when their buyers need to sell their current home?

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ncrealestateguy

If the buyer's agent has a signed agency agreement, then they are legally tied to that agent for the specified term. if they dump her anyways, she can cause a lot of headaches for all parties.
Anyhow, the deal would probably never happen anyhow... how much below market value do you think this company is going to offer them?

    Bookmark   August 5, 2009 at 12:22PM
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dave_donhoff

Hi igorz,

Its certainly nothing illegal. Its also an extremely agressive counter-social business move by the listing agents' 'X Team'.

Real estate agents tend to be very flockish and social... they're "extreme people-persons" by nature, and they typically form their way-of-business into a very social-network-reliant practice.

The "X-Team" strategy implies a non-social 'competitive/predatory type' professional morphing into the traditionally-social real estate salesperson's turf. Sounds like an ex-attorney or similar (or the kid of such) building a business model from scratch.

A couple things are guaranteed;
A) They'll very likely get this seller's home sold... probably at asking price... *AND* get both ends of the deal (as well as get to make their own call on the buy price of B's home as well,)
B) They'll be a pariah at the realtor coffee klatches, caravans, and general networking circles.

It sounds like a potentially calculated move given the current market.
1) buyers are scarce... trying to "make nice" to the agent community simply to attract them to bring their buyers for a look may be seen as a completely inefficient waste of time.
2) sellers are aplenty... so adding "extra cheese" to the baithook to stand out among the competition is critical,
3) many buyer's agents are scarce, starving and weak... so competing cutthroat against the weakest is no danger to a strong seller's agent,
4) the financial upsides to getting both sides of the transaction, AND getting asking price, AND getting to name their own buying price on the buyer's property... can outweigh all the nattering behind-the-back scuttlebutt the agent community might toss at them.

Frankly... sounds bold... and Lady Fortune favors the bold!

Luck!
Dave Donhoff
Leverage Planner

    Bookmark   August 5, 2009 at 12:29PM
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dave_donhoff

Hi NCREGuy,

If the buyer's agent has a signed agency agreement, then they are legally tied to that agent for the specified term.

This is true... but ONLY the buyer and their agent are parties to THAT agreement. It merely guarantees the buyer's agent that he/she will be paid for any deal they buy during that period... it DOES NOT bind the SELLER to be the ones paying him/her.

In the "X Team" strategy, the buyers (if bound to an agent) are going to be facing the reality that THEY will have to seperately pay their own agent from their own non-financed funds, in addition to their down payment, *IF* they want the "X Team" guarantee.

Of course, if the buyer's agent also has the buyer's selling listing, he/she may be able to renegotiate around that as well.

There are many possibilities in real estate (of course I know you know that.)

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   August 5, 2009 at 12:35PM
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igorz

ncrealestateguy, according to postings on the web site - about 90-95% of market value based on CMA. The good thing it that people are buying and moving up.

    Bookmark   August 5, 2009 at 12:50PM
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landmarker

IF the listing agent is a "Realtor", and the home is listed in the MLS with a standard listing agreement, then this arrangeement is probably violating the various agreements. It is not "illegal"... but per agreement the "realtor" representing the buyer will be entiled to his commission due to procuring cause definitions.

    Bookmark   August 5, 2009 at 1:18PM
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berniek

"...it DOES NOT bind the SELLER to be the ones paying him/her."

If the seller is listed with a REALTOR broker and the listing is input into the MLS as a co-op listing, offering compensation to the buyer broker, it's out of the sellers hands and the listing broker has to pay IAW local MLS rules. (as was mentioned earlier, procuring cause can be an issue besides a buyer broker contract)

    Bookmark   August 5, 2009 at 2:31PM
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fixizin

Sounds like a pretty savvy way to run a small-medium "vulture", err, I mean current-market-opportunities fund, i.e. cut the sillier, lazier NAR six-percenters out of the deal, establish MARKET CLEARING conditions, and MAKE DEALS HAPPEN! I've always thought 6% commish on a 6-7 figure deal is WAY too high for someone with NO CAPITAL at risk.

OF COURSE such "X-team" entrepreneurs MUST hold both sides, and MUST get the "guaranteed sell" (old) property at a low-ballish price, because of the risk/liability they're taking onto their books! (Not to mention their cost of capital, overhead, etc.)

Cutting out NAR commissions makes this model MUCH more viable. Besides, in such an extreme buyers' market as we're now in, does a buyer even need a traditional RealtorÂ? I suggest they'd be better served by a real estate ATTORNEY, and at lower cost.

I'm in Bubble Central (Miami-Fort Laud), and have developed a chronic headache from all the EYE-ROLLING I do everyday over the spreads between reality-based buyers and clueless nostalgia-based sellers. We should applaud any biz model which remedies this stagnation. Worry not ye NAR types, the "X-teams" will naturally fade away when the market normalizes. ;')

    Bookmark   August 6, 2009 at 7:13PM
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berniek

"Cutting out NAR commissions makes this model MUCH more viable."

"NAR" does not make a dime off a real estate transaction, it's annual dues that REALTORS pay to NAR, regardless of how much money an agent makes, that determines how much money NAR makes.
Misinformation as given above, does not help the public to make a good decision or make the right choice when buying or selling real estate.

    Bookmark   August 6, 2009 at 8:49PM
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ncrealestateguy

Igorz... what part of "best interest" is the buyer getting if they lose 10% on the sale of their home, and then turn around, as as Dave states, pay full price on the new home. All the while being "represented" by the Seller's agent?
If the company makes 6% on the listing side, and then has to pay the Procurring agent 3% to keep them out of arbitration, and then they buy the other home at only a 5% discount, in a devaluating market, and the avg. DOM are 6 months, and they have to co op another 3% to a possible buyers agent, they are already spinning out of control.
Does not seem very clever to me for the Buyer nor the company. Like Fixin says, once the market stabilizes they will go away.

    Bookmark   August 6, 2009 at 9:01PM
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