Placing Your Interests Over Your Client's
Surprise, unethical and sometimes illegal things often happen "behind the curtains" in real estate. I'll tell you why and often how it happens and then give you a couple of examples where my ethics were put to the test.
To begin with, offers are sent directly from the buyer agent to the listing agent. They are never sent directly to the seller. In addition, the agents on both sides of the transaction talk to each other and their clients aren't part of those conversations. Both of those things open up opportunities for less than honest agents to manipulate sales to benefit themselves at the cost of their clients.
There will be times in your real estate career when your morals will be tested, guaranteed. Usually it will come down to commissions. It's how you handle those situations that will define you as a Realtor. If you compromise yourself once, you'll do it again. It becomes easier every time.
A Common Real Estate Scenario
As the listing agent, you have an agreement with your seller if you sell their home and there's a buyer agent involved, your fee is 6%. 3% goes to you and 3% goes to the buyer agent. But if there is no buyer agent, you'll only charge the seller 4.5% and all of that would go to you. Note: real estate commissions are not set by the state of Texas. They're all different. This is just an example for illustrative purposes
An offer for $600K comes in from a buyer who isn't working with an agent. The seller is happy with the price and tells you they'll sign it later in the afternoon. You pull out your trusty calculator and see you're going to make $27,000, or 4.5%. on the sale, so you're pumped.
However, before the seller returned their offer to you, a second offer comes in. This one is much higher at $635K. That's great for your seller, but on this offer there's a buyer agent representing the purchaser.
If your seller accepts this second offer, your commission has shrunk from 4.5% to 3%, or from $27K to $19,050. You're now making $7,950 less than the first offer.
What about your client? With the first offer, they'd net $573K after commissions. With the second offer, they'd net $596,900, or $23K more.
Now you start to rationalize. The seller has already said they're happy with the first offer. You can just keep your mouth shut and don't mention the second offer. Or you can just hold the second offer until the first offer has been signed and then send it to your seller. How are they going to know when you got it? Why show it to them in the first place. What they don't know isn't going to hurt them, right?
"Sitting on an offer" is both a blatant ethics violation and illegal. If you start having those thoughts, real estate isn't for you. You always, always have to place the interests of your clients ahead of your own, regardless of what your commission will be. If you can't accept that, you need to find another profession.
The First Time My Integrity Was Tested
I was first put to the test early in my career, maybe 36 years ago. I hadn't made much money and was struggling, but I finally had a building in title and I really needed to sell it.
Unfortunately, some issues arose during the option period I thought might negatively impact my buyer client. I brought those to his attention. He half listened and said "I'm not worried about it"
It kept bothering me so I had to decide whether to keep my mouth shut since I'd already warned him or make sure he understood the entire situation. It got to a day out from the expiration of the option period. After that his earnest money becomes forfeitable to he buyer if he doesn't close.
I took the high road and called him one last time to make absolutely sure of the risks he was taking. Again, he said, "I'm not worried about it", so I felt completely sastisfied I'd done everything I could to protect him. You can't make a seller listen to you.
Little did I know my client already had a plan in place. He was going to use that situation as leverage at the closing table to force the building owner to sell it to him for less. At closing he played his cards and I immediately realized why he said he wasn't worried about it.
The end result is seller refused to renegotiate, the deal never closed, the buyer lost his earnest money, and I never made a dime. Although I really needed that commission, the experience wasn't all a lost cause.
For the first time my integrity had been tested in real estate. I went the extra mile to try to protect my client knowing full well he could have backed out of the deal and I'd never make the sale.
As disappointed as I was, and as badly as I needed that sale, I knew I'd always do the right thing and place my client's interests ahead of my own regardless of my financial condition, and I always have.
There's a sad footnote to this transaction. The seller stopped working with me. When I asked him why he said "I won't work with any broker who costs me money". Go figure.
The Second Time My Integrity Was Tested
Maybe 15 years ago I had an estate home on about 30 acres listed for $1.5 million. I had an agreement with the seller if I sold the property without another agent, the fee would be 6%, or $90K. If the buyer was working with a buyer agent, I would split the 6% with them and my fee would be $45K.
The home sat there for months without anything happening and out of the blue, two offers came in at the same time. One was from a famous celebrity who was working with a buyer agent. The other was from a local buyer with a slightly better offer, but he was an unknown on his financial strength and ability to close.
When my client and I were discussing which offer they should take I said "I'd love to see you work with the local buyer because that would double my commission, but if your home was my home, I'd work the offer with the celebrity. We know he can close. And if he doesn't get the deal, he'll walk away and won't come back".
Lucky for me, my seller didn't take my advice and decided to go with the buyer without the agent. Fortunately we closed on the home and I made a nice commission. But I had still placed my client's interests over my own. This time is just worked out in my favor.