Should Double Ending in Real Estate be Banned?
Author: Tracy Ruddell
Today we’re talking about a hot button issue that has us fuming. Along with a lot of consumers. It’s a practice that, while inherently may not be a bad thing, shady REALTORS® are using to manipulate the system and line their wallets at the financial and emotional expense of their clients. And it’s giving good REALTORS® a bad name.
So, yeah, we’re pissed. And it’s time for the Government and the Real Estate Council of Ontario, along with our various Real Estate boards, to step in and take action.
You’re a seller who’s being presented the “best offer” by your listings agent but it’s their offer; they’re also representing the buyers. Your agent has your back, right? You should take the offer?
You’re an unrepresented buyer at an open house and the agent tells you they will guarantee you a good deal if you sign with them. Makes sense, doesn’t it? They have the inside track, after all.
Here’s the bottom line, folks, right up front. When is it a good time to agree to a double ended deal? Almost never. Although there are exceptions to this rule, double ended transactions are almost always in favour of the REALTOR® and not their clients. Certainly not the seller and often not the buyer, either.
Here’s what you need to know.
“Double ending” is when the listings agent (the REALTOR® representing the seller) also represents the buyer. It’s more common than you may think and this eye-opening CBC Marketplace exposé reveals just how easy it is for dirty agents to skirt the law.
It’s totally legal providing the agent adheres to real estate law and RECO’s ethical guidelines. I wouldn’t even go so far as to say it’s unethical in and of itself. The problem is, double ending can hurt clients if they’re working with an unethical agent or even an inexperienced REALTOR® who unwittingly makes some bad decisions. Any process that opens up consumers to potential harm should be put under the magnifying glass, particularly in this crazy Toronto Real Estate market where consumers and Realtors® are under pressures to the extent we’ve never seen before.
There was a time that most prospective buyers viewing houses for sale in Toronto already had representation but in the age of endless bidding wars and a major listings shortage, many buyers are going to open houses to see what’s out there before they sign with a REALTOR®. The problem with this is that, if they find a home they love, they usually don’t have enough time to interview and hire a REALTOR® before offer night and so they sign with the seller’s agent instead.
Beyond a case of tight timing, they may also be convinced that it’s in their best interest to do so because the listings agent naturally has the inside scoop and will be motivated to close the deal. And therein lies the problem. They are motivated to close the deal–this particular deal where they get a double commission (or whatever has been negotiated with the seller) and that deal may not be the best one for either party.
Often times, the listings agent will have the seller signed as a client and the buyer, if they’ve met them at the open house or received a direct inquiry about the listing, sign on as a customer to make the REALTOR'S® obligations clearer. This is not always in the buyer's best interests, however. Essentially, client trumps customer. Have a read of our previous post on clients versus customers and ensure that you understand the difference before signing any documentation with your REALTOR® as a new buyer.
When double ending is used to serve the REALTORS® best interests at the expense of their clients, here’s what can happen:
1. The listings agent may push an offer through that is not in the best interest of the seller. For example, it may be a lower price or have more restrictive terms than competing offers but they convince the seller it is the better deal.
2. An unethical REALTOR® may also “hide” any better offer(s). By law, a REALTOR® must present all offers to their client however a shady agent may claim they didn’t receive the other offer(s) before the cut off time or that their client rejected it when it fact it was never shown to them. Although the seller, buyer and REALTOR® on the losing end can demand an investigation by RECO, many (frustrated by losing on multiple bids) just don’t have the fight in them.
3. The agent may not set an offer date, instead accepting offers at any time, knowing they already have a buyer waiting in the wings to be first in line. If you don’t give the public enough time to view your home for sale in Toronto or anywhere else, you’re not really going to the open market for bids and therefore may not be getting the best offer.
Likewise, it can be dangerous for buyers, particularly in this market where you may need to waive all conditions (including home inspection) to buy through the listing's agent. You want an unbiased agent looking at that house top to bottom before you offer to advise you on whether it truly is the deal you may believe it is.
There are other scenarios, of course, but you get the point. Basically, any time a listing's agent is manipulating the Real Estate process to either:
a) make them more money, and/or
b) save them the time and effort of doing their job properly (an “easy” sale)
it is unethical at best. Add a double-ended deal to that mix where the listings agent is also representing the buyer(s) and the opportunity for hiding their unethical, and possibly illegal, actions is multiplied.
In my opinion, yes, it should be. Why? Because even in the best of circumstances with well-meaning agents, things can get pretty gray, pretty fast.
Surprised? A lot of people assume that REALTORS® are against any new restrictions that will make their job harder or, potentially, result in lower income. Not so. I should add that I am not a REALTOR® myself but I am a shareholder in a Real Estate brokerage (Property.ca) and thus it’s in my financial best interests for our REALTORS® to buy and sell as many properties as possible. Never, though, at the risk of our reputation nor our abilities to sleep easy at night.
What we’re against are shady REALTORS® who are giving the industry a bad name and creating the need for stricter restrictions in the first place. There are around 45,000 REALTORS® in the GTA but there are far too many weekend warriors who have other jobs and don’t practice Realty full-time (you can’t become an expert in this nuanced market by buying and selling once or twice a year for family and friends) as well as downright dirty Realtors® who are all about the money, money, money and are willing to rip off their clients to get them some more.
I used to believe dirty REALTORS® were a small handful of people, casting shadows of doubt on an otherwise hard-working and above-the-board industry. What I’m finding is that, while “shady agents” aren’t the majority by any stretch, they’re not a rare breed either. The fact that the industry doesn't make it hard, if not impossible, for those people to operate is simply not acceptable.
So, yes, I do believe RECO, working with the Ontario Government, needs to impose stricter regulations on the Ontario Real Estate industry to protect consumers. Ethical REALTORS®, by far the majority, also need protections as they too are getting burned when they put work into bringing forth legit offers by well-meaning buyers, only to be used as pawns. Often, they and their clients miss out on another house by choosing to offer on Property A on offer night, when a deal was always going to be struck with the listing agent's buyer.
I believe, as most of my colleagues at Property.ca do, that double-ending by the same REALTOR® should be banned but not double-ending within the same brokerage. What this means is that different REALTORS® within the same brokerage (Property.ca has around 90 REALTORS® currently, for example) can work either side of a deal but the same listings agent should not be allowed to also represent the buyer. The entire industry depends on cooperation between agents; you want your REALTOR® to work their network to bring in offers from peers. Restricting that by banning intra-agency deals would be a step too far and have the opposite effect, potentially decreasing the number of offers a seller receives.
The current system, however, isn’t prohibitive enough for those who choose to work it for self-gain. First, it relies on consumers and/or REALTOR® A alerting RECO to Realtor® B's unethical behaviour. With regards to the former, many consumers don’t understand Real Estate law and processes enough to realize when they’ve been had and why should they? It’s not the job of consumers to have the same knowledge that REALTORS® and lawyers do. When it comes to honest, hard-working, honest REALTORS® bringing dirty REALTORS® to call, many are enraged but know that the onus is on them and the parent brokerages to prove what they suspect went down and that the penalties at play won't deter the bad agent from doing it again. So, many just can't be bothered and that's a shame.
You see, even when caught, the current punishment for unethical double ending is a measly fine of $3,000 to $5,000; up to $25,000 for a repeat offender. When Realtors® can make $50k, $75k or more on just one, high-end home / double ended transaction, even after all of their brokerage fees, marketing spend and taxes come off, getting caught and having to pay a fine like this is pocket change. Hardly prohibitive.
Now, the truth is that bad deals occur (far too often) even when a REALTOR® isn’t double ending. For example, an unethical REALTOR® may encourage their seller client to take the first offer in order to wrap the deal up quickly and not have to spend a lot of their time and marketing dollars on the sale. Likewise, an unscrupulous agent may encourage their buyer client to overpay on a home to get a higher commission. But simply saying that stricter regulations won't stop bad behaviour isn't a convincing argument against banning double ending. Greater restrictions and regulations should decrease the number of shady dealings and, so long as they're set up in such as a way as to not stronghold a fair and open market, that's a step in the right direction.
Some REALTOR® will try to convince you that double dealing can be a good thing; that it makes the process smoother and faster and that most REALTORS® involved in double ending are doing so ethically. The latter part of that statement is almost certainly true but the fact of the matter is, even when you’re working with your clients best interests at heart, when you have different clients with different wants and needs, there is almost always compromise involved and thus no way to guarantee it’s the very best deal possible for both parties.
Plus, in the current Toronto Real Estate market where the vast majority of homes have set offer dates, there is no speeding up the process or making it any smoother. Buyers complain about bidding wars and competition but better that than having all the homes you want to buy sell in the first hour of listing to the listing agent’s clients, not allowing everyone who wants to bid a chance to do so. And as a seller, if you accept an early, bully offer from your listings agent's client, you may very well be leaving money on the table.
Sure, it could happen where you receive a bully offer ahead of time, refuse it, and then they’re the only offer on offer night. They can then offer less than they were prepared to pay just days before but unless you have a house of cards in the worst areas of the city or your REALTOR® is pricing and marketing your home incorrectly, you will sell for a fair price in this Toronto market. Don’t let panic rule over common sense.
Banning double ending alone won’t stop corruption; you can still have colleagues in cahoots over a dirty deal. Likewise, you can have REALTORS® from different brokerages who are friends and have done many deals before be in cahoots.
The reality is that, if an agent wants to screw over their clients to line their own wallet, they will find a way to do it whether the law changes or not because our entire system is based on whistle blowing by disgruntled clients and/or other REALTORS®. RECO is not set up to actively seek out unethical and illegal behaviour by REALTORS®. In their own words on the CBC doc, they are more like firemen responding to a call versus the police.
As it stands, you need to educate yourself to protect yourself from shady agents and Real Estate fraud. Our Property Blog is one source that can help you. We publish a weekly article on industry hot topics that help educate and protect consumers. I write most of these personally and so they’re from the lens of a client who works with REALTOR®, having bought and sold multiple properties over the years in the Toronto market. I’ve also lost on many bidding wars and have experienced your frustrations first hand.
For sellers, my best advice is to price fairly and go to the open market and let the market decide what your house is worth. Leave enough time for showings (at least 5-7 days) and make it easy for prospective buyers to view your home. You also need a REALTOR® who invests in proper marketing and photography - don't settle for cell phone photographs.
My best advice for buyers is to get represented before you actively start looking for properties because when you find the one, you’ll have to move fast in this market. Make sure you have an expert REALTOR® on your side, someone who’s not only knowledgeable at a micro level (not just in the city you're looking to buy in but also in the specific neighbourhood and property type) but also ethical. We’d of course love to represent you but I always encourage our readers to interview several Realtors® before deciding on the best fit for you. We hope that it's us.
You can view our team of Toronto REALTORS® on our site and book a meeting with an agent directly or, feel free to contact us on our main line and we’ll find you your best REALTOR® match – 416.583.1660.
Join us again next week when we’ll talk about how to hire a REALTOR® and why you need to ask the tough questions.
Lead image: burning candle at both ends by gfpeck licensed under C.C. 3.0 from flickr.