Enticing Listing Agents: Ethical or Not

3 Replies

I've been reading a book about real estate investing and the author who shall remain nameless makes a brilliant recommendation when buying REO properties. However I am unsure whether the recommendations are ethical or not. Here is what is recommended:

The author is a real estate agent and makes a deal with the listing agent and offers to:

- Take care of letting client into the house for inspections 

- Get utilities turned on for inspections

- Complete all paper work

- Work with the title company on the title search

- Work with the closing attorney on scheduling the closing

- No need for you to show up to the closing

- I'll return your lockbox, sign and commission check to you at your office immediately after closing

- I'll also give you my half of the commission as a bonus, so you make twice as much on this deal.

The only thing you need to do is get the bank to accept my offer.

I am concerned because with this much incentive, is the listing agent really representing the bank? Is the listing agent commited to giving the best advice to the bank? How would this scenario hold up in court?

I am interested in hearing what investors, buyers agents and listing agents, and attorneys have to say about this tactic. 

If the above is not ethical, what line can you draw where it would be ethical? All of the above except the extra commission? All of the above except don't explicitly say that you want him/her to get the bank to accept the offer? What other arrangements can you make to form a great relationship with a listing agent while remaining ethical?

For the record, I think the book this recommendation came from is fantastic. I am just unsure about this one part of the book.

With REO's and short sales it isn't uncommon for buyers to deal directly with the listing agent. On deals like this- the listing agent may or may not be making a full commission so it's nice if they are in fact able to double end the deal especially with the amount of work that goes into having a bank as a client.

In regards to turn on of utilities (when you are able to) the field service management company is usually the one responsible to handling those requests and it usually has to go through the listing agent anyways. When the bank is reviewing an offer, the agents have some input but ultimately it comes down to what the asset manager expects to get for the property. 

As to how much they would be willing to let you do- that depends. A lot of the time the seller (bank) will already have a title company with whom you will close the transaction. If you're able to choose your own closing entity- they will usually only correspond to whichever agent is listed on the purchase agreement for confidentiality reasons. Of all the deals I've closed where I was represented by another agent- they never show up at closing because the title company coordinates everything.

Great Q!

Speaking as a REO Broker/Investor with 19 years experience I can assure you, the banks are on to this game.

Generally speaking, the banks disallow dual representation for exactly this reason.

However, there are some banks out there that may still allow it, but they are generally few and far between.

Besides.... in the long run.. if you have to ask if something is immoral, unethical, or illegal... 

Chances are... it is.

Have a Powerful Sales Day! 

@Lisa Kohl Thanks for your reply! It sounds like from what your saying there is not much flexibility in which agent is responsible for all of the tasks that need to be done in order to facilitate the transaction.

@Karl Krentzel I agree that if you need to ask if it is unethical, it usually is. However I still think that there must be some way to develop a good relationship with a listing agent or broker without doing something unethical. What kinds of things do you think investors could do to make your life easier?

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