I heard about some agents trolling FSBOs and when they come across owners who have their houses priced way under there market value, they buy it as an investment and essentially flip the house.

When asked if it was ethical the agents said "Well it will teach them and the public that agents are a valuable asset. If the owners found out then lesson learned"

Is this unethical? Have any of you done this? I would think this would lower the perception the public has. Of course it also shows that without an agent fighting for you then you can lose a lot of money.

What's unethical about it? The seller didn't ask you what the house was worth. If seller thought they knew the market well enough to FSBO, why not?

Well the judge sided for the agent in this case so I figured it was legal. He stated that the agent made it clear in the paperwork that he was an agent looking for an investment and that the price was an agreement between both parties.


The reason why I asked this was because a lot of people were saying he "took advantage" of the couple. That he knew the market and was swindling people out of anywhere from 20 to 100 thousand dollars. That got me thinking whether what he did was ethical.

"Ethics" is sometimes in the eye of the beholder. I do think though that this practice, and the statement that it will teach them the value of an agent, doesn't do our image any good at all.

With a significant consumer segment viewing real estate agents as only money-motivated (right or wrong), this type of thing only feeds the perception.

So if the agent disclosed that they were an agent, and the couple felt that they were competent to sell their home themselves, what should the agent have done? Walked in and offered them more than they were asking? Or not buy the house because it was under-priced?

Ethics: Our (Prov/State) government has put in place a new real estate (“Act”) and agents are now required to comply within the strict rules of agency law, which has always been recognized and upheld by our courts , plus a former Code of Ethics has now been incorporated into the (“Act”) making them all regulations.

Complaints from any reliable source, result in investigation, charges laid, and where successfully prosecuted, penalties and costs follow.

This is a whole new world for many agents who are unfamiliar with the law of agency and who failed to apply themselves to the numerous legal and ongoing law courses, one of which is a mandatory code of ethics course every two years, thus any breach thereof is deemed to have been intentional on the part of the agent.

Initially, agents outnumbered consumers in the filing of complaints and agents are now realizing they will be held accountable for their actions or inactions.

Information on Agents successfully prosecuted are posted on the regulator's website for viewing by the public for a period of 5 years.

^^^^^^


So would you consider this example as ethical or unethical and why???

Aftermath,

As an investor I will say that I love bargins that are way under market value. I keep some and flip the rest.

Why would this be unethical? Perhaps you can tell us your opinion.

As a Real Estate Broker I educate and provide assistance to my clients. Unrepresented Sellers are not my clients or my customers if I am a principle in the transaction. Is it my responsibility to educate them by telling them that their house is priced too low or that their area market is starting to turn for the better?

Why should it lower the perception of agents by the public? These sellers need to own up to the fact that they chose to be unrepresented by not listing the property with an agent. They would feel cheated and taken advantage of regardless of bought their bargin house.

Locally: An agent shall not purchase or acquire any interest in real estate, directly or indirectly, UNLESS they have first delivered written notice (disclosure) to all parties and that those parties have acknowledged receipt of the notice in writing.

The notice must contain a statement that the purchaser is a licenced real estate broker, or salesperson and the real estate firm that they are registered with.

The notice must make full disclosure of all the facts within the agents knowledge that affect or will affect the value of the real estate, and the particulars of any negotiation, offer or agreement by or on behalf of the agent for the subsequent disposition of any interest in the real estate to any other person.

It is also a good idea (in the notice) for the agent to urge the parties to seek independent legal advise in connection with the transaction, this has been shown to afford the agent protection in the event of subsequent allegations that the agent deceived the seller.

If a plaintiff's attorney can show the court that FULL DISCLOSURE was not made by the agent in a timely and ongoing manner, the courts will recind the transaction and award the plaintiff court costs and damages.

Criticism: In response to my foregoing critics, it would appear that their main criticism of my recent posts, is not, that they are inaccurate, thank heavens, but is apparently my choice of words and how they are displayed and in this instance, what the critics have perceived, in their infinite wisdom to be common knowledge to everyone in real estate and which I regret to inform them, has not always been the case.

Aftermath,
The point you are missing is that the agent is acting as principle. The agent is not ethical obligation to tell the seller that their asking price is too low because they are Not the agents CLIENTS! The agent in NO Way represents the sellers.

Devils Advocate is posting local Canadian law which may not apply to the laws of your state. The only obligation that the agent has to the seller is to disclose his status as being a real estate licensee. He is not required by COE, Law or Common Sense to advise the seller that he should be asking for more money. He has no fiduciary duties to the seller of the property. People have the same impression of an attorney that represents himself in a small claims case against a non-attorney. If the attorney wins people are going to say that the attorney took advantage of that person.

It all comes down to choice! When a seller decides to be unrepresented in a transaction they take a chance. If they sell and get a good price people smile and say "Ha!see they did not need to pay an agent to sell the house." When they Choose to accept a much lower price or price it too low then people look at it and say "the big bad agent or investor took advantage of them". It is a no win situation as everyone likes to cheer for the underdog!

So when you were watching this with the other people did you come to the agents defense and explain the situation from the other side? Did you ask them if they were buying the house with you as their agent would they want you to tell the seller that the listing price is too low and the house is worth far more money than they are asking?

This is what is wrong with our society today! No personal responsibility for individual choices or actions! It is always somebody else's fault!

It's the law to disclose that the buyer is a licensed RE agent and buying on his own account for profit.
Lack of agent supervision and ignorance to disclose this exists, which does not mean it was never tought.

Yeah...what he said!

Ahh once again the Truths are not Universal. Every individual state has it's own regluations, and certainly so do various countries.

In Cali it's all about disclosure, disclosure, disclosure.

Here is how I would do it (in Cali):

I would wait until the property had been on the market for a reasonable period of time (again, pls don't look for Universal Truth. *Reasonable period* will be a function of the local market). In a super hot market that may only be a few days. I would keep copies of ads, etc that the FSBO's ran to be able to prove it was offered for sale to a wide market of potential buyers and nobody purchased it at asking price w/in that time frame.

With my offer I would disclose:

That I am a lic'd Cali real estate broker.

That in my professional opinion the purchase price being offered is below fair market value.

If the FSBO signs off on those disclosures, and I can demonstrate that the property was offered for sale on the open market w/no takers, I will sleep just fine at nite.

Mystified:

Sorry folks , but I must have missed something.

How would compliance with the local regulatory requirements of a jurisdiction be changed , if the agent had purchased one or a hundred investment properties ?

Locally agents do not have a choice, either they comply with the regulations or else face the consequences.

Locally: means within the legal jurisdiction of the writer as noted below.

The licensees are acting as principals. They are only bound by the DRE not the engage in dishonest dealing.

The practice of flipping homes priced under FMV FSBO is completely not unethical.

Yes, quite so...

Disclosure is required, here too...

Applying the example to me with present clients, I am by master listing agreements, prohibited from purchasing the assets I market for the lender clients. Since REO accounts for 90% of my income on SFD resales...I don't think about it...till I read something here.

The astute public, the investors I'm speaking of will know when they get a good value, linked with good service from a competent Agent/Broker.
The morality or actions of ethics displayed will come full circle to agents crossing over the line.

Bottom feeders are everywhere and some of them have a RE salesperson license. Trolling FSBOs or public foreclosure recordings for a salesperson's account is something I decidedly do not do. Perception or appearance is most damaging, with the arrogance said displayed by the agent in the originating post, you can bet he'd be a poster child for reform in many peoples mind.

The thing about Cali is that we are probably *the* most litigious state in the union. Everybody wants to sue everybody. It would not take much IMO for a FSBO following the wise counsel of the neighbors, cousins, who the heck ever who knows squat about real estate to decide 90 days after the sale that FSBO was taken advantage of by a predatory agent.

This would be even more likely if it's a default scenario.

So for my own protection and CYA I choose to DISCLOSE absolutely everything/anything. It seems to be the general rule in Cali that disclosure will save us all.

If I want to buy one of my own listings, I was trained to always let the property sit on the open market for a *reasonable* time period. That time frame will, acourse depend on what the market is doing.

And all of the disclosures apply. I would not want to do a dual agency in the case of my own listing.

Around here we really have to practice defensive real estate since we're in the #2 slot for *most sued profession*. Only doctors get sued more than we do.

Loan Diva, Yes, California is a litigious state. There is no predatory agent law in CA.
If an agent decides to make an offer on their own listing, yes, disclosures apply as the client is owed a duty by their own listing agent. As far as a complete stranger coming in off the street, no disclosures are required. Unfortunately, this practice is all too common. This "predatory" practice is viewed by LE as mere buyers remorse.

So in your Professional opinion the only responsibility that an agent/investor owes the other party is to disclose their license status and to treat them fairly under the law.

There is no legal or ethical statute that requires you to tell an unrepresented seller that they have their home priced well below market value. Wanted to check that as I was told I do not know CA law.

Could’ve, Would’ve, Should’ve

On the premise, that it is better to be safe than sorry, I offer the following to those who have never been involved in protracted litigation.

First, in most instances it is an emotional upheaval of ones personal and business life and may involve a significant expenditure of both time and money.

Defence counsel, unless being paid by an insurance company, request a sizeable retainer up front, as no lawyer want to be in the position of having to sue clients for payment of their legal fees and disbursements incurred on their behalf.

So, it is extremely beneficial to an agent, who is deemed a professional, and one who has through training and experience a distinct advantage over the average consumer when it comes to real estate, to perhaps go that extra mile in an effortto avoid the possibility of litigation .

In this instance risk management may be deemed as “locking the barn door, before the horse is stolen” not after.

Therefore, it is not just a question of who or what is right , or who or what is wrong , but a question of how much time and money is one willing to spend in trying to prove it.

[QUOTE]Originally posted by Paul Oaks:
So in your Professional opinion the only responsibility that an agent/investor owes the other party is to disclose their license status and to treat them fairly under the law.

There is no legal or ethical statute that requires you to tell an unrepresented seller that they have their home priced well below market value. Wanted to check that as I was told I do not know CA law.

All the advice posted is great.

Yes, Paul, to answer your question, that is correct, there is no duty to disclose the FMV of the home to an unrepresented seller. Although I do not agree with this, we cannot take action against a licensee who engages in this type of practice.

Yes, Devil's Advocate, we wish all agents were that ethical, but since the RE bubble just burst out here....you know what that means....

If I were to practice, I would definitely treat all people as I wish to be treated.

You personally believe that an agent\investor should tell the seller that their house is priced below market value?

Why should the agent\investor be penalized because they hold a license and have expertise?

The seller made a Conscious Choice to NOT be represented by a professional. Their reason for doing so could be they are Cheap and want to save the fees or they think they know what they are doing. It is high time people start accepting the consequences of their actions and choices and not whine and sue when they make the wrong choice. It is high time that Personal Responsibility needs to make a Strong comeback in our society!

There is a huge difference btwn suing, winning and collecting.

In Cali plaintiffs can sue for just about anything, there is very little scrutiny of plaintiff complaints in our courst, if the plaintiff can state anything that even remotely suggests a cause of action upon which relief may be granted, they will be able to go fwd.

And since the Great Lawyer Shortage has not yet struck, *somebody* will take the case as long as there is the potential to collect something.

I personally would prefer not to throw down the cost of defense on a meritless claim.

Not that disclosing until the cows come home guarantees some sleazbag plaintiff's atty won't take the case anyway but if the atty has half a brain once they get copies of all your disclosures signed by their client, well the whole thing starts to look less like a goldmine. And it undermines the plaintiff's credibility.

It's a terrible system but it's the one we've got.

Would plaintiff's likely prevail in a buyer's remorse suit? I've seen screwier things happen esp when the agent is perceived as *predatory*, ie agent is the xpert, superior knowledge and skills, etc taking advantage of poor, ignorant FSBO.

Is it a good case? Does plaintiff deserve to win, perhaps not.

In Cali is it possible? You bet.

Just b/c nothing technically *illegal* has happened does not mean the agent can't find herself on the wrong end of a lawsuit.

That's how it is here. Your milage may vary.

Paul, from a strict law enforcement perspective..yes, we cannot act against seller that voluntarily chooses to forgo representation.

Loan Diva, the amount of litigation, albeit meritless, never ceases to amaze me. People can sue for almost anything and tie up a transaction almost indefinitely.

Personally, I would disclose what I thought was material to the transaction because I don't want to be sued.

It really is disheartening, isn't it? So much of what we do here in Cali is defensive.

But even a totally meritless suit can cost serious $$$, unfortunately.

Loan Diva,
This not a personal attack(I realize you are a little over sensitive about what is personal and what is against the idea).

If you plan to let the fear of being involved in litigation determine what to offer then perhaps investing is not right for you. If you have to second guess every action you take and say do I want to do this because there is a possibility I could get sued even though I am following the law then you will miss out on some very profitable deals.

My attorney and partner in many deals does not fear sellers that may later come back after talking to their uninformed family and friends saying "you took advantage of us because you are a professional and my friends say we could have gotten more money for our house". His policy is to always file a countersuit to recover attorney fees should we win and would make sure the plaintiff are well aware of this.

Addendum:

Locally: In instances, where it can be shown that the seller in addition to receiving the required disclosures was urged and afforded both the time and opportunity to obtain independent legal advice prior to the execution of the contract, and chose not to do so , the courts have held that the seller was the author of his own misfortune and that in light of the circumstance, his case was without merrit.

A competent and ethical attorney would normally advise his client accordingly and caution him against filing suit under the aforementioned scenario.

Locally: means within the legal jurisdiction of the writer as noted below.

Absolutely a *competent and ethical* atty would advise plaintiffs not to pursue an unwinnable case.

If only there were more of those.

Otoh, the prevailing view in my state is that everyone should have their day in court.

I have seen this more times than I'd care to count, atty sniffs out $, thinks there may be insurance and it's off to the races.

Not every atty lic'd in Cali is really qualified to practice real estate law, it's a highly specialized and xpensive area of the law hereabouts.

So the net result is attys who know very little about real estate taking on cases in hopes of bullying agents into ponying up at least the cost of defense and atty fees.

Dunno what it's like in other jurisidictions, can only address SoCal.

In your scenario, the agent is the "principle" (as Paul Oaks has already stated)...

Law of Agency

Duties owed to a CLIENT:

* Perform the terms of the brokerage agreement.
* Promote the clients best interest by seeking a transaction acceptable to the client.
* Provide financial accounting.
* Disclose known material facts about the property or the transaction.
* Exercise ordinary care.
* Maintain client confidentiality, unless the information to be disclosed is required by law.

Duties owed to a CUSTOMER:

* Treat all parties honestly, and not knowingly give false information.
* Inform all customers, and potential customers of the nature of their brokerage relationships, if any.
* Disclose material adverse facts pertaining to the physical condition of the property of which the agent is actually aware.
* Comply with the law, including the fair housing act.

With that said, laws vary from state-to-state...however, the "Law of Agency" is fairly standard, IMO... (If it's different in another state, I'd like to hear about it)...

In your scenario, the agent (as a principle) does not have a customer OR client relationship with the seller...

I don't know if this "helps" or not...but, I hope it does...