The pre-written price reduction – I think you just crossed the ethics line

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The pre-written price reduction – I think you just crossed the ethics line

Now, let me say this before you get to mad. I've done many pre-written price reductions, especially when it comes to short sales. But, where do the actions of the agent and having a pre-written price reduction cross over in to an ethics violation?

Today, I have to say I think one agent I have been trying to work with took the pre-written price reduction and posted it despite his clients' best interest. Why do I say this, especially when it really does benefit my buyer that is interested in this property?

You see, today I noticed on the MLS that the house (Business) has had a price reduction of almost $30,000. When I called the agent about it, he said that they had a pre-written price reduction on the property for today and another one in 21 days.

WHAT? Did you just tell me that? I'm thinking I should have my clients wait another 21 days now knowing it will lower another $30,000. But, didn't this agent do another ethics violation by even doing a price reduction when they know we have an offer written on a non short sale property that is pending the financials of the foster facility?

My clients have said they would go as long as the financials (that the agent has said, everyday, that he will send over when he gets back to the office... and then, everyday, it doesn't show up in my inbox) come back equal to what was said. If the clients tax forms match the verbal of what the business makes my clients were and are prepared to write a full price offer on the property.

We already have the offer written, pending getting the paperwork, and have even forwarded it to the other agent. Yet, we have never heard back from him or his client and then we see a price reduction? At what point does it become an ethics violation? I think the moment the offer wasn't presented to the client or was it the moment the agent didn't produce the taxes that he already had in hand?

UPDATE: Late last night we withdrew our offer pending the price reduction that the other agent told us was coming and receiving the paperwork from the seller.

Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739

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Knipe Realty
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Posted by Todd Clark (Broker) (503)524-9494 (Beaverton, Oregon Real Estate Expert) on 12/26/2008 12:24 AM

Comments (56)

Price Reductions in the Sales Strategies / Tactics Channel

listing contract, price reduction, ethics, seller, buyer, buying, selling, beaverton oregon real estate, tigard oregon real estate

Originally posted at: Living Beaverton - Your guide to everything Beaverton: The pre-written price reduction – I think you just crossed the ethics line

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56 Comments on The pre-written price reduction – I think you just crossed the ethics line

DEC

2008

Dear Todd,

This may be the craziest thing that I have ever heard of!

I am astounded. I can't speak to this!

Barbara

that where stupidity takes precedent. We are trying to teach robots to replicate humans. However, sol=me humans act as if they are robots. There is a scheduled reduction, bang, even though there is an offer.

I think a pre-written price reduction is probably ok, as long as there is also verbage that the price reduction won't be automatic if there are any offers or seriously interested parties in the property at the time the price reduction is supposed to occur.

You gotta wonder what this listing agent is thinking??? And even more so, what would the seller think if he knew how poorly his agent is representing his fiduciary interests...

This agent is not protecting his best interest of his client. Yes its a ethics violation to disclose this confidential information to you.

Todd when a seller insist on a higher end price of a CMA ( done in a range price ) and I feel a middle range or lower price range listing price would work better to sell the property, I have him initial that price to be lowered in approx. 30 days or whenever the CLIENT ( seller) that we work for, agrees.

The reason I even have that signed is to remind the seller I felt his price too high. If the property does not sell at his chosen price, he is gently reminded that it was his idea not the CMA or his agent's' This is done on the Estimated Cost Sheet and is strictly confidential between the seller and the agent. All decisions are made by our clients and kept confidential unless the seller decides what is to be shared. yep.......I would say that agent is walking on thin ice..a big time problem just waiting to happen.

I would say there is nothing wrong with an agreed upon price reduction whenever but to disclose that future possibility before it is in effect or when there is a written offer on the table???????? Can you say breach of CONFIDENTIALITY?

Todd, This agent is certainly harming his seller by reducing the price in the middle of a pending purchase. I'm sure the seller will be pissed and rightfuly so.

Wow, Todd, this is a serious issue. I have gotten off the phone with listing agents before and said to myself "I can't believe they just said that", but this one takes the cake. Now, to keep yourself up and up, in your conversation log, you will document the conversation and then document the disclosure to your buyers (as you must disclose all known facts). This one could get VERY interesting before it's over.

I especially like this because I had a client that was very interested in a home. First showing we went to there was an MLS change form lying on the counter (home was vacant, mind you, sellers lived up the road.) stating that they would lower the price $1,000 every week until the property sold or the price reached $60,000. At that time, the property was listed for $84,900.

I laughed. I told my buyers "well, if this is the one for you, we certainly aren't paying a cent more than $60,000 now!"

I do think someone breached their confidentiality upon giving you the 21 day reduction theory. BUT, there are plenty of offers that don't go thru so the listing agent does definately have an agressive pricing plan for that home. Maybe it was just a mistake that they did not contact you regarding your offer. I have plenty of MORONS that just fax the offer over and never contact me after that. OR, was your offer that laughable? In this market though, any offer should not be laughed at. I guess today I'm playing devils advocate.

Todd: Your story most surely makes me wonder about this agent acting ethically, but it surely does seem he is acting stupidly. This guy is inept, and surely not working in his clients best interests by being so slow to send you documents, and most definitely both unethical and stupid for telling you about the 21 day additional price reduction. What a goof !

Todd: I think a prewritten price reduction makes good sense; but it's not something that the agent should have disclosed. That wasn't in their seller's best interest (nor even theirs) and I think you just found another ill-trained agent... The poor sellers!

Todd,

This would have to be a new agent or he is just free to roam that is just hard to imagine

someone would do that.

Hi Todd,

So what is your responsibility now? Do you have to report this breach to your managing broker and/or local real estate association?

Happy New Year.

Todd-

What type of documentation do you have? Are you going to report this violation to the other agents broker/manager? Are you going to report him to your local board? Are you now somehow liable if this is not brought to the light of day?

There's nothing wrong with using a pre-written price reduction. Where the listing agent erred is by activating it when there was a pending offer, and by disclosing confidential info. The potential violations are a result of the agent's actions, not any info that was on the form.

I'm constantly suprised at how much listing agents will tell me as a buyers agent but this really takes the cake!

Such disclosures weaken the seller's negotiating position when the seller's agent disclosues informaiton like a pending price reduction - especially when it is done without the seller's consent!!! However, from the seller's standpoint, disclosing that another price reduction might be coming, could create urgency on the part of a hesitant buyer. So the disclosure of pending price reductions could very well be beneficial and part of the seller's strategy!!! So, when done with seller consent, is there an ethics issue?

Hi Todd,

Interesting post. I suppose that the answers to your questions depend on the seller's knowledge of this behavior. Maybe they don't want to deal with your buyer ... if they sense that the person is a pain in the neck (perhaps asking for too much info. - info. that could effect tax ramifications to the current seller), they might just be trying for another buyer.

On the flip side, maybe the seller's agent is trying to pick-up some buyer clients and/or double-end the sale. In a case where you don't think that it's going to be presented, I would either present myself or request that the offer be signed "declined" by the seller.

In MA, if it's not in writing OR if there are contingencies, there is no real deal.

Best regards,
Mike

Todd,

You are not crazy. This listing agent is not thinking or acting in the client's best interest. Amazing.

Todd, it's just a reverse auction. The listing agent is doing fine for their client as long as A) the client is aware of the strategy & B) the reductions are mentioned to all that call, or published/publicized.

Your client can sit and wait, but another offer may come in while you do. What will be your story to your client when they were willing to offer full price, but another bought it for less? Offers are not judged on price alone.

Well as a listing agent, I have bueyr agents ask me all the time what the real price is. They are trying to see if I have a pre written reduction in hand. If I do, Idon't let anyone know about it.

This agent really did his seller a disservice!

Somebody is asleep at the switch! Ethics violation indeed.

Todd, you nailed it, good job man, do the right thing and you will always win in the end!

Todd, it sounds like you did the right thing. I did read a blog that sellers were lowering prices on short sells and foreclosures to try to generate competitive offers and actually raise the sales price through bidding wars. I don't know if that works.

Todd

I gather that this is a business sale with real property. In California, the disclosure hurdles for residential are consumer protection driven and much higher than for commercial which has more of a buyer beware atmosphere which unfortunately gets interpreted by some agents as a license to say anything.

That agent has crossed the line UNLESS he is doing it with the epxress written knowledge and approval of his seller. Unfortunately I am having a hard time imagining a scenario that would benefit them by doing so.

In regard to the financials that have been promised but not forthcoming. Big red flag. make sure they give you verifiable bank statements, tax returns and customer lists as well as verifiable AR and AP accountings and have a CPA that you trust vet them to your satisfaction. The time honored urban legend regarding business records is that there are usually three sets of books. One for the spouse, one for the IRS and one that is real. Cynical maybe, but I have seen it more than once or twice. It is also possible to do a cash flow analysis and back into a value for the building in the form of a cap rate or internal rate of return based on the revenue the building generates through the business which can then be compared to rates for similar businesses and buildings in the local market.

Hi Todd. This is a huge NO NO in my office. It's a blatant violation of our fiduciary resposibilty for the client and it goes against the code of ethics, not to mention that it's illegal!

Happy New Years Todd and I wish you a prosperous 2009!

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I am always surprised by the number of agents who tell you all kinds of things they should NOT say.

They don't understand the Laws of Agency and what they truly mean.

Erica

www.move2pennsylvania.com

Hi Todd... There's no problem with automatic price reductions. However, revealing automatic price reductions when you have an offer in hand is not just an ethics violation, but in North Carolina, a violation of commission rules (illegal) whether it's residential or commercial, and fundamentally, stupid. The only thing that could pull this agent's butt out of a very big sling is if there are problems with the financials he's failed to send (you said he has them in hand), and the seller told the agent to disclose the price reduction to see if they can get another offer that doesn't ask for those financials, which I can't imagine...and I hope he has the permission in writing. AND, if there ARE problems with the financials, the agent's butt is in an even bigger sling by knowingly publishing false information.

If it were me, I'd rewrite the offer NOW, with my offer reflecting the 21 day price reduction (or a guess of what it might be if you don't know), and ask the seller's agent for the right to present the offer to the sellers myself. That way, you're aggressively doing your best job for your buyer. And if the sellers mention that the price is too far below the asking, tell them you understand that another price reduction is forthcoming. That'll shake out what the seller's position is on disclosure. And since your buyers were ready to pay the original asking price, you probably have a lot of leeway on structuring an offer that is attractive to the sellers and beneficial to your buyers as well.

And, the seller's agent is NOT "doing fine for his client." If they wanted to sell at the lower price, they'd have priced it there to start with, no? To do a price reduction, automatic or not, when you have an offer in hand IS an ethics violation, unless my above scenario is true. And while you have no affirmative obligation to "report" this agent's incompetence (in NC you don't), make no mistake that it is indeed incompetence. Go rewrite that offer right now.

Hi Todd, I am certainly glad that agent isn't representing me or working for my company. Nothing like showing all your cards.

Sounds like the "men in white suits" need to come and pick up that agent. On a serious note the fact that the financials have not been forthcoming would be red flag to me.

Todd - an attorney who held a commission update class here recently said that he has now more cases involving realtors (complaints etc.) than he has ever had before - by far. So if it is indeeda violation... well it can't be good. ~Rita

Hey, Todd! What's that old saying? "Loose lips sink ships!" This agent has a major loose lip issue! Geeze Louise!

Hi Todd, My mantra is "Get everything in writing!" Pre-authorized price reduction, no problem as long as it's in writing! Discussing a future price reduction? That's called a breach of the agents fiduciary duty to the client. End of story.

DEC

2008

When you start off advertising a property for a price that you cannot guarantee is a true selling price, then the transaction is unethical from the start. You have to be foolish to think the transactions will become ethical. I don't care how much you legal munbo jumbo someone quotes, if a property is listed for a price then it should be available for purchase at that price. I assume placing a price tag on a property that the bank will not agree to is legal since it is the norm. However, in my book it's a lie and totally immoral.

These markets bring up all sorts of shades of grey don't they? Seems like a violation to me. Short sale agents seem to be less versed in listing etiquite and often just trying to make the bank happy. My experience has been they like to sell it themselves and often ignore offers that have been presented to give them more time to get buyers themselves. Hard to prove as they are good at documenting, but I've experienced it. Good luck with that one, hopefully another will come up with an ethical and fair minded peer. Good luck to you.

the pre-written reduction is not an ethics violation (as you well know)... the violation came in divulging that information to you and other buyers.

Barbara - I couldn't to the listing agent either...But, I sure could to my buyer!

Jon - It was pretty stupid on this agents part and now they have nothing until the next reduction and possibly $28,000 less to show for it.

Amy - I think I know what the sellers lawyer will be thinking if this seller hears about this.

Laura - That is what I felt about it, now is it a violation on my part to us that information?

June - That is the only time I use them also, when I have told the client that it is priced too high to begin with. I think this agent may have broken that thin ice and he better hope someone has a rope.

todd, not only is is not an ethics violation for you to used the information about the fortcoming price reduction, it would be a violation if you didn't disclose that info to your buyers!

Todd,

This sounds like a violation. How can this be in the best interest of the client? Did the seller authorize the agent to disclose the terms of the listing agreement?????
YIKES!

Ann

Hi Todd, yep, sounds like a serious ethics violation. What a knucklehead!

Wow! I'd say the listing agent blew it and your clients have a smart agent working for them. I would have recommended withdrawing the offer as well. Good job!

DEC

2008

Gosh, Todd! This is wrong on so many levels! The only explanations I can think of are: either this guy is a robot who is reciting "I must reduce on this date, I must reduce on this date.." or he has an opportunity to double-end it with a firend who can't pay what your client can. Sure, the commission would be on a smaller figure, but if he has both sides of the deal he still makes more. Either way, he has totally and completely discarded all concern for his clients. Maybe he's just an itidiot. Either way, looks like your client may get a bargain (if the other agent ever gets himself in gear and gets the paperwork in).

Unless the seller's agent has written permission from the seller's to divulge the existence of the pre-written price reductions to interested parties, he is definitely in violation. How sad!

Tina in Virginia

Thta's crazy! Are your clients going to make another offer?

I would report him after it's all said and done to his supervisor. It's shocking that he is so negligent, you'd think he's want to speed it along and get a deal going already. Strange.

Todd- like you said, there is a big difference between short sale pre written price reductions and non short sales. We have all our short sale sellers sign permission to reduce the price every set period of time, that is in their best interest because we are trying to save them from a foreclosure.

It is a totally different ball game when you get a prewritten price reduction from a non short sale seller. You are not supposed to disclose the nature of that price reduction to a buyer if that is not in the best interest of the seller and if the seller has not given you permission to tell potential buyers that he is reducing his price!

ooops, That was me, I clicked on the link from the AR newsletter and it looked like I was logged in, apparently not.

Shouldn't the pre-written price reduction be between the listing agent and the seller. At the time stated, we get together and make the change? If we have an offer, obviously we don;t make the change? And the agent should not disclose the existence of a future reduction, unless the seller authorizes such disclosure.

Patrick Boyle wrote: Todd, it's just a reverse auction. . . Your client can sit and wait, but another offer may come in while you do. What will be your story to your client when they were willing to offer full price, but another bought it for less?

My response: I do not see anything automatically wrong with announcing that a price reduction is forthcoming, as long as the seller agrees to it. It can be a powerful incentive for a buyer to make an offer now before another buyer appears. It is a legitimate sales tool, and those who automatically jump the conclusion that this is an ethics violation without knowing all the details might want to rethink their positions.

thomas, I agree that the jury's out on the ethics issue until all the facts are in. But how can you think it's serving your clients by telling potential buyers, yeah, it's $300k right now, but wait a couple of weeks and it'll be $$250k. that makes no sense. Under no circumstance. Announcing a forthcoming price reduction only delays offers. Forthcoming price reductions are not powerful sales tools, they are realities that discount the value of your property. Please tell me if you think I'm wrong and if so, why and how it's a sales tool.

DEC

2008

Hey Give the Realtors guns at closing and pay no commission because they will no doubt shoot each other.

I do not think you have crossed any ethic line. If you feel that way which article and standard of practice are you talking about?

I think the moment the offer wasn't presented to the client

Hmmm you submitted an offer to the agent that has not be presented to the sellers sounds like a law violation in my state. All offer must be presented.

And unless you have the sellers written permission to advertising a future price reduction (which makes no sense to me at all) then in Georgia you can not do that either.

Sounds like they need a new listing agent as the sellers interests are not be properly cared for. I hope your clients get a great deal.

I have actually seen the following posted in the property description on MLS: "The property will have a price reduction of $5,000.00 every week until it is sold". (???!!!) Million-dollar property, too. I'd like to think they had the owner's permission. Possibly a marketing strategy... Wish I had followed it to see what happened - know it did not sell immediately ;)

Hope all works out well for your buyer and he thanks you for the savings!

Charlene posted: . . . Forthcoming price reductions are not powerful sales tools, they are realities that discount the value of your property. Please tell me if you think I'm wrong and if so, why and how it's a sales tool.

My response: In this market everyone understands that price reductions are a way of life. If the property does not go under contract the price will normally be reduced. So everyone can wait for that reduction and take a chance on losing it or go ahead and make the offer now. Price reductions do not discount value -- they just recognize it. So WITH THE SELLER'S PERMISSION it could well be useful to mention a possible upcoming reduction. The idea is to attract attention to the listing and to create a "fear of loss" in the buyer. As you will remember from your negotiating classes, the fear of loss is a powerful incentive to bid NOW -- before someone else beats you to it.

JAN

2009

Todd--I just took a course where they advocated you LIST scheduled price reductions right on the listing contract, but YOU DO NOT TELL BUYER"S AGENTS. Crucial difference.

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Todd Clark (Broker) (503)524-9494 (Beaverton, Oregon Real Estate Expert)

Beaverton, OR

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