Fiduciary Duty
It seems like every third person in this town has a real estate license.
Some hold on to one just in case a friend or relative asks for an assist in buying or selling a home.
Some see it as a proper profession and work diligently to provide top-drawer service to their clients.
Some are in it to take as many listings as possible, close sales, and pocket the commission checks quickly so they can get on with pursuing their true goal of becoming a star on a Bravo TV series.
All real estate agents have a fiduciary duty to their clients, and it’s something that our team of probate and trust listing agents takes very seriously.
A fact sheet from the National Association of Realtors states: These specific fiduciary duties include: Loyalty, Confidentiality, Disclosure, Obedience, Reasonable Care and Diligence, and Proper Accounting.
To our team, fiduciary duty means following the instructions of our clients and doing the necessary work to market their property as well and as widely as possible to thereby deliver the best possible results at closing.
It goes without saying that watching as a competing agent shirks their fiduciary duty, cheats their clients out of higher profits and goes on to do it again and again can be frustrating.
Here’s an example:
As you know, we at Aronsohn & So specialize in Probate and Trust sales. We are proud of being professional, compliant, and always going above and beyond to get the highest price possible and delivering the cleanest deal for our sellers.
A couple of months ago, the trustee of an estate phoned us about listing her grandmother’s property after seeing our ‘for sale’ sign posted on a similar home we sold nearby.
The woman, let’s call her Heather, was in charge of selling the property, which was currently still occupied by her uncle, who was understandably grieving the death of his mother. The beneficiaries of the trust sale would be the uncle, who was now essentially homeless, and his sister, Heather’s own mother who wasn’t faring much better.
Heather lives in another part of the state and made it clear that the money didn’t matter to her because her husband was quite successful, and she and her children wanted for nothing. This was information she provided apropos of nothing in our conversation.
I told her that we would be delighted to assist with the sale of the house, and we set about gathering data on the property and running comps in this unique area that has a stellar school district and is quite close to the studios. It’s the kind of neighborhood that you need to know well when you are selecting comparable properties for your valuation. You want only properties within that specific neighborhood, and that specific neighborhood is defined by specific streets and landmarks.
Putting a pin in the subject property and drawing a radius outward a mile or so and gathering all the sold properties within the circle, as some valuation programs do, won’t work. You end up pricing your little gem of a Spanish house in a quaint, prosperous neighborhood the same as if it were a 3 + 2 in a less desirable, industrial-adjacent neighborhood under a flight path.
But I digress. And I think I will digress some more.
If you’re not in the business of selling real estate, you may not know the importance of correctly establishing the accurate square footage of a property. A larger property is not only more valuable because it has more room to play in. It provides a larger footprint for renovations. Having to add square footage means the costly and time-consuming process of getting permits approved, running all systems like electrical and plumbing into the new rooms, then waiting your turn for the government to turn up and provide you with a Certificate of Occupancy. Many investors looking to purchase a property to renovate will walk away from one that doesn’t already have the square footage they need.
However, a family looking to purchase and move into the home with plans to one day expand it to suit their needs will be more likely to purchase it and pay a little bit more just to get their kids into a good school district.
To compute the likely price that a home will sell for, we first get a list of similar homes that recently sold in the neighborhood, calculate the average price-per-square-foot, then multiply that price-per-square-foot average by the square footage of our subject home.
I’m done digressing; back to our story. I think you’ll find that my digressions will serve the story to come.
When I pulled data on Heather’s grandma’s house, I found that some additions had been made to the original 1600+ square foot property. Those additions, if they had been done with permits and blessed with a government Certificate of Occupancy, would add to the square footage of the property, thereby increasing the value. Yay!
After some fancy footwork, we were able to obtain copies of the original permits and a Certificate of Occupancy from the 1920s. 2010 square feet!
I reported back to Heather with this wonderful news. She didn’t seem to be very interested and didn’t even request that I send her copies of the documents -- maybe she was focused on making sure her nails dried evenly and was bothered by the inconvenience of handling her mobile device.
She told me that her uncle had been very difficult about showing the property. She remarked that the other agent (other agent?) couldn’t even convince him to let him have a peek inside. She gave me Uncle Charlie’s phone number to arrange a showing and, with a tone of sarcasm, wished me luck.
Turns out, Uncle Charlie was a sweetheart. Sure, he was still grieving the loss of his mother, but within a matter of days he was showing me around every corner of the home and telling me family stories complete with beautiful black-and-white photo illustrations.
This tour gave us all the information we needed to arrive at a prospective selling price: in the neighborhood of $1,000,000.
Heather greeted this good news with her signature indifference and told me that she had to wait until the end of the month when her Uncle would be moved out, and that then she could move forward with the sale.
Tick tock.
It was just about the end of the month, and I got Heather on the phone. Heather had her own story to tell. It seems a young agent had been door-knocking in the neighborhood and brought his young British accent to the doorstep of Grandma’s house. Then, he sent her a signed offer from an investor for $800,000. That was too low, but then he came with another sight-unseen offer for $900,000, and they were in escrow for all of a day before it fell out.
Oh?
She decided to give this particular agent the listing for 30-days. They would list it at $899,000, hoping to start a bidding war, she said, to push the selling price up much higher.
To summarize: Heather had chosen another agent, and I was now ethically precluded from advising her further about anything, especially about questioning the advice given by the agent. Hands tied.
I was perplexed at how low the agent was willing to list it. Did he not know the neighborhood? Or, maybe, he never bothered to investigate the additions. Maybe he was multiplying the neighborhood price-per-square-foot by 1,650 rather than 2,000?
Since we didn’t get the listing, I figured the least we could do was bring in a buyer who would get a great deal at that price…even if competition nudged it a little higher. Within 24 hours, we had an offer in hand for $940,000, signed, sealed, and delivered, contingent on interior inspection.
The agent’s response was not what we’d expected. The agent had two offers in hand, each for $900,000. He just wanted to get this one done, without any open houses or marketing. (So much for Heather’s hopes for a price war from all the exposure).
This agent couldn’t believe our buyer would want to pay so much. He just couldn’t. He didn’t want to waste his time with accepting our offer if he wasn’t sure it would go through. I told them that we didn’t intend to waste his time. I suggested that since the listing hadn’t even appeared on the MLS, they could take the time now to entertain the offer prior to listing. He requested all manner of backup information on our young investor, which we provided. Then he insisted that the buyer see the property before considering her offer. Fair enough; we were delighted to schedule a tour for our buyer.
The next morning, we saw that they had listed the property on the MLS, with a square footage that didn’t include the addition. Later that afternoon, as our buyer got a tour of the home, the agent kept volunteering his belief to our client that her offer was way too high. He spouted off numbers of how much it would cost to renovate (not his area of expertise) and sent her off saying that he would allow her to lower her offer and gave her until the next day to decide on moving forward or not.
The next morning, we got word back from our buyer and hurried to the phone to give the news to the agent.
Ah, gee, we were a bit too late (at 9 a.m.). They just knew our client was going to back out of the offer, so they already put one of the $900k offers into escrow. Pity.
Without putting it on the MLS. Without Open Houses. Without showing it to buyers willing to pay extra just to get a home in that neighborhood so they could send their kids to premier public schools. Without letting the market speak.
Sigh.
AFTERWORD
The property today closed escrow and all the world is now able to see that the accepted offer was not so much submitted as rubber stamped for $885,000. It was 'brought' by an agent on the same team as the listing agent, same brokerage. An 'inside job.' In realtor-speak it was 'double ended' and the seller missed out on between $55,000 and $100k of profit that they could have earned by hiring an agent who would actually market the property.
Appalling.
