Transparency & Accountability (Part 2)

I was having a conversation with a colleague of mine just a few days ago regarding final signing of a contract and I was surprised in what she said to me. She implied that in her experience, 90% of agents representing sellers did not follow their legally binding fiduciary responsibilities when it came to final signing of a contract and the potential for multiple offers. Of course, the 90% is an over exaggeration but it got me thinking. This is not only a breach of an agent's fiduciary duties but could also be costing sellers thousands of dollars. Here's why:

In Alberta, until final signing of a contract has been completed by the last person who signs the contract, a seller has the right to entertain other offers. Here is the scenario my colleague and I were discussing.
I had a seller who received an offer in the afternoon on a Wednesday after being on the market for 3 days. My seller was an investor who was selling off one of his revenue properties. When deciding on his asking price, he made the decision to price the property at market value rather than price it above market value as he didn't want to risk having the property on the market for an extended period of time. The buyer that wrote the offer was also an investor. The buyer was represented by another agent from another office. The initial offer from the buyer came in almost $15,000 under my seller's asking price and after 3 days on the market and multiple showings, my seller was not that eager to entertain the offer. We spent the day verbally negotiating and came to a verbal agreement to a price that was $5,900 under my seller's asking price so my seller verbally agreed to accept the offer. The offer was open until 9am the next day (Thursday) which meant that both parties would have to sign the contract and have final signing completed for it to be a legal and binding contract. My seller was unavailable to sign the offer that evening as he was at an event so the buyer's agent had the buyer sign the documents and extend the time on the offer until noon the next day (Thursday). This is where things became complicated. By law, there was no legal and binding contract between the buyer and the seller until final signing was completed by the seller. The next morning (Thursday) as I was making arrangements with my seller to send him the offer to sign, a different agent called me to tell me that she had a buyer that was interested in making an offer on this property and a signed offer would be to my office within the hour.

In representing my seller, it is my fiduciary duty to have undivided loyalty towards my seller. Undivided loyalty is defined as "the Agent must act solely in the best interests of their client, always putting the clients' interests above their own interests and above the interests of other parties." So in this situation, I had a legal obligation to advise my seller of his rights. By law, since my seller had not signed the contract, he could entertain the second offer but would have to advise the buyers' representative in the first offer of his decision which would then create a multiple offer situation. This did create an ethical dilemma for my seller because he had verbally agreed to sign the contract. But my fiduciary duty was to give my seller the information and he would have to decide how to handle the ethical dilemma. Going back to the conversation I was having with my colleague, this is where she implied that 90% of agents would not allow the second offer to be entertained. She indicated the agent representing the seller would just explain to the second buyer's agent that there was an accepted offer, even though by law, the offer was not finalized. In my understanding of our legal roles in representing a seller, this is not a decision to be made by the sellers agent, this is a decision that should be made by the seller. If an agent acts as a filter and does not tell their seller about a second offer or decides to tell a secondary buyer's agent that a second offer cannot be entertained when the first offer has not been finalized is a violation of an agent's fiduciary duty to their seller and in my sellers situation, would have lost him $4,000. GASP!

My seller had an ethical dilemma and had to make a decision as to whether he was going to keep to his verbal agreement with the first buyer or whether he would risk it all and force the two buyers into multiple offers. I reviewed the risks with my seller and in the end he decided that he was going to entertain both offers. I called the first agent to let him know what had happened and to notify him that he was now in multiple offers. Of course, the agent was shocked and then angry with me although I was just following the law and the instructions of my seller. Upon reflection, I think this is where agents may become misguided with their roles. My role in representing a client, whether it is a buyer or a seller, is to ensure that I am acting in my client's best interest and sometimes, it could be perceived in the wrong way to the co-operating agent.

Both offers were presented to my seller. The price on the second offer was just $900 under asking which was much better than the $5,900 under asking that my seller had verbally agreed to but the rest of the terms on the second offer were not as good as the terms on the first offer. My seller decided to counter the first offer he received and went back at $1,900 under asking which required the first buyer to increase his offer by $4,000. The first buyer obviously felt the asking price of the property was reasonable and agreed to $1,900 under asking so we had a deal.

I do realize that from a practical perspective, there are going to be times that an offer will be delayed with final signing and in many of my experiences with my sellers, they have agreed to not entertain other offers when these circumstances arise and have instructed me to reject any other offers that may come in the time between verbal agreements and final signing. But this is a decision for the seller to make, not for the sellers agent to decide amongst the buyer's agent, in my opinion anyway.

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