Should I Just Retire My Real Estate License?

Question

I've been a realtor for 5 years this May and I've really been dissatisfied with the job for 2 1/2 years. I've been trying to work myself out of that side of the job and into investing. I'm trying to focus on short sales for the time being. I have 7 deals in the works and have the potential to get many more in a short amount of time.

I just received offers on two of my properties... one of the buyer's agents is accusing me of unethical practices, and the other is calling it fraud. I diligently and clearly explained how these deals are put together in an attempt to educate them and create a smooth transaction. Instead they are all fired up, and one of them is also accusing my entire office of being unethical because the listing agent is also in my office. I've made it a point to build my business based on good practice and always being ethical, even to the point of losing deals because of it. So when someone attacks my character I don't take too kindly to it. I've offered to meet with this agent, his client, his broker and whomsoever to help them better understand what is happening. They aren't open to that.

So I'll deal with all that but I'm wondering if I'm being hammered because I'm an agent and the investor. Do you guys think I should just put my license in escrow and go full-time into investing? I wonder if that would help or if I'll still get scrutinized by agents because so many are so narrow-minded and can't see beyond a conventional, typical real estate transaction. At least without a license I wouldn't have to stress about being brought before the board of realtors or the real estate commission. I've already lost one night of sleep over this and I don't want any more. Any thoughts? Thanks...

Dale Osborn · Answer

I would hang up the license and disassociate myself from the association. National Association of Realtors spends millions trying to show how ethical they are, but when brought before the board, there is no fault found and consumers are again hurt by the agency that is supposed to protect them.

Scott Hubbard · Answer

There is a lot of double speak in this issue becuase it has gone from a issue for the DRE to one that is now in the hands of politicians and attorney generals. There are countless actions under review in California, Colorado, and Arizona. Distressed sellers are to be treated to a higher standard than than traditional sellers. This is because they have much more at risk. As such, there will be closer scrutiny from the DRE on complaints filed. This is from three independant attorneys who are highly respected and in which two of them are experienced with defending agents in DRE actions. In all three cases, they recommend two things: 1. The listing broker and buying agent's broker should not be the same firm. This has been published in California and in Colorado by prominent RE attorney's that represent broker's in claims. The main reason cited in this is the added liabilities to the firm and the rise of E & O insurance payouts which would result in a significant rise in costs. Although dual representation may be legal, it is recommended that brokers do not represent both sides of the transaction due to the high risk associated with handling becuase it is essentially "doubling down' and your risks are now two fold. 2. Second recommendation is an agent who also is acting as a buyer should not engage in a real estate activities including marketing since he is essentially buying low and selling high which is a unfair advantage against the lender. Though the agent does not have a fiduciary responsibility to the lender and would not have one to the seller if seller has separate representation, ethics dictate that the agent cannot engage in practices that could be contrued as dishonest. I my opinion, there is a way to employ your abilities to earn a commission and take advantage of the opportunities that exist as an investor. 1. Find a like-minded agent and for a J/V or partnership with him/her. 2. Each for your own (separate) entities. LLC's or corps are recommended. These will be called JV A and JV B. 3. Make sure your licenses are hung with seperate brokers. 4. JV A will represent the seller and will do so to the utmost vigor and must act independantly from JV B. JV A will submit and process the short sale. JV B will list his option to sell in the MLS to find an end-buyer. 5. Should the JV B get enough spread, then JV A gets paid commision for the A to B and JV B get the proceeds from the sale. 6. Should it be required that it go A to C, then JV A will still get a commission and JV B can get a referral fee. 7. To keep it fair, the JV partners should alternate roles. Why set this up? You can double your pipeline through the increase in man power, leverage your experience as agents, serve your clients more effectively through speicializtion, be active investors, and limit your risks at the same time. I have help create six partnerships such as the above and have written opinions from several attorneys that this is the way to go in terms of the reduction of potential risk. The agents using this formula are very pleased and have increased their close rates by at least 100% with some as high as 300%.

Rich Weese · Answer

Tom- let me make this clearer. 1. Have your attorney draft and sign a letter stating that if you are ever sued for buying low and selling high in a short sale that he'll pay your cost court costs in defending you and any judgement obtained against you for witholding your knowledge from seller and buyer of the values of the subject property as you've learned as a realtor. 2. Have seller and buyer sign the following: TO seller, I'm aware that I'm selling my property through XYZ realtor to XYZ realtor for MUCH less than market value and this has been completely explained to me and that is fine. TO buyer, I'm aware this property has just recently been purchased by agent for MUCH less than same agent is now selling it to me for and I'm completely ok with this process. If you have ANYTHING less in writing from the 3 parties, I'd be very careful. Rich EX CO and CA Broker with LOADS of experience...

Ralph S. · Answer

Hi Tom Here's opinion #3. Get a thicker skin. Your OP leaves me wondering what your role is in these two transactions. You state "I just received offers on two of my properties..." and then states "the listing agent is also in my office." So, are you the seller and not the listing agent? Are you buying SS and flipping them retail? It's not clear to me. And, you don't disclose what exactly these two are objecting to, or what they think you've done that is unethical or fraudulent. So, I'll take it for granted you've made all the disclosures, know the line you're walking as investor/agent and are in the right. Anyway it shakes out, my advice is to simply thicken the skin, and walk the walk. Now that you're in this spot, and it seems that formal complaints have not been filed with the state or local association, do what you can to protect yourself and make this go away, watch your words and work closely with your broker. Surely your broker is involved, and he/she has been around the block. Rich's words are wise regarding E&O and Liability. It would be a good idea for you to review yours. I don't think E&O will insure an agent/investor conducting transactions for themselves, only when acting as an agent for another, so make sure, even if you are 100% right and ethical, you are protected even against unjust claims. On the hang-it-up or not question, if you are unhappy with the job, that would be a good reason to hang it up. If you let these two run you off, IMHO, that is not, by itself. But, the last straw is still just a straw like any other. Good luck.

Scott Hubbard · Answer

In my opinion and in the opinion of my attorney as well as several other attorneys, you are not committing fraud as long as you do not represent the distressed homeowner. I would also recommend the listing agent be with a separate broker. Part of my business is consulting with agents and improving their closing rates with distressed sales. It is highly recommended that agents wear two separate hats when it comes to distressed sales. You cannot and should not try to purchase the property as an investor and when that fails turn around and make a commission from the A to C. I believe it is not necessary for you to hang up your license, but it will be necessary for you to remove yourself from all the things that make you a real estate agent. Though you are not committing fraud, you, as a RE agent, are held to a higher standard than non-licensees, so you are taking on extra risk. Your DRE can impose severe penalties against you as a licensee. So you need to be extra cautious and very diligent with how you run your investment business.

Tom Medwin · Answer

I genuinely appreciate all of the responses. Thanks for taking the time to share, I really mean that. Just a good follow up... in both of the cases I mentioned there was serious mis-information on the part of these other buyer's agents. Miscommunication and lack of understanding seems to be the fatal flaw in so many cases, both business and personal life. As of today I've had a chance to sit down and thoroughly explain the whole situation to both of these agents, along with supporting information straight from HUD. The one who was calling this fraud admitted "someone told him you can't do that," but after looking at the facts and understanding the whole process is OK with it. He's just concerned because he has an interested buyer who is getting financing through FHA and his lender can't do it. And the agent is not willing to recommend a lender he doesn't know just because they can do it. The second case was a more serious one. That agent said myself and my entire office was violating "ethical issues," and that could have gotten out of hand and taken to the MLS board at least. I sat in person with him and his broker to explain AGAIN for the third time all of the moving parts involved and how it is documented and fully disclosed. This time, however, the broker is there with me in person. The broker completely understands and is OK. So guess what.... the agent is also OK with it. I actually found out that the whole issue arose because the buyer's agent heard wrong information from the listing agent. I told the listing agent to have all buyer's agents call me before writing an offer so I can talk to them and make sure everything is clearly explained... which the listing agent did. This buyer's agent kept pressing the listing agent for info however before calling me. The listing agent swears he didn't tell him this... but the buyer's agent HEARD that if my offer to the bank is counter-offered, then his offer would be submitted along with mine. So his issue was that he thought his and my offers could be competing with each other, and since the listing agent showed me his offer there was an ethical issue. Obviously this isn't the case and we had a great 1 hr. meeting to address a whole bunch of points on the short sale topic and everyone felt great about it. And for the cherry on top.... the broker wants to talk about me coming to do a presentation at their next sales meeting on how I am doing short sales with the A-B,B-C transaction and how it benefits all parties involved. And this is one of the bigger brokers with a good amount of agents. I'm from a smaller family owned type of brokerage so it's interesting to make some potential partnerships with the big boys. So I'm very relieved that everyone is on the same page. I appreciate everyone's comments. I really needed to double and triple check that I'm OK doing these things the right way and it appears I'm on the right track. So thanks again and I hope this helps someone else out there.

Rich Weese · Answer

Sorry Scott, just not worth the effort. Talk about doublespeak? Why not just have the 2 points I mentioned? Why pull a Clinton and parch the words, skirt the issues etc? Just come through with the accurate story to ALL theparties involved. Do you really want to risk a lawsuit with DRE? Any idea on the costs? The DRE doesn't just run around in any state drumming stuff up. Why get close to that. Sorry, I don't get it. The cases I'm familiar with , and should be the grounds for decisions because they're SO old have nothing to do with A B B C D etc. They only settle on, did the agent disclose HIS knowledge as a licensee as part of his fiduciary responsibility to his client or hide it. Period. Did he benefit at the detriment of the seller in a resale? If he did conceal and had part in the complete transaction, he is guilty. As always, I suggest you or others try to get a "clear" letter of opinion from your attorney that it is ok not to disclose, profit from your involvement in an immediate resale and then post letter here for all to see. Short of that, I will stand on my 2 points above and let others stick their neck out over the guillotene and then call an attorney to represent them with the DRE of a particular state . It just isn't worth the risk, imo, but others may like living on the edge. Rich..

Bill Gulley · Answer

Hey, very good advice Scott! From the OP, I didn't take it as the agnet was acting as a transactional broker. The fact that the broker is in a co-broker relationship is not a problem, at least in Mo., to date, but I certainly see the higher degree of care required. So long as his attorney has blessed his activities, IMO he should keep his deals going according to the requirements in place. Scott has an excellant startegy for future deals. Bill

Bill Gulley · Answer

Hi, I agree with Scott and the first post Rich made as well. You have done what you should have done, you contacted your attorney. There are many times in this business that you need to have think skin and have a pair that expand on demand! I'd suggest you stand your ground since your attorney has advised you and put the board in their place as well! Boards can be sued, remind them of that. All of the successful Realtors I know in my area (and I know all of them) can be very pleasant and they can also bite the head off a rattle snake! Don't be intimadated by a bunch of Realtors who come and go every year or so on the Board of Realtors committies or even some state investigator (if anything get that far). How vigoursly you disclose and defend your position is an indication of moral and ethical position as well as your standing in compliance with applicable laws! Make sure your backyard is in order and stick to your guns. Don't worry, the more successful you become in these early years, the more your competition will complain, but then you'll also reach a point where you command respect and admiration of your peers! One other consideration, who is making the complaints? What is the motivation? If they can't do what you do, if they don't understand how to do it or if they "behind the times" it seems to me that's their problem, not yours. Be polite, explain it once, if they don't get it, that's not your problem. If it starts to become a problem for you, then aggressively defend your reputation and your business! Never hesitate to let others know that your attorney will take care of a situation if need be. Keep your license, unless you no longer want to be a Realtor, IMO. Bill

Ralph S. · Answer

Boy, your broker has a pair, doesn't he? I think he's at much greater risk than you, and I'm surprised they would agree to this. Given your B in the A-B B-C, if the A selling agent is in your office, I think it's your broker who could be in the hot seat. Not a lawyer, and don't know your state, but it seems like a Texas two-step around a net listing. The broker picks up 3 sides, maybe 4, with the "net" portion going to an agent of the broker (you). That could be trouble.