Can I legally bypass a listing agent in this case?

Question

I have recently talked to a motivated seller who received a piece of my direct mail. The numbers are tight, however, if I can work with the seller directly and he doesn't have to pay the realtors commission I believe that I can put a deal together.

The listing agreement expires in five days, however, I would like to tie this deal up TODAY if I can.

Here's the details-

1. The property has been listed for over five months and the seller is not happy with the agents performance.

2. The listing agent played no role in connecting me with the seller. I didn't even know the property was listed until the seller contacted me directly.

3. The property needs a ton of work and won't qualify for a standard FHA loan even though the sellers agent originally told him that it would.

Here are my questions:

How can I tie this property up without the listing agent TODAY?

Is it unethical for me to ask the seller to cancel his listing agreement with the agent five days early?

Can I sign a "postdated" agreement with the seller that is dated five days in the future?

Can I sign an agreement TODAY that states that I have the rights to purchase the property directly from the seller as soon as the listing agreement expires?

Any advice and or answers would be greatly appreciated!

Bill Gulley · Answer

Steven, I really suggest you just make the numbers work on your side and don't involve yourself with the seller's obligations. Another issue, the listing agent will not be representing you if you make an offer, you're on your own. For your first deal using a buyer's agent is advised, you'll see how things are done locally, you'll be introduced to closing agents and title folks, the Realtor probably has a clue who is easier to work with. All RE is local, you need to understand local customs.

As to waiting, no you can't wait 5 days, there is a waiting period where commissions are still due, you can't prove you didn't see a listing as it's in the public domain. Moreover, the seller can't prove you didn't see the listing or a sign in the yard, they are the ones to pay the commission.

Agents can see when properties sell, most closing companies have a monthly list of settlements, if you're an MLS member these lists can be available.

Other Realtors work expired listing too, if they see a place sold privately they will often let the listing agent know.

The other issue, sellers hire agents for a reason. I have had clients chased off buyers who suggested circumventing a listing, the seller had enough sense to know they didn't want to deal with someone who suggested illegal and unethical tactics. Even the dumbest seller understands they entered a contract and that attempting to circumvent the agreement is wrong, so showing a seller your true colors might clue them in to thinking they should avoid doing business with you. Now, there are crooks that are sellers, they might jump on your idea, what does that tell you about them? Are you going to believe them when they say the basement never floods in a heavy rain???

RE is a highly regulated and structured environment, there is an established system that most investors don't even realize exists unless they were a broker or worked within these systems. People like loan officers, brokers, agents, appraisers, closing agents, title examiners, attorneys, surveyors, inspectors, etc all know each other or of each other....or it's only a phone call away to find someone who does know them. They all work in the same industry in the same area. They attend seminars, meetings, parties, fund raiser, funerals together and they all talk. These folks can make life very, very hard on any investor, they can put you out of business, they can bait you and send you walking or to court or to jail.

Don't start out testing them or trying to screw them, you are not going to out smart the system. You need to  play by the rules, especially starting off.

Want an idea of how many "investors" failed, go back to old forums 3, 4, 5 years ago and see the whizbangs that posted, now look for them being active in RE, most are long gone!  :)

Bryan L. · Answer

This is not a matter of "ethics" or the "amount of work the Realtor did".  It's a matter of a legally binding contract.  Most listing contracts state that the agent gets paid a commission even if the seller finds their own buyer.  There's too much risk for an agent to take a listing otherwise.  For example, if an agent takes a listing and spends their money on advertising, and the seller can just go and find their own buyer anyway - then the agent is out all of that money for nothing.  That's called a non-exclusive right to sell agreement, and most agents won't take them (for good reason).

The other issue is this.  If it hasn't sold in 5 months, it's probably not the agents fault.  It's probably a case of being priced to high.  So, @Steven Williams do you really think that you can make a deal out of an over-priced listing simply by knocking 6% off the price?  If so, I've got a whole portfolio of rental houses that I would like to sell you, plus some ocean front property in Arizona.

Bill Gulley · Answer

Steven, read my post above, that is the legal obligation, you don't have to agree with it. The seller owes the commission, period. It's not up to you.

It will become an unethical issue when you make the suggestion to the seller to save money in order to give you a better price by cutting out his legal obligation. You are suggesting that the seller breach a contract to save you some money!

Look up "tortuous interference" if you even make the suggestion the agent can sue you as well, then it becomes your legal matter.

It's not that listing agent's job to help you! The seller hired him, he represents the seller, not you. If you can't negotiate with the listing agent, get a buyer's agent, the listing agent will split the commissions to pay them so getting help won't cost you anything. You have no idea what that agent has done to help his client and the seller may be playing it down as a negotiation tactic, as he will consider what you offer without consultation, but he surely will consult with the agent. The agent's duties don't begin until a contract is offered at this point, there is nothing for him to advise on.

Is the seller stupid? I'm sure the seller realizes that every day he sits there he sinks more money into his house, I'm sue he'll be impressed with a buyer reminding him of that.

I choke when I hear newbies saying they are going to help a seller, you offer full price in cash allowing the agent the seller hired to do his job and close ASAP, you might see yourself as  "helping". If you want to "help" do not offer some whizbang guru stunt that ties up the property and doesn't close because you lack the experience, knowledge and funds to actually make a deal that will close, like so many newbies do starting off. You're helping yourself trying to buy RE, you aren't running a non-profit out of the goodness of your heart, so let's not go there.

Everyone gets screwed over by someone, some time in their life, no one walks the face of the earth getting their way all the time, using your past failures to justify shafting the next guy is not ethical dealing. You may like philosophy but you sure don't understand business ethics or legal matters it appears.

Understand that your reputation is at stake with every contract you make and your reputation can put you out of business before you even think you're really in business. You cut the hand off a Realtor the word will be out and you may not get any of them to deal with you, you'll cut your nose off to spite your face.

I hope you reconsider and learn what is expected from those who deal in RE in conducting yourself ethically, legally and professionally and do so. Good luck if you do. :)

Shaun Reilly · Answer

If you want to tie it up before the listing expires then pony up the commission.

You MAY not have any issue but you are skirting the law on that one.

I agree with you that if you didn't see the place on MLS, didn't get some marketing from the agent or didn't see the sign in the yard etc.... They didn't do anything to bring you to the seller to make the deal happen.  So just wait for the listing to expire and I don't think that their is any ethical hang ups at that point.

Doesn't sound like the agent is going to pull something out of his butt the next few days and its not a smoking hot deal other investors are going to try to get in front of you.  Just wait a few days...

Darrie W. Bennett · Answer

Steven -

Find out if the agent has an "Exclusive" listing. If he does, I would wait until the listing expires. There are different kinds of listings ... some are "Exclusive" and some are "Open".

John Moore · Answer

You should always use the ethical approach.  The sales commissions isn't coming out of your pocket it's the sellers responsibility.  As we are all on a commission basis you should not attempt to cut the sales person out of their earned commission.  There is no telling how much work a salesperson put into attempting to sell a property some earned commissions are easy and others are more difficult.  Always think about if the situations were reversed.  Food for thought.

Bill Gulley · Answer

Commissions are due to an agent/broker being the procuring cause of a sale, there is also a protected period after listings expire. If you found the property through any effort of that listing agent, listing, sign or ad, the agent is the procuring cause.

Make your deal, commissions are due from the seller, if you can't get an acceptable price, move on. :)

Michael Seeker · Answer

This is a sales job...no commission is "earned" by the agent until the sale is made.  As the situation is described, the agent has done nothing to facilitate a sale in over 5 months and has had no part of this potential sale.

The nature of a sales job is that you don't get paid unless you make/facilitate the sale.  I don't pay contractors when they don't complete a job, why should I pay an agent for not getting the job done?

If the agent wants to get paid for working (not paid for sales), they need to work on an hourly basis!

Steven Williams · Answer

Thanks for all of your great responses. I haven't read any books from gurus that have told me to wait for a listing to expire or anything of that sort. I simply didn't know what to do and I simply saw an opportunity. I didn't know the laws and wanted to know if I was crossing any ethical boundaries.

To me, my plan seemed logical and I didn't feel that it was devious in any way but like I mentioned above I'm still new. I highly value integrity and ethics otherwise I wouldn't have brought this question to the form in the first place but would have just found a way to tie up the deal. I'm here for learning.

I am also very competitive and I will strive to make as many deals as possible while playing within the rules and ethics of the RE business.

I do have a cash buyer lined up for this property who is able to close as long as i get the numbers I need.

I've been investing in real estate for only three months now and have only done one wholesale deal. Luckily everything went smoothly and we closed in less than ten days. The money was good but hearing the sellers say how thankful they were to be out from under the property was even better.

Once again, thanks for all of your wisdom and input and I wish you all success in your RE ventures.

-Steven

Patrick L. · Answer

So I think others have covered the ethics and contractual issues with what you're looking to do.  Obviously you shouldn't interfere with a contract or it's not going to end well for your or your deal.

My question is what is your plan for the property when you get it under contract?  Are you looking to wholesale the property or do you have the money to actually buy it?  If you're looking to wholesale it do you have a buyer lined up or are you just planning on trying to market something that's already been on MLS for months with no results and tie the seller up for even longer with your hopes and dreams of a big wholesale payday?  How angry is the seller going to be at a "wholesaler" who came in and pushed the agents out because he was going to "pay cash and close fast" on the property only to market it for a month and find out he can't sell it either despite all of the promises?

Can I legally bypass a listing agent in this case?

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