Conflicts of Interest with “Coming Soon” Marketing
By Michael Repka
One of the fundamental problems with the real estate industry is that the interests of the sellers are often in conflict with the interests of their agents. The 100% commission-based compensation system employed by most brokerages, coupled with the permissibility of the same agent or the same brokerage receiving money from both sides of the same transaction, result in temptation counter to the interests of the client. An example of this comes up when Realtors start marketing “coming soon” properties.
While there may be reasons to let potential buyers know of a home’s availability before the time that the property is ready to come on the market, many agents use coming-soons for nefarious purposes. Simply put, some agents use coming-soon listings as bait to attract buyers, or in an attempt to entice buyers to work with them so that the same agent (or brokerage) gets commission from both sides of the same transaction. This is true even though the agents often know that the ultimate selling price could be materially less than it would be if the home were exposed to the entire market and all interested buyers could compete at the same time.
By now it is well known that DeLeon Realty never takes commission, or any other type of payment, from both sides of any transaction. Except for a new real estate company called Rex, DeLeon Realty is the only company that I know of that imposes this very strict and client-centric rule companywide. In fact, to date, we have waived over $6 million worth of commission in situations in which the winning offer happened to be from a DeLeon agent or the winning buyer approached us directly without an agent.
As the number one listing agent in Menlo Park, Palo Alto, and Los Altos Hills, as well as Silicon Valley overall, I get countless calls from very good real estate agents asking if I have any off-market properties available to show their buyers. These savvy agents know that their clients will be able to get the home for less money if there is less competition. Because I represent the sellers, and only sellers, I generally do not release any of my properties to the market until they are ready for full exposure.
Our formula is fairly consistent, I rarely grant access to any of my listings, to either DeLeon buyer’s agents or other offices’ agents, until about three days before we hit the MLS. At that point, I post the professionally-produced video, three-dimensional tour, photography, and disclosures on the DeLeon Website and we begin running television commercials, radio commercials, and ads in a variety of publications. This timing is strategic because it encourages slightly early access but prevents unsolicited preemptive offers.
Thus, all of the interested buyers have an opportunity to submit an offer at the same time. In my opinion, agents that encourage homeowners to let them market their home off of the MLS usually do so because agents are looking out for their own best interest rather than those of their clients. On the other hand, more exposure results in more competition, which drives higher prices. Plus, sellers should want all interested buyers to compete at that same time, which is why we almost always set a specific date and time for offers.
Some agents brag about how many properties they sell off-market. Similarly, some offices encourage agents to ask sellers for a period of exclusivity, which creates limited access to only that brokerage’s agents. While I understand why this approach is in the best interest of the agents and buyers, it is diametrically opposed to the best interest of the sellers.
Similarly, when agents market a home as “coming soon,” they are inducing potential buyers to call them directly. However, if the potential buyer is interested in the property then the agent faces a significant conflict of interest. Namely, the agent would be getting commission (or a referral fee) if that particular buyer’s offer is accepted but they are still interacting with other agents or buyers that would not generate any financial benefit if that competing offer is accepted. One must wonder if the agent will do their best to encourage competing offers that might outbid their own buyer.
Another problem is that, unlike DeLeon Realty’s practice, most brokerages allow, or encourage, their agents to work with both buyers and sellers. Thus, the listing agent would get paid if they redirected the lead towards any other property. While, as someone that only represents sellers, I have an incentive to overcome buyer objections and “sell” my listings, other agents will get paid the same amount even if they represent the buyer on another property.
A core principle at DeLeon Realty is that agents should not straddle between representing buyers and sellers. Representing both sides creates too much temptation and too many conflicts of interest. The lesson here is that sellers should ask why agents are recommending only limited exposure or filtered advance notice.
From my perspective, the only time it makes sense to limit exposure is if the seller is willing to trade privacy for a lower sales price or if the marketing plan includes an international component that requires more advance notice due to travel constraints.
