It’s Legal, But…

If it’s legal, does that make it OK? In recent decades the distinction seems increasingly to be lost; people from all walks of life, from the lowest to the highest, use the law as a shield for questionable behavior. But as institutions such as community and religious affiliation increasingly loses power in defining moral behavior, the law has become the backstop. Is it legal? Just because it’s legal does not make it right.

In my experience there is a big difference between what the law permits and what appropriate behavior might be. We need look no further than the root causes of the 2009 recession, all ostensibly legal, to understand this. As residential real estate agents we see these issues crop up all the time. I believe that only by exercising our beliefs about good behavior as a community can we reinstate behaviors which reassign the almighty dollar its proper place – below the top of the behavioral hierarchy. A few examples from my recent experience:

• Dual agency. New York State law permits real estates to function as “dual agents”-meaning that they can represent the buyer and the seller in the same transaction. So yes, it’s legal. But I will not permit Warburg agents to do it. Why? Because it is clearly impossible to simultaneously negotiate to get a seller the highest price and a buyer the lowest. In my opinion, the law should be changed, but in the meantime it won’t affect Warburg agents because they know we will not permit it in any event. It may be legal but it is clearly wrong. If we represent the seller as his or her exclusive agent, we can deal with a direct buyer in an honest and forthright manner, but we let them know up front that we represent the seller. If they want their own representation (which I strongly encourage them to do) they are free to obtain it at any time before substantial negotiations begin. New York state also has another designation, Dual Agency with Designated Sales Agents, which allows two different agents at the same company to engage in the same transaction: one representing the seller and the other the buyer. Since in these circumstances both buyer and seller have an advocate (even if those advocates are colleagues), I have no problem with this form of Dual Agency.
• Gezumping. Gezumping is our peculiar name for the process by which a seller agrees to accept a higher offer than the offer he or she has already accepted. Gezumping has become common practice in recent years, because it often works. Since no seller is bound legally to a deal until a contract is signed and consideration has changed hands, buyers can come in after the deal is struck but before it is signed to upset the apple cart. Sellers can often be swayed by this vision of financial sugar plums, even though in reality the gezumper often backs out at the last minute, leaving the seller with nothing. I would love to see the business return to the honoring of the (perhaps virtual) handshake. Once the deal is agreed, any other bidder, even at a higher number, goes into second place. That behavior was more the norm when I entered the business than it is today. No seller is legally obligated until a contract is fully executed. Is accepting another, higher, deal and abandoning the first one at the 11^th hour a moral choice? That’s another question.
• Two contracts. As with gezumping above, there is nothing illegal about sending out two contracts to different buyers at the same time. The real issue is transparency. As agents, we have reputations to uphold with our colleagues, even while as fiduciaries, we are compelled to do as our principal (whether buyer or seller) advises so long as it does not break the law. We are placed in a terrible position when the need to act as a fiduciary and the need to behave honorably come into conflict. I always urge a seller to inform both parties when two contracts are being sent out to different purchasers; it creates a level playing field and makes it clear that the first one across the finish line wins. But to have both buyers unknowingly retain an attorney and perform due diligence on the property, all the while knowing that there is a 50/50 chance that their expenditure of both money and time will be for naught – any reputable agent will do anything in his power to avoid that.

Most real estate agents prefer to act in not only a legal, but also an honorable manner. Transactions flow better and all parties sleep better when we put our best selves forward in our dealings with others. If agents, buyers and sellers all act with dignity, generosity of spirit, respect, and transparency, we can maintain the high standards of our venerable and indispensable business.