Property Investing Ethics

[Oopsick]

While I fully agree that we are all out in the marketplace together and in some places competing against each other on occasion (which I have no problem with at all). Is it ethical to be introduced to a property/deal by a property finder, tell “no” to their deal, then go around their back using all the information given (building inspection, valuation, LIM, vendor’s situation, quotes for repairs, etc…) by the finder and present your own offer behind the finders back???

This was the situation I was in this morning.

I’ve secured a property well under value, offered it to a small circle of fellow investors for a contemporaneous settlement to do up and sell for a neat profit.

One of the investors got very interested and was provided with my inside knowledge as to the vendors situation and all the relevant documents. They declined to accept my deal on the last day (despite getting the property within $ 5,000 of where they said they would buy it) and then armed with all this information went around my back and presented there own offer through a different agent. Needless to say that my agent was p...d off more than I was , because she was about to loose half of her commission after all this hard work of marketing and our negotiations over the past 4 weeks. Moreover my agent was upset to find out that the the second bidder had all the documents for the property while the agent had never met them before .

While this property did not fit my current situation and I was not originally planning to buy it myself, I decided that the deal was too good to pass up, so I made my unconditional offer last night. At the point of presenting my offer the agent informed me that another offer had come through. Surprise, surprise…………… The offer had come from the previously mentioned investor that I had introduced the property and deal to

Now my question is this:

The fact that they decided to decline and not do the deal for whatever reason is fine and I would respect this decision as I did that of the other investors. No problem at all. Of course they may think by doing this they could get the property for lower than the price it was offered to them (armed with my inside knowledge) and think it is perfectly fair and ethical. What do you think?

I don’t believe it is ethical. It took me long time of hard work to find and negotiate this property more than 20% under value.

So I bought the property, but following this investor bumbling around, I had to raise my offer and adjust the terms

[Cliffy]

Personally, I think that is un-ethical and wouldn't go there.
What comes around goes around.
I imagine you will be removing the unethical investor from your buyer's list and if you circulate his/her name, other's will too so he/she will probably miss out on many more good deals.

[SuperDad]

Elena,

I read your post twice. To my mind, this is clearly unethical conduct on the part of the other party. They have used you solely as a means to further their own end, of making money. This is never acceptable.

The problem is: what can you do? When legal rules are broken, there are clear courses of action one can take, and a clear punishment for such acts. (The punishment might vary from case to case, but there is a punishment nonetheless.) But what happens when moral rules are broken (e.g. "do not lie", "do not treat others merely as a means to an end")? What courses of action can one take, and what punishment is appropriate (and who is to administer this punishment)?

I'm a big believer that the most effective sanction against immoral conduct such as that you describe is public disapproval. This being the case, the appropriate course of action would be to name and shame, on this thread. Not only will this (justifiably) tarnish the person's name, but you might well be doing others a service by warning them of this person. And remember, truth is the best defense against defamation.

A lot of people would sit back and thing "what goes around comes around - this person will get what is coming to them". I don't believe in that karma nonsense. One has to take action to make sure that bad deeds do not go unpunished - one has to make what goes around come around. But then I might be more vengeful than most.

But if you're not willing to take this course of action, then the best thing to do (in my opinion) is to look in the mirror and remind yourself that you have not done anything wrong in this instance. Your character is intact.

On a more professional note, have you thought of getting your clients to sign a binding agreement to the effect that they will put their offers through you for properties you have introduced them to?

I hope this experience does not leave you with a bad taste in your mouth - unfortunately there's not really much we can do when others choose to act unethically.

Paul.

P.S. Cliffy - I hadn't read your posting before making my comment on the "what goes around comes around" idea.

[whitt]

Some investors may find it necessary to use unethical means.

Myself I prefer to use integrity and ethics even if it means missing out on a deal. There are more deals just around the corner.

Congratulations Elena on working out a solution and purchasing the property thus keeping your integrity clean.

[Dean@Massiveaction]

Hi Elena. If it was me I would not only never deal with them again but also make sure your circle knew who they were so noone else got ripped off by such a jerk!!
I have no time for that behaviour from investors.

[xris]

oopsick,

I have read your post not twice but thrice and I am not totally sure I follow what has happened but would like to comment.

Could you please say it again, perhaps clarifying the role of each agent and did a contemporaneous sale occur, or what?

xris





oopsick,

Thanks for adding more to your post. Comment follows, if you're interested that is.

[Dee]

That sucks! Im not sure that "what goes around comes around" works, however I do think you should let the other property finders know and Im sure that would go along way towards helping it work! And in the mean time if your still interested in passing that place on PM me.... Oh yes my dealings are ethical!!!

[xris]

Hello oopsick,

True to my usual form my opinion is a little different from the other ones.

First I assume this…

You made offer to vendor via listing agent.

Offer being considered and you try to find another person to buy from you on the soon to be unconditional day or settlement day, in other words you will on sell for a profit the instant you buy it.

One of the new buyers you had spoken to and given information to went to agent 2 who wrote up another offer and presented it to the vendor before she had accepted your offer.

Vendor counter offers on your offer with the strength of this second offer behind her.

You accept counter offer.

Your agent is aggrieved because if the vendor had accepted the second offer she would have given half her commission to agent 2.



Correct me please if any of this is wrong.


My opinion?

Sorry, but welcome to the world of real estate. Neither the buyer 2 nor the agent 2 have done anything unethical or wrong.

Your mistake, and sorry to be my usual blunt self, is that you started acting like a big time property dealer when you had absolutely nothing. Until the vendor had accepted your offer or countered on it the ball was in the vendor’s court. You should have kept very quiet until the vendor passed it back to you, signed off or countered.

The buyer 2 was merely doing smart business taking advantage of your inexperience. I, and many others, would have done the same thing.

Agent 2 was also totally in the clear if buyer 2 had been introduced to this property by you rather than agent 1. Again, smart business.

‘Your’ agent (actually the vendor’s agent), probably was quite fed up when it looked as though she was about to ‘lose’ half her commission to agent 2. But she was not annoyed at buyer 2 as you suggest; she was annoyed at you for failing to keep those lips tightly glued together. And possibly too at the other agent for outsmarting her in any advice he had given to buyer 2.

The lesson from this is very simple. No contract exists until it is signed by both parties. Until that happens you have nothing. Don’t forget, all is fair in love and war and real estate.

xris

[Dean@Massiveaction]

And if Dee doesn't want it, ring me!!

[Oopsick]

Thanks guys for your opinions.

Xris, the offer was accepted but was not unconditional at the point of 2nd investor being introduced to the deal.

[Ivanhoe]

Elena, how come you had to increase the price and give vendor better terms then?

[Dean@Massiveaction]

Not wanting to hijack this thread but as Ivanhoe has just posted you all should go and see his new website http://www.whyrent.co.nz/ It's very cool and even has a pic of Ivan and his lovely wife Renata!!

[Oopsick]

Ivanhoe, well done! Fantastic web site!

[Ivanhoe]

oh, c'mon, Dean!
Now I'll have to do acknowledgements, break champane bottles etc...
OK, here we go:
Design, hosting and technical support Grant "Cliffy" Clifton.
Editor-in-chief: Dean "Poomba" Letfus
Renata - seniour negotiator and dinner provider (for Editor-in-chief)
Junior writer and leverage coordinator- Ivanhoe

Thread belongs to Oopsik! Elena, i'm terribly sorry for hi-jacking!

[xris]

Xris, the offer was accepted but was not unconditional at the point of 2nd investor being introduced to the deal.

Hello oopsick,

Apologies for getting slightly wrong.

But I am, like ivanhoe, a bit puzzled. Your first offer was then not an unconditional one when it became a contract. But, whatever, was there a clause on it that enabled the vendor to pull out prior to your confirmation? If so I still think it unwise to advertise that fact to buyer 2. Your agent 1, if she had let agent 2 know that fact then she was only doing her job for her client - getting the vendor the best price she could. Her huffing and puffing about losing half the commission to agent 2 was probably due to buyer 2 choosing to use agent 2 instead of her, agent 1.

If this further assumption of mine is correct, it still holds that you should not have discussed the contract with anyone, or you should perhaps have been more cautious about signing a contract with such an easy get-out for the vendor. This though may have been the only option open to you.



xris