Real-life scenario: A listing agent gets assigned a brand-new bank-owned listing in a great neighborhood. Of course, before marketing the property, the agent needs to properly register it with the city, conduct a trash-out, change locks, make minor repairs, transfer utilities, winterize and/or facilitate lawn care service, and finish a few other checklist items like placing a sign in the front yard.
A week or two passes while the bank's asset manager approves initial expenses and determines a list price based on the agent's broker price opinion and an independent appraisal. Meanwhile, the listing agent fields telephone calls from prospective purchasers and other agents, inquiring about the property and when it will be available.
The answer isn't quite straightforward: the property isn't listed yet and the price hasn't been determined, so everything is up in the air. Buyers are lining up, waiting to see it, eager to pay, but the property isn't officially for sale. Still, these prospective buyers are encouraged and invited to take a look before the property hits the market, if they agree to purchase via the listing agent. There's the kicker. It's not quite an ethical way to handle this, now, is it? And actually, it's not even legal.
The listing contract eventually arrives, with instructions and the seller's list price. The agent submits the buyer's offer on day one. It may even be for the full asking price. Big surprise? No, it's clear where this was going.
A couple days later, the property finally hits the MLS, and other agents submit offers for their own buyers. They've been watching and waiting, and want a chance at the action—which they are entitled to have if all is handled in a fair and above-board manner. These agents rush out with their clients to see the property. They know how active it is and tend to write very strong offers. Some even come in above list price.
What do you think happens to higher offers when the listing agent has her own buyer? In a fair scenario, a bidding war ensues and the best offer is the one accepted by the seller. But this isn't a fair scenario. Far from it.
Agents won't give up the chance to earn double commission on a sale to their own clients. They won't present offers that net the seller more money, but puts less in their own pockets. Can you blame them? After all, the bank determined the list price and the agent brought an offer for exactly what the seller expected. Does anyone at the bank know they can get more? Does anyone really lose? And besides, how will they ever find out?
This happens every day. Buyers know it. Agents know it. Asset managers know it. Banks, servicers and the government-sponsored enterprises regularly get letters and phone calls from irate buyers and agents, demanding to know why a property sold for tens of thousands of dollars less than the offer they submitted.