Sometimes in a real estate transaction, and in business in general, one can take an action that might be perfectly legal, yet not ethical. Of course what is ethical to one might be unethical to another. Some time ago I decided to write down some basic principles which I would follow in business. These principles are largely reflected in my Manifesto which also serves as a good guide in complicated situations. One such situation I had to deal with is the following:
Several years ago I was helping a client who wanted to buy a home to move into with his girlfriend. We saw a home on a Saturday, which did not fit his criteria, yet for some reason he wanted to make an offer on it. Naturally, he wanted his girlfriend to also see the home and approve of it. But his girlfriend was out of town for the weekend, coming back on Sunday at 1pm.
We decided to prepare an offer and when his girlfriend got back in town, she would see the home and if she liked it we would deliver the offer to the listing agent. Except the timing wasn’t working out for us. The listing agent had 7 other contracts which the owner would review at noon on Sunday. There was no time for my client’s girlfriend to come from the airport to view the home before at least 2 or 3 pm. And this is where my ethical dilemma begun.
The client wanted to write an offer contingent on his girlfriend approving the house. Given that there were 7 other contracts, his contingent offer was guaranteed to be rejected. The market was such that people were waiving home inspections, a third party approval contingency would have definitely been a no go. So he thought of the next best thing, which was to make an offer with no contingency, and if his girlfriend didn’t like the house, he would get out of the contract based on the POA document review.
As a side note, I should mention that he was so well qualified that the chances the sellers would pick another offer over his were minimal. Furthermore, I knew the person well enough to know that the chances of him buying this home and his girlfriend liking this home were as near to zero as they could be.
I tried to talk him out of making an offer, considering that they had rejected a very similar home in the past, but he still wanted to make an offer, in case his girlfriend liked it. At this time, in my mind I am starting to think, if we deliver this offer, the seller will accept it, a few hours later the girlfriend will arrive,she will not like the place, and a few days later, after we have received the POA documents, we will tell the sellers that he is not satisfied with them and walk away.
That is not why the POA and condo document review period is in the law. Its purpose is so the buyer has the time to review the rules and financial situation of the homeowners’ or condominium association and have the option to walk away if there is a legitimate issue. In this case the document review period would have been used as an excuse, it would not have been the reason.
In the meantime the sellers would have probably been relieved that their house was sold and they could move to the new house they were buying, only to find out that their contract fell through, their home would have to go back on the market and the sale would be delayed for at least a week or two, which in all likelihood would be creating problems with their settlement on the new home they had purchased.
As a real estate licensee I have a duty of care and obedience to my client, but I also have a duty to treat all parties to the transaction honestly. If I were to treat the sellers honestly I would have to tell them that, even though the contract does not indicate so, there is an unspoken contingency on third party approval. Yet that would most likely be violating my duty of obedience to my client (although the courts would ultimately decide this if it came to that).
At the time we were writing the contract all these conflicts and scenarios came to mind, and I was about to tell my client that I can not help him with this transaction, given that I have an ethical objection to what we are doing. Yet, the immediate next thought that came to mind was whether I would have any liability for terminating my relationship with the client just as we are about to write an offer (again the courts would have to decide this).
Luckily, the stars aligned and I managed to convince the listing agent to delay the presentation of contracts to his clients so my client’s girlfriend could take a look at it.
As expected, on Sunday afternoon the client’s girlfriend arrived, went to the house and after taking a 2 minute look through it, she said she didn’t like it.
Was all this legal, illegal? Ethical, unethical?
