A couple we know is currently going through the home buying process. Over the weekend we were talking about bidding wars and whether or not you can believe the “Oh there’s lot’s of interest” and “We’ve just received a higher offer” phone calls and comments from the seller’s agent. At first glance, it seems that real estate agents would lie about offers because it makes them more money. But is this true?
Do real estate agents lie about offers? Yes, the occasional real estate agent might lie about an offer. However, the vast majority would never do so. In real estate personal recommendations and reputation are critical to success. The loss to an agents professional reputation and the subsequent impact on their business would far outweigh any financial gain.
Despite this reality, there are often lingering doubts when a potential buyer hears the words “We have another, higher offer.” So I put on my researcher hat, asked Google, and then surfed the web, so you don’t have to. I found out all about:
- How an agent can lie directly and indirectly about offers.
- The potential benefits of such a lie.
- Reasons why an agent is unlikely to lie.
- What to do if you are told there is another offer.
Have a read of the fruits of my labors and, hopefully, if you are purchasing a home and you receive the dreaded “higher offer” call, this information will help you feel more confident in your next steps.
Do Estate Agents Lie About Offers?
In a number of national and international polls about trust, reliability, and prestige, the profession of “Real Estate Broker or Agent” came in last as far as esteem and just above politicians and lawyers in the trustworthy stakes.
The only saving grace for the profession was that although there was no social cred to being a real estate agent, parents would still encourage their children to become one before they would encourage their kids to become senators, congressmen, or any other level of political official.
This general lack of trust or respect for the profession of real estate agent appears to lead us to assume they will lie to close a deal.
Is this true?
Can A Real Estate Agent Either Directly Or Indirectly Lie About Offers?
It is possible for anyone to lie and real estate professionals are no exception. Having said that, just because it is possible for it to happen, doesn’t mean that it does on any kind of regular or semi-regular basis.
There are several ways an unscrupulous real estate agent can lie about an offer. They do not have to lie directly either. Sometimes a lie can be one of omission. On other occasions, they can make statements that mislead you into believing something about an offer.
They can tell a buyer:
- We’ve had a lot of interest.
- There are offers on the table,
- We have multiple offers,
- There’s already an offer of….
- If you’re interested, you should know there’s already talk of…..
- Make your best offer quickly to avoid a bidding war
- This one is very hot; we’re expecting it to be snapped up for at least…
It is not just buyers who may have honesty issues with real estate agents. Sellers are not immune.
Real estate agents can tell a seller:
- This is a lowball offer; they’ll pay more.
- You’ll have no trouble getting a higher offer.
- If you don’t accept this offer, it will never sell.
- Hold out for a better offer.
- Or they may not mention an offer at all.
Most people who have been through the buying and selling process have heard a phrase like those above. Most of these are specifically vague which makes it difficult to know if the agent is being truthful or trying to play you.
Both options are possible.
What Are The Potential Benefits To An Agent Who Lies About Offers?
When people lie, it is usually because there is a potential or actual benefit to them. They want to gain something positive or avoid something negative. If you suspect that a real estate agent is lying to you, then consider what advantage they might gain through the lie.
Commission Suspicion
Our skepticism about the things real estate agents tell us is usually rooted in the suspicion that they are trying to make more commission. If real estate agents were simply salaried and had nothing to gain from bumping up a price we’d be much more likely to take what they say at face value. But is this “commission suspicion” well-founded? Let’s take a look.
Imagine you are looking at a home that is on the market at $200,000. The average commission in the US is somewhere around 5% – 6%. We’ll split the difference and call it 5.5% which is then split between the buyer’s agent and the seller’s agent so:
House price: $200,000
Commission: $11,000
Buyers agent receives: $5,500
Sellers agent receives: $5,500
However.
The actual agent will have to share their half with the company they work for so the actual, in their back pocket amount an agent is likely to receive on this sale is around $2,600. After tax, this drops down to around $2,175.
Meanwhile, if we take the same sale and imagine that the home goes for 3% over the asking price. This is the average “over listing percentage” in the homes that go above the initial listing price. This takes the final sale price to $206,000. So our figures are now:
House price: $206,000
Commission: $11,330
Buyers agent receives: $5,665
Sellers agent receives: $5,665
The real estate agent will get $2,832.5, which is $2,359 after tax, a profit of $184.
Admittedly there are a lot of variables in this scenario, but you get the idea. For every $1,000 extra on the sales price, your real estate agent is likely to take home around $30. The extra time, effort, and hassle involved in trying to deceive you into increasing your offer is beginning to seem a little less profitable now isn’t it?
Sellers Agents
The same principle is in play for those sellers who may suspect their real estate agent is not bringing offers to them, or only bringing low-ball offers. Yes, it is possible that your agent is just not interested in helping you sell, or has bigger fish to fry, or is ignoring lower offers in the hope of securing a higher offer at a later date. However, the number of real estate agents who take on a home without any intention of working to sell it is so minuscule that I cannot even calculate it.
Why Is A Real Estate Agent Unlikely To Lie About Offers?
By giving a buyer the impression, there are other offers a real estate agent can bump up the price but he scope for personal profit is very limited. Yes, they have a duty to secure as high a price as possible for their client but there is only so much wriggle room above a realistic asking price.
In addition, if you go too high over the average for the local market, there’s the risk that a sale will fall through because the appraisal value doesn’t reflect the offer price. This is a situation the seller’s agent will want to avoid because it means starting over with a new offer and is not good for them or their client.
Most importantly, a real estate agent is reliant on referrals if they want to be successful in the long term. Any tiny financial gain from bumping up the price on one home is far outweighed by the possibility of future commissions with customers and clients that are happy with the way the purchase was handled. It is not in the short or long term interest of a real estate agent to spend the time and effort to get a slightly higher price through lying about offers.
What Should You Do If You Are Told There Is Another Offer?
Above all, the most important thing to remember when you hear any of the “other offer” phrases is:
Don’t Panic
There is nothing to be gained from panicking and reacting without thinking. It is easy to jump in with a higher counter offer before considering your position. Take a moment to think about what the real estate agent has actually said. Ask yourself “Are they being vague and using “sales speak” or is there a specific, detailed offer?”
This is the key to your next step.
“Probe” The Other Offers Statement For Truthfulness
Don’t be afraid to be direct with the sellers agent. Ask them “Can you tell me about the other offer?” In some states, the agent may not, legally, share details with you due to confidentiality legislation but that doesn’t mean they cannot tell you anything. You can ask:
- When did you receive the offer?
- Are there any contingencies on the offer?
- Is there a deadline by which I have to make an increased offer?
- Would there be any point in me submitting an offer of $XXX?
- Could a cash offer / early closing / other incentive seal the deal for me?
If the real estate agent concerned is a member of the National Association of Realtors (NAR) they are bound by its code of ethics which demands truthfulness to all parties in the transaction. They must still abide by state laws or directions from their client that prevent them revealing specific details, but they may still be able to answer specific questions, and they must do so truthfully.
What Is The Best Way To Respond To “There’s Another Offer”?
When faced with “another offer” it is essential to stick to your original game plan and budget. Therefore do not allow anyone to worry you into paying more than you can afford, more than you think the property is worth or making a move before you are ready.
In conclusion, yes, real estate agents can lie about offers. However, it is more likely they are using vague “sales speak” or being upfront about a specific proposal. It is up to you to discover which, retain control over your purchasing and to act in your own best interests.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
Check out the Full Author Biography here.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.