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Saturday, 3 November 2007

Who does an agent act for? Thoughts from Koh Samui.

It is November. It is the rainy season. It is wet. ‘Nuff said!

Donald Trump wrote a book entitled “The Art of the Deal”. As one of the most successful real estate developers in the world, he has had his ups and downs and proved the old adage that the more you owe the more you can borrow. When he was down on his last legs he owed various banks hundreds of millions of dollars. He arranged a meeting and said quite simply, you make me bankrupt and you will lose all the money you leant me or you can lend me more and I will get out of this mess – take your choice. They really had none, they gave him the money he needed and he climbed back to the top with some outrageously difficult but ultimately profitable schemes.

The main thrust of his book though was know your adversary, information is king, know the strengths and weaknesses of the other side and be prepared to walk away from a deal that is not right. “The Art of the Deal” was written from the perspective of the Principle, the decision maker, the man who controlled the money and who decided where and what was invested. An agent or broker still has to know how to make a deal but he is in a different position to the Principal in that he is the third party in a transaction and it is the job of the agent to bring two or more parties together to a conclusion acceptable to each side.

An Agent is “a person or business authorized to act on another's behalf”. The extent of that authorization is determined by agreement between the parties. As a Real Estate Agent we are authorised to offer properties for sale or to let on behalf of a Client. It is the Client who will pay our fee and it is the Client to whom we have the principal responsibility to negotiate the best deal on their behalf. This in no way diminishes our responsibility to the other party to provide accurate and honest information and not to provide misleading information. The extent of the authority an agent has can vary. Offering a property for sale is a basic and common relationship and usually evidenced by a simple contract or letter of appointment. At the other end, and I have been in this situation, bidding for a Client at an Auction requires far more.

A Sale at auction becomes legally binding on the fall of the Auctioneers Gavel. So if you have the winning bid, you need as an agent both a full Power of Attorney to sign on behalf of the Client and funds to pay the required deposit. Without this the agent would be legally bound to complete the sale himself. There is also an art to bidding at Auction for a Client. You will have specific instructions to bid up to a certain amount. You therefore must concentrate on the how the bidding is progressing and in what amounts. It is crucial that your last bid (if it gets that far) is the highest bid your Client has authorised, therefore you need to get into the bidding at a level that allows that last bid to be yours. For example, if the bids are increasing in £1,000 steps and your highest bid is say £50,000, then you need to be in the bidding no later than £48,000, preferably earlier but on the even numbers so when £49,000 is bid you can get your highest bid, £50,000, in next. Your Client would be very unhappy if you bid £49,000 and £50,000 bought it!

I was asked recently by a friend, who has been living part time on the island but who is now selling his house, to comment on an approach he had received from a “broker’ in respect of the sale of his house. The “broker” has a client who was interested in my friends house but the introduction to the house had been through two other people, one of whom he would have to share his commission with, the other would have to be taken care of by the seller, my friend. He did not disclose the name of the potential buyer, nor pass on any offer. His only concern was how much commission was the seller going to pay him and if it was not enough he would be unable to recommend the deal to his buyer. This is probably among the best cases of un-professionalism I have come across in over 35 years of working in international real estate. He forgot the first principle of this business – the Client comes first.

As an agent it is not our decision whether or not any offer is acceptable. Even if an offer is made that is derisory we have a duty to make that offer known to the Seller. We cannot know the personal circumstances of that person and however bad the offer is, it may just suit the seller to accept it at that time. Indeed a few years ago that precise situation happened to me. An offer was made on a property that was way below the asking price and below the real value. As a matter of course I informed my Client and to my surprise he told me to accept the offer and close the deal. His reasons were personal but the offer, as bad as it was, came at the right time for him and he has never regretted his decision. As an agent we still negotiate deals, but unlike “The Donald” we can only do so within the parameters set by our Clients, but must never forget that these parameters can change.


Trafford Gazsik said...

Nicely written. Ethics and professional duties are probably topics that ought to be discussed more amongst the expat population working in Thailand.

Deanna said...

Interesting to know.