The Golden Rule Is Taking a Beating
By PENELOPE GREEN
Published: June 27, 2004
IT'S called "gazumping" in England, the process by which someone selling a piece of property accepts an offer from one buyer, maybe even going so far as to shake hands on it, then quickly — and often surreptitiously — accepts another, higher, offer from a second buyer, leaving the first buyer with his pockets agape and his heart broken. Gazump is a glorious, full-bodied word, with a lusty feel in the mouth; the behavior it outlines, however, is anything but satisfying.
As the buying season of 2003-04 winds to a close — and it is winding down, as the temperature and interest rates continue to rise — it will be remembered for its record prices, and its gazumps.
"There are a million stories of people getting the gazump," said Betsy Dean, managing director of Stribling & Associates. "It's been a year of very unhappy people. Well, unhappy brokers and unhappy buyers. The sellers are a pretty happy bunch. True, there's a morality question here, but this is a business."
It may feel like a queasy place ethically — it may scream "bad behavior" — but there's nothing illegal about the practice, unless you happen to live in Scotland, where a handshake and your word are still legally binding.
Here, the only binding agreement between buyer and seller is a fully executed contract — that is, one signed by both parties and sealed with a cashed check tucked safely into an escrow account. Nonetheless, until recently, there was the perception that the phrase "accepted offer" carried the promise of a move toward a contract.
"Those words have been honored in the breach," said Bruce Rabbino, a broker with the William B. May Company. "Which means the words come out but the follow-through isn't there. I think a sense of fairness has been lost." Mr. Rabbino described a recent deal characterized by, as he put it, the off-center behavior of a client, who accepted an offer, held back on a contract, and then trawled for another, higher bid. "I had to say my piece, which is that I think this is just not a legitimate way to do things," he said. "In the end, the `accepted' offer was not accepted and more money was found. I had my say, but the seller had the right to sell to anyone they chose for the highest price."
Under the code of ethics promulgated by the Real Estate Board of New York and modeled from state law, a broker has a fiduciary responsibility to the seller, said John Doyle, a vice president for government affairs at the board, who handles ethics complaints. He said the broker also has a responsibility "to get the highest price and the most qualified buyer and to pass along every bid that comes along.
"It is the seller, however, who determines what the process is going to be like," he added. "If the seller decides to violate the bidding rules they themselves have laid down, there's nothing a broker, or the Real Estate Board, can do about it."
Mr. Doyle reports an "uptick" in complaints from buyers smarting from a burn, and decrying the newly fungible nature of "final and best."
"Before, complaints from the general public were all over the place," he said. "This year, they're about being outbid in this way, and they're not happy about it."
One young investment banker and his wife, a public relations executive, were on the wrong end of a deal that flip-flopped, for a 1,700-square-foot three-bedroom on Irving Place. It had been on the market for at least eight months; while the space and details were top-notch, the place languished because it had no curb appeal, said the banker, who along with his wife asked that they not be named because of privacy concerns. "It was horribly decorated," he said, "and there were toys all over the place."
In any case, late last year, its asking price had slipped from $1.3 million to $1.2 million, and its broker said confidently to the couple's broker, Richard Geiringer of Douglas Elliman, that if the couple made an offer of $1.1 million, the apartment was theirs. "We shook hands with their broker on the corner outside," said the wife, still amazed.
The husband took up the tale. "We received a contract a week later, and then they had an open house," he said incredulously. "The next day we got word from Richard that someone had made an offer of $1.125 and that if we matched it, it would be ours. Of course, they had told us it was ours, but it would really be ours. So we did. Then they came back and said the other bidder, a B-level celebrity, according to their broker, had beat us at $1.175 and told us if we met them at $1.2 million it was ours."
At that point, the couple balked. "We knew it was still a good deal, but we were feeling totally jerked around," the husband said. "For a long time they had no offers, and we made them a good one, the only one, and we shook on it."
The wife said: " You expect people to do the right thing but maybe you can't have that expectation in New York. This was a loss of innocence for us." Stung, the couple retreated from the market.
Pamela D'Arc, a broker at Stribling & Associates, described an even stickier deal. Her clients were a family moving back into the city from Larchmont, N.Y., for whom she found a three-bedroom apartment on the Upper West Side in the $2 million range.
"We were told after visiting the apartment twice that the sellers would be receiving `final and best' offers that Friday," Ms. D'Arc said. "After spending hours with my clients, formulating an offer well over the asking price and writing a persuasive letter detailing it and the particulars of my clients, financial and otherwise, I presented the offer before the deadline."
Her presentation was met with the news that the sellers already had a fully executed contract. Their broker, abashed, confided that he was under orders from the sellers not to reveal the truth that a contract had been signed, Ms. D'Arc continued, "because they didn't believe they would get the higher price and they wanted backups."
"I had never encountered this situation before, but this, of course, has been a market of firsts," she said.
Deborah Straubinger, a 20-year industry veteran, worked with a couple who were gazumped four or five times over a year, in one case coming so close to a deal that they had written their deposit check.
"I think the market is such an incredibly nasty place now," said Ms. Straubinger, an agent with Eychner Associates. Both she and her clients, she says, are learning to prepare psychologically. "We're starting to deal with it a little better now," she said.
When potential buyers are burned, most brokers say, they lick their wounds and move on, vowing to move more quickly and more aggressively. As a result, lawyers and mortgage brokers are working triple-time.
"There is immense pressure now to get the deals done very, very rapidly," said Paul Wolsk, who has been a real estate lawyer for 35 years. "Most sellers don't want to listen to whether or not a buyer is going to get a mortgage, or wait for days while their lawyer does due diligence."
Mr. Wolsk's firm can perform due diligence and get a contract signed in 24 hours, if necessary. "Mortgage brokers used to be pleased to get a call from us," he said. "Now, they shudder."
There are instances, as suggested by Mr. Doyle's complaint file, when the pain is too great to move on. One couple, reeling from a deal that flamed out after two weeks, have cried foul.
Jane Praeger, a media trainer, and her husband, Terrence O'Brien, a theater director, made a play for an "as-is" apartment in a former parsonage on lower Park Avenue owned by the Community Church of New York Unitarian Universalist.
Theirs was one of multiple bids, but since their bid, of $1.64 million, came with no financial contingency, two of the four representatives of the church (can you see murky waters ahead?) accepted it. A few days later, another offer came from a potential buyer within the building, for $1.7 million. The broker representing the church, Julie Perlin of Stribling & Associates, recommended that the offer from the second buyer be accepted.
At the same time, she allowed Mr. O'Brien and Ms. Praeger continued access into the property for an architect's visit and informed their broker, Ms. Straubinger, that a higher bid had trumped theirs. A day later, they raised their offer to $1.66 million, only to learn that a fully executed contract had been made the previous day. The tale devolves at this point into a case of who said what at which point. Ms. Praeger and Ms. Straubinger state that their offer was rebuffed unfairly, because Ms. Perlin claimed she hadn't received their lawyer's information. Ms. Perlin will tell you that she made each bidder's information available, as she received it, to the church's representatives, who made their own decision to go with the higher bidder. What's confusing is that a number of individuals represented the church: two members of the congregation, the church's general counsel and others.
While the counsel, Paul M. Godlin of Opton, Handler & Feiler, averred that "the church is very happy with the sale," the two congregation members, according to one of them, Jo Ann Corkran, felt very uneasy.
"We had given our word to the first buyers, the Praeger-O'Briens," she said. "I'm not saying the extra $20,000 or $30,000 wasn't useful, but we're a church."
Mr. O'Brien and Ms. Praeger wrote letters of protest to various managers at the Stribling offices and to the Real Estate Board of New York. Stribling's managers are sympathetic, but fatalistic.
"What would really be bad behavior," said Kenneth Scheff, a senior vice president at Stribling who addressed the Praeger-O'Brien complaint, "is if a broker did not relay all bids to a seller. That is a broker's legal responsibility."
"I feel that there is tremendous distrust because the facts are constantly changing," he said. "A buyer's broker needs to convey the flavor and tenor of the market to the buyer. Don't forget that at the same time a seller has the right to accept a higher or more appealing offer, the buyer always has the right to back out."
When asked why they are pursuing the matter so strenuously, Ms. Praeger said: "I guess I just felt that we were dealt with unethically and that we had no recourse, except to file a complaint. An apology would have been nice: They say that the lawyers who get sued are the ones who don't apologize." She continued, musingly, "I felt that we had been strung along, had gone through a lot of angst, and in the end the impression was that the other buyer was being favored."
Ms. Straubinger, their broker, said she respected the couple's decision to make a stand. "I told them they could complain to anyone they wanted and it wasn't going to get them the apartment," she said. "But I can't say that it's wrong for them to point out the fact that this market has gotten really mean and nasty."
As for the investment banker and the public relations executive, theirs is a happier ending. Mr. Geiringer unearthed the only deal they would take: a new condo development in Kips Bay. "All I had to do was walk in and say I'll take it," the banker said. "They sent a contract the same day.
"I still get angry because of the way we were treated on Irving Place," he said. "But as mad as I am, I can see that this was a family with three kids, and that extra hundred thousand they got, from whoever that B-list celebrity was, represented three years' worth of private school tuition."
nytimes.com
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A drop of at least ☺ 5% ☻ will be the understatement of the decade. |
