Author: Mr. Cheap

Categories
Opinion

You CAN Argue With Results!

swingersMike and Trent are in Las Vegas and Mike has just lost a hand of blackjack after Trent advised him to double down.

TRENT: I’m telling you, baby, you always double down on an eleven.

MIKE: Yeah? Well obviously not always!

TRENT: Always, baby.

MIKE: I’m just saying, not in this particular case.

TRENT: Always.

MIKE: But I lost! How can you say always?!?

Swingers (1996)

I’ve always been interested in how people learn and decide what is “truth”.  Often people use the wrong approach to determining what is correct and incorrect.

With social or science issues, often people are swayed by anecdotal evidence. If we’re looking to shape public policy or understand how people function as a group, we need to consider them at the group level.  It’s problematic for people, as we automatically relate to stories about individuals far more than statistics (that’s why McCain and Obama debated about “Joe the Plumber” and not about small businesses or the middle class).  However, as enticing as stories are, it’s incredibly misleading to allow ourselves to be swayed by this.

With philosophy or religion, we are often swayed by a charismatic person shaping our early views.  This is why children disproportionately share the religion of their parents:  our parents have a VERY large impact on us during our early years (and often for the rest of our lives).

With investments, they’re often judged by their results, which is also the wrong way to think about them.  In the lead in quote the characters Mike and Trent (from the movie “Swingers”) are arguing about this.  Trent is talking about the optimal strategy to play blackjack (based on probability), while Mike is talking about what actually just happened in the hand they played (the results).

“Decisions can only be evaluated based on what the decisionmaker knew at the time, not on results.” – John T. Reed

In “Landlording on Auto-pilot” the author suggests an investment strategy where you buy one property per month until you’ve bought 100 properties.  You allow these to appreciate for 4 years, then sell off 80 of the properties, pay off the mortgages on the remaining 20, then live off their income for the rest of your life.  It’s a great strategy, provided you can:

  • guarantee strong real-estate appreciation during the 12 years it would take to execute
  • have each property cover ALL its monthly expenses completely
  • not have any surprise emergency expenses (such as a roof leak or a water heart burst)

Any of these three is pretty close to impossible to pull off consistently (and would make you filthy rich if you could do so),  so to manage all 3 for 100 properties would be pretty damn impressive.

I don’t think the author is being intentionally misleading when he recommends this.  He’s probably had reasonably good luck during his accumulation phase and based on his results he recommends a VERY aggressive strategy (which is far more likely to ruin someone following it than lead them to riches).  Casey Serin was doing something along these lines and managed to get himself over 2 million dollars in debt and headed for bankruptcy.

I like Derek Foster, his books and his investing strategy.  HOWEVER, the justification he provides for his strategy is very much based on results.  He bought certain companies over a certain period of time and managed to retire at a very young age.  Would the same strategy work today?  Would it have worked then with a different set of stocks?  Will it work indefinitely into the future?  These aren’t easy questions, and a number of commentators have questioned this.  Again, I believe Derek Foster is sincere in his confidence in his investing strategy and is honestly trying to help fellow Canadians become better investors.  I think there’s a fair bit of good stuff in his books, and they helped me get the (limited) understanding I have of equities.  I also think bloggers and journalists have asked him some good questions (that haven’t all been answered).  The biggest danger would be if he got lucky picking the right strategy for the market we were in and his results may not be easy to repeat.

Some may ask “well, if their strategies don’t work why did these two guys make a lot of money doing it?”  The simplest answer is that the people whose strategies didn’t work aren’t writing books about it (surviorship bias – we’re only hearing about lucky ones).

The ultimate example of this may be the lottery winner who advocates winning the lottery as a retirement plan, since he made $30 million!  It’s true that it worked out for him, but what if it hadn’t?  Is it a good idea for the rest of us to try and follow in his footsteps?

One of my bonehead uncles (as always, I’ll point out that we’re only related by marriage) once made the assertion that after world war 2, Britain invested in rebuilding houses and in consumer goods, while post-war Germany was forced to invest in its industry (while the population continued to suffer from war damages).  He claims that the strong modern economy in Germany, compared to Britain, proves that this was the superior policy.  While I’d be willing to discuss the policy and it’s impact, it is an utterly IDIOTIC assertion to make that the relative strengths of their modern economies “prove” this point.  The two countries have radically different populations and geography, and have gone through over 60 years of a HUGE variety of differing policies.  If all we use to evaluate these policies is the current state of their economies, that would imply that EVERY SINGLE economic decision Germany has made since the war was correct (and EVERY SINGLE economic decision Britain has made was incorrect), since “Germany has the stronger modern economy”.  This is foolish.  Their economies were impacted (positively and negatively) by ALL these decisions (and a large number of other factors thrown in).

Similarly, with anything we want to judge “by its results”, we must consider not just the philosophy or general approach but the specific execution of the strategy, and the environment it worked in.

Categories
Business Ideas

Small Businesses Destined for Failure

Confucius says “Man without smiling face should not open store”

When I lived at Bathurst and St. Clair, in Toronto years ago, there was a steady stream of new businesses opening and closing.  It was great for me, as I loved to try new restaurants, but it got to the point where I could tell when a small restaurant or independent retail store was going to fail.  I wish there was some way to make money off of betting on a small company’s failure, but I was never able to think of a way to do so.

The common factor in the businesses destined to fail was that the owners were pretty sour.  One Turkish restaurant opened up and I ate there once or twice a week for months.  Every time I came in, one of the family members would take my order stone faced while other family members gave me malevolent looks.  The food was decent, and they did it to everyone so I didn’t take it personally, but I couldn’t understand how they expected to build a business treating customers that way.

Another family tried to open a Dollar-store style liquidation store.  Similarly, they’d act like they were doing people a favour selling cheap junk.  They used to always post misleading signs (like “1/2 price off everything”, and when you got to the cash it turns out whatever you were buying wasn’t part of “everything”).

In both cases I’m sure the families lost a ton of money on their business ventures, and probably console themselves with the old chestnut “most businesses fail in the first 5 years” (which apparently isn’t true).  I feel bad for anyone who fails at starting a business (I think it’s great when people try to start a business), but I really think they could have had a much higher chance at success if they’d been nice to their customers (it’s a wild and crazy concept, I agree).

This is fairly widespread, when I moved to Pape and Danforth I tried out a new Caribbean restaurant that was opening right as I moved in.  I ordered a meal, paid, and when he brought it out there wasn’t any coleslaw (which was listed on the menu).  I asked if I could have some coleslaw, and the guy (who I *think* was the owner) told me “Sorry, we’re all out.  I’ll get you next time!”.  There wasn’t a next time.  If you’re going to list something on your menu, charge full price then not give the person part of their meal, you aren’t going to get repeat business from Mr. Cheap.  I haven’t checked since I moved away, but I’m sure he’s shut down by now.

It’s painful to admit as a techie, but businesses need to be sales driven, especially at the beginning.  It’s crazy to do your initial marketing, have people from the neighbourhood coming into your store out of curiosity, then treating them badly and making sure they don’t come back.

Some people might object to forced friendliness to all their customers and say “I’m opening a business to be my *OWN* boss, not to suck up to everyone who walks through my door!”  If this is someone’s attitidue (viewing being friendly as “sucking up”) they definitely shouldn’t try to run a restaurant or retail business (and should probably have someone else deal with customers if they open another type of business).

Categories
Personal Finance

Job Envy

Some time ago Mike’s post on the Toronto Garbage Strike struke a cord with readers and generated 85 comments.  A large amount of the discussion focused on unions (from a philosophical perspective more than that specific union or strike).  One comment that had a particularly interesting part to it (from semi-frequent commenter Brendan) focused on the idea that being jealous of someone for their job is silly, if you think their job is so much better than yours, switch to it!

My brother used to get this a lot.  People at the job site where he worked would rant about how good he has it.  After listening to them rant, he’d say that they’re hiring for his position, and encourage the person to apply.  At that point the person would either point out a part of the job they wouldn’t want to do, or admit they didn’t have the academic credentials to do it.  The pregnant silence afterwards hopefully led some of his co-workers to an understanding:  There’s a reason why jobs offer the benefits they do, it’s all a trade-off.

One of my uncles, by marriage, is always going on about what a sweet deal teachers have in Canada (it’s actually a very well paid and respected profession in Canada).  He loves to have people listen to him talk, so he makes stuff up.  He’s a high school drop out and wasn’t able to get through the academic requirements needed to teach, so now he gripes about those who have managed to actually become teachers.  As an armchair psychologist, it’s pretty clear to me that he complains about teachers out of bitterness that they are able to earn a living doing what he wishes he could.

I read an interesting article some time ago that made the assertion that students are quite savvy at choosing college majors.  Even if industry and government is saying there are lots of jobs in an industry (or that their will be), the “wisdom of crowds” kicks in and students tend to move to areas where the high paying careers actually are.  If a genuinely sweet deal appears (such as computer workers during the dot-com boom), massive numbers of people get trained for this career, flood the market, and drop the salary down to a more appropriate level.  Similarly, if there’s a job no one wants to do, eventually market pressure forces companies that need those skills to pay top dollar to get them (like Cobol programmers).

The only time this doesn’t happen is when you get a barrier to entry for a specific field.  This was one part of Brendan’s comment that I felt was somewhat misleading, it isn’t like we can all go sign up with CUPE tomorrow.  Typically union jobs are tough to get (sometimes going to the children of senior union members).  A large number of people would be willing to do the work the strikers were refusing to do, even at a lower pay rate.  But they weren’t able to.

At the opposite end of the employment spectrum you have a similar situation with Canadian doctors.  I was in pre-med for my first couple of years at university, and my classes were PACKED with smart, eager kids who wanted to get into medical school (and become doctors).  The extremely limited number of positions at Canadian medical schools meant that the majority wouldn’t get in.  Similarly there are hordes of foreign trained doctors who would love to come and practice in Canada, but quotas restrict the number that can actually enter to a fraction of applicants.  The argument supporting the limited number of positions (to train new doctors or admit foreign M.D.s) is to ensure high standards and protect the health of Canadians.  If this was actually why there were doing it, they’d have a minimum entrance requirement, then admit EVERYONE who was above this.  Clearly the goal is to actually restrict the number of jobs and, like the unions, provide superior benefits to those in the field.

Feel free to make snarky comments that I’m only dogging doctors since I didn’t become one :-).

If us computer workers had gotten protections for our jobs we might have been able to keep the gravy train flowing after the dot-com bust (and perhaps avoided the whole offshoring situation).  I think computer people are far too free-market oriented to unionize (or put other barriers in place to protect their jobs).  I certainly am.

Categories
Frugal

Extreme Cheap: Daniel Suelo

The Bag Lady recently posted about Daniel Suelo, a man who has “quit using money like a bad drug“. I always find people, like Charles Long, Don Schrader or the Freegans to be interesting in their ability to opt-out of the Western economic and social system and chart their own course, living how they want.

Much like the others, there’s a very specific philosophy behind Suelo’s life. He was doing development work with Ecuadorean tribespeople and saw that as they became more prosperous, their health declined. He took the view that, counter-intuitively, money was impoverishing them. He spent time with the sadhus (“the revered ascetics who go penniless for their gods”) and decided that it would be easy to be a sadhu in India along with others doing the same thing, but how much harder (and more worthwhile) it would be to do the same thing in hyper-consumption America?

nobody_past_30The “noble savage” has been a particularly obnoxious idea that glorifies living primitive lifestyle close to nature. I think Suelo is buying into an illusion that money is corrupting a society that he would rather see continue to live as subsistence farmers. Some people will make unhealthy choices, when they have the option to make them. To keep a group poor (or hope for their continued or future poverty) so they can’t access these choices is short-sighted and patronizing.

A quote I love from a Danny Devito movie (I never saw the actual movie, this was just from the trailer) was “a million dollars is a motive with a universal adapter”. This is true about any amount of money. If someone has desires in life, money can assist them (directly or indirectly) in fulfilling them. Money can help you find love (ask any guy who has taken someone out on a date or any woman who has bought makeup or a push-up bra), food, knowledge (bookstores, internet connections), or pretty well anything else you might want.

Money is the ultimate symbol: it can be anything. As Suelo (and the Bag Lady) point out, money only has meaning in the context of the marketplace it is used in. They say if you gave an alien a trillion dollars it would be meaningless to them. This is true, but so what? Money is incredibly useful WITHIN this context. It’s like saying computer software wouldn’t be anything other than long strings of 0’s and 1’s if there wasn’t any hardware to run it on. This is true, but it doesn’t make software useless (it’s just part of a system).

Heidemarie Schwermer (also mentioned by the Bag Lady) apparently has lived without money for about 12 years, by bartering within “exchange circles”. I can’t understand for the life of me why she feels this is a more noble lifestyle than bartering with the global exchange circle that money makes possible (I guess I’ll have to watch the documentary). Similar I don’t understand why Daniel Suelo will accept a winter jacket from a friend, but he won’t accept money from the same friend to go buy a jacket.

In each case, people (including Mr. Suelo) are able to adopt their lifestyle because of the excess from Western living. He uses a library provided free computer and internet connection to maintain his website, and often receives food and goods from friends in the nearby town. I don’t have a problem with this, but some may attack a lifestyle that is so completely dependent on the society it rejects.

For retirement, Suelo plans to die in the canyon he has been living in instead of in a geriatric ward. I respect his fortitude to live his own life in such a manner that is radically different (and far harsher) from the society he exists in. I don’t completely understand (or agree with) his outlook on money, but I admire his resolve and the courage of his convictions.

Mr. Cheap is on vacation this week but eagerly looks forward to reading your comments when he’s back in town.

Categories
Book Review

Book Review: Stumbling on Happiness

“Stumbling on Happiness” by Daniel Gilbert provides an accessible overview of Dr. Gilbert’s work at Harvard in the field of psychology. It is written in a style similar to that of Malcolm Gladwell or Steven Levitt, taking interesting concepts and playfully exploring the consequences and justifications of them.

Gilbert’s central idea in the book is that we don’t really know what makes us happy and are remarkably bad at remembering what made us happy in the past or predicting what will make us happy in the future.

One amusing example he gives is on the “joys of parenthood”. He explains that people looking forward to having children envision playing with toddler, being proud at their graduation ceremony and feeding candy to beautiful grandchildren. People with children look back and remember the good times and do the best to forget the bad. When housewives are interviewed about the activities in their daily routines, taking care of the children is one of their least favourite, right at the bottom only slightly above doing housework. When the happiness of parents is charted over the course of a marriage, marital satisfactions decreases dramatically with the first child’s birth and doesn’t increase until the last child leaves home.

He explains that people still have children because it’s a belief system that propagates itself. A culture that believes it’s a joy to have children will exist longer than one that feels children are a burden (he gives the example of one religious group that was completely opposed to sex and now only a few elderly members remain).

He gives an example in the opposite direction of living with a major disability (being blind, deaf or in a wheel chair for example). Many people think that living such a life would be as bad as (or perhaps worse than) dieing, but when people who actually live with such disabilities are interviewed, they’re pretty much as happy as anyone else. Gilbert explains that we imagine the instant we first find out about the disability, and extrapolate that instant of horror and disappointment as what the rest of our lives will be like. Instead people with disabilities get used to their new capabilities, and derive satisfaction from all the things people normally do (time with friends and family, a good meal or the satisfaction in the completion of a major accomplishment).

In the book he proposes a solution to the problem of making choices that will lead to happiness (after he has shown that we’re miserable at doing so ourselves). He suggests talking to people who have made the choice we are considering and are currently living with the consequences. Gauge how happy (or unhappy) it is making them and use their experience as a predictor of your experience.

For example, if I was thinking about going to live in Costa Rica to live the cheap life of an expat in a developing nation, the best approach to figuring out if I’ll be happy there is to try to find and interview other expats who have done the same (ideally a number who have been there for the same length of time, perhaps a month). When I was a teenager I wanted to be a medical doctor, and the MDs I talked to discouraged me from pursuing this career (each one told the negatives of the profession). One told me that if I wanted to make lots of money and play around with blood, I should be a dentist and at least have regular hours. Years later I switched from pre-med into computer science when I finally convinced myself that they were right and I wouldn’t be happy in a career in medicine.

The author claims people won’t actually follow this strategy, even when it’s shown to them how effective it is, because we’re all so convinced that we’re special and that our experience is unique.

Overall I think this is an interesting book with some engaging concepts. The friend who gave it to me had the criticism, which I agree with, that it was one neat idea that had been padded to book length. I think Gilbert’s ideas could have worked better as a long article, rather than a book (it got fairly repetitious at points). If you think you might try to adopt the strategy of predicting your future happiness by talking to people who have already done what you are considering, or if you just have a general interest in psychology and what makes people happy I’d recommend reading it. Otherwise there are probably better books you can spend your time with.

Mr. Cheap is on vacation this week but eagerly looks forward to reading your comments when he’s back in town.

Categories
Personal Finance

“Rights”

This post ventures into legal and philosophical territory that is far beyond my areas of expertise.  If I get something grossly wrong, please correct me in the comments (and any readers, please be careful if you use any of this information, it’s even more questionable than my posts usually are).

I’ve often found the notion of “rights” quite interesting.  From basic human rights, to legal rights, to political rights, to employment rights.  There’s even a gamers’ bill of rights (“you have the right to be eaten by a ghost while playing Pacman…”).

Implicit in the idea of rights, to my mind at least, is that they are absolute.  Clearly this rarely occurs in practice. For example, freedom of speech doesn’t protect people who falsely yell “fire!” in a crowded movie theater and I doubt many U.S. prisoners feel entitled to “life, liberty and the pursuit of happiness“.  Clearly my expectations that these are absolutes is incorrect, as the first section in the Canadian Charter of Rights and Freedoms begins:

The Canadian Charter of Rights and Freedoms guarantees the rights and freedoms set out in it subject only to such reasonable limits prescribed by law as can be demonstrably justified in a free and democratic society.

For those who missed it, the weasel phrase here is “reasonable limits”.  Society reserves the right to revoke our rights and beat us on the head with a stick if that becomes necessary.

In employment situations I’ve known people who find out some employment “right”, then spend large amounts of time insisting that it be absolutely and completely honoured.  Often they generate so much ill will that they are worse off than before the entire exercise began, even if they convince the organization to follow that rule.

A woman I’m friends with at the grad school is constantly asking what the rules are for this or that.  Recently she wanted to go on vacation and was asking around to find out what grad students are entitled to.  Her plan, I guess, is to go in to her supervisor’s office, say what the prescribed number of days of vacation is, then demand her supervisor give her that much time off.  When she asked me, I told her I’ve just asked for time off whenever I need it and my supervisor has said ok.  She blinked a few times, then asked me again if I knew what the official policy was. The end result is that she may force her supervisor into giving her time off (which she might have been given if she’d just asked:  I know her supervisor is VERY reasonable), but the next time she needs the rules bent for her I can imagine what the supervisor’s response will be.

Laws, rules and rights are all very important when two parties are unable to reach an agreement, but trying to reach agreement is an important first step before someone gets smacked in the face with a rule book.

Another friend of mine works closely with management at a union workplace.  She has, on a number of occasions, done things prohibited by their collective agreement (such as working unpaid overtime).  One year she got three raises / raises during the period where other workers got a single cost-of-living increase (the management she was working with juggled things around so that she’d qualify for a higher salary band).

I rented a basement apartment once from a couple who wanted to raise my rent.  They only gave me one month’s verbal notice (the residential tenancy act requires 3 months written notice of rent increases).  I knew this, but I told them I’d be ok with the increase if they’d let me only give them 1 months notice when I was going to move (more flexibility was better for me than delaying the increase).  The act requires 60 days notice by a tenant who wants to leave.  By mutually agreeing not to obey parts of the tenancy act, we were able to reach an agreement that was better for both of us.

Have you had situations where you and another party ageed to ignore a rule, policy or law?  Did it work out well for you or lead to problems?

Categories
Opinion

Changing the Deal

Bell and Rogers get a lot of bad press.  Ellen Roseman frequently posts problems customers have with both companies.  Some might argue that by virtue of their size, companies such as these will, by chance alone, have customers who accidentally get treated badly (unavoidable circumstances and all that).  That is, a small business with 400 customers can have, at most, 400 dissatisfied customers.  The majority of Canadians probably use Bell or Rogers, so they’ve got a lot more people to potentially tick off.  That being said, both companies seem to do a very good job of annoying customers.

I Hate Rogers and I Hate Bell are two sites that show the depths of customer dissatisfaction.  When people are making it a part time job to denounce your company, you know you’re generating a lot of ill will in the marketplace.

There are all sorts of things I dislike about both companies.  Bell lost me as a customer when no one showed up for a scheduled installation (and when I called them they’d lost all records of me and wanted to put me at the end of the queue and schedule an installation in 2 weeks, when I didn’t like this the rep flat out refused to let me speak to a manager).  Without fail the Bell sales reps have tried scummy tactics on my friends and I.  One called a friend and offered her a deal.  She asked if she could compare the numbers to what she was currently paying, and the rep told her that the offer was only good for that phone call (once they got off the phone it was no longer available).  She ran the numbers after the call, and what Bell was offering was a worse deal than she currently had.  One rep called me, and got my attention when, right off the bat, he said that Bell realized how badly they had messed up in the past and wanted to offer me a credit of $500 (to show they were serious about changing)  if I would reactivate my account with them.  After listening to his spiel, my final charge was going to be something like $64 dollars / month.  I asked the guy “so with my $500 credit, I won’t be paying anything for over 6 months?” to which he responded, “no, you’ll be paying every month, the $64 is after the credit has been applied”.  “Wait a second” protested Mr. Cheap, “that’s a discount, not a credit”.  After he apologized for “misspeaking” I told him scummy tricks like that are the reason I won’t do business with Bell and asked him to please take me off whatever list they have me on.

This shows, through my weakness of character, how these companies keep getting away with it.  We’re suckers for a good deal (myself more than anyone), and we should be saying “enough, no more from either of these companies”.  Instead, when they offer a good enough deal we get tempted to give them another chance and start listening again.  People complain about the poor service of airlines these days, but we’ve driven them to deliver this service by usually choosing the low-cost carrier (it has been more profitable for them to cut prices than maintain or expand services).

The one thing both companies do that drives me NUTS is changing the deal.  They quote you a price for service which is, without fail, a “promotion”.  People who live their lives caring about something other than managing their phone service plan inevitably have the promotion end, and their bill jacked up.  I’ve never had a problem getting them to put me on a new promotion, and getting them to retroactively adjust the bill, but it annoys me that they try to change the deal, hope the customer doesn’t notice (or care enough to argue it), and make you wait on hold and sort it out again every six months.  Thicken My Wallet once wisely wrote that the financial industry preys on inertia (perhaps it’s all large companies).  I imagine that they make large profits from customers who get sick of sorting it out repeatedly and just resign themselves to paying the high rate (as Bell and Rogers keep stealing customers from one another, then playing the same game).

I don’t expect a service price to be set in stone forever, but telecommunications has been getting CHEAPER to deliver, so I don’t think it’s unreasonable to have a set price for service (or to adjust the price in line with inflation, instead of jumping it up 25% or so like they love to do).  I feel bad taking out my frustration on the call center reps (who have nothing to do with the company policies), but I think at it’s heart this is just bad business.  They’ve traded short term profits for becoming two of the most hated companies in Canada.  I don’t think I’ve ever talked to anyone with real affection for either company.

I’ve switched my long distance to Yak, and if things go well my phone and internet service may follow (I’m also *still* considering TekSavvy:  see what Thicken My Wallet means by preying on inertia, 6 months later and I’m still sitting on the fence!).  I know at 3.5 cents a minute in Canada and the US they certainly aren’t the cheapest, but I like their philosophy of no contracts, promotional pricing or hidden fees.  The one thing I don’t like is they call their high usage plan “unlimited”, which it’s actually 1500 minutes per month.  25 hours per month is a lot of time, but VERY far from unlimited (you’d go over it by talking an hour a day, which doesn’t seem crazy excessive to me).

How have your experiences been with Bell and Rogers?  What alternative companies do you prefer to either of them?

Categories
Real Estate

Pocket Listings

In real estate there are listing which can be called “pocket listings“, “in pocket listings”, or “exclusive listings”.  In each case the idea is the same, an agent *DOESN’T* advertise the property in order not to share the commission with another agent (by representing both the buyer and seller) or to only share the commission with agents they have a special relationship with.  The most significant feature of such listings is that they will be kept off of MLS.

Of course, this is helpful to the agent, but the benefit is at the seller’s expense.  By not having the maximum number of potential buyers be aware of the property they are lowering the sale price (supply and demand).  Why any rationale seller would agree to this is beyond me, and I can only assume the agents manage to trick them into believing it’s in the seller’s best interest.

Some agents will try to hustle and take advantage of the period where a listing is forced to be a pocket listing, between when they sign with the seller and when it goes live on MLS.  There’s certainly nothing wrong with this, but it can draw them into ethical compromises if they’re sprinting after the double-commission.  In this situation they should DEFINITELY make it clear to the sellers that the property hasn’t had much exposure (and they don’t need to jump at any offers).  They also shouldn’t stretch out the period between when they get the listing and it’s up on MLS.

This happened to me, from the other side, recently.  I’d been talking to a number of agents (I told them all I was working with other agents and didn’t sign a buyer’s agreement with any of them), and one of them contacted me to show me a property that met my criteria.  I went to see it with her (she was seeing it for the first time to prepare the listing).  After the viewing, we were chatting in the parking lot, and she did her best to get me to put an offer in.  She even showed me e-mail correspondences between her and the seller to prove to me what his thinking about price was.  I would be amazed if this isn’t illegal (since she is betraying private communication with the seller, to whom she has a fiduciary duty).

I was prepared to make an offer, and later that night she left a message for me, in a pretend panic, claiming that she had SOMEHOW convinced her seller to accept my offer, but that ANOTHER buyer had appeared, with the exact same offer I was making (it hadn’t hit MLS at this point) and that I needed to rush over to her house to sign the paperwork ASAP.  I knew she was playing games with me, and told her I was prepared to move forward with an offer, but that I needed due diligence (for her to provide me with comps of the previous sales she told me about which I had used to set the value of the offer) and that I wouldn’t get into a bidding war with the other buyer.  At this point she said “maybe we should just forget about the offer then” and that was the last time I heard from her.

John Reed has written that the practice was illegal when he was an agent in New Jersey years ago.  In Canada I think it is legal (I assume it is, since a lawyer writes about doing it in Ontario), but even if it’s legal I find it terribly unethical.  Some agents discuss the practice here, and thankfully they almost all seem to weigh in against it.

This post was featured in the Consumer Focused Carnival of Real Estate.