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> Just because another buyer came in "after" that had a better price changes nothing;

If the broker landed what was truly the highest price at the time, then you're right. However, the implication is that the broker managed to get the deal done (ie, misrepresented the market-value) and then collected money in a side transaction when the second transaction completed. That's pretty dirty, if it's the case.

The article (intentionally?) confuses seller's agent and buyer's agent. The seller's agent gets the best deal they can get for the original seller. After that the seller's agent is pretty much in the dark for the rest of the process, the way I understand it.

The buyer's agent, taking advantage of the assignment clause and delayed close, can now shop the property (probably without possibility of showings) and if somehow they can find a better offer, pass along to their buyer the chance to flip it for some quick cash.

I don't see anything remotely illegal, unethical, or even unfair.

> After that the seller's agent is pretty much in the dark for the rest of the process, the way I understand it.

It is possible that a seller's agent could fail to recognize a huge mispricing of the accepted offer, and if that is the case you are absolutely right.

However: The seller's agent failed to recognize a huge mispricing?! And lost all of those commission dollars (3-6% depending)? Totally suspicious. At best the broker is incompetent, at worst, corrupt.

BTW: During the previous housing bubble, several folks worried about "pocket listing', which could be a technique for pulling this off: https://en.wikipedia.org/wiki/Pocket_listing

Presumably the seller's agent, who is profiting from this phenomenon, is the one advising the sellers on the market, what is a good price, what is an acceptable offer, etc.. You can't expect the average seller to have their pulse on the market in the same way agents do. It appears that there is a good chance that the selling agent knows that the house could be sold for more, while at the same time advising his clients that it is an acceptable offer.

While the decision is ultimately up to the seller, I believe the agent is obliged to act transparently and in the best interest of their client and whether that is happening here is not clear.

The sellers are upset because they misunderstood the market, by millions of dollars. Whether the world is supposed to be fair or not, it's at least easy to understand why that would be frustrating.

Yeah the point in the article about eroding trust in the broker market is important. Lots of people are (legally) taking advantage of a hot market to make short-term profits, but may be creating a long-term impact on the reputation of an entire industry.

Maybe this is an opportunity for property appraisal companies to step in and make a B2C play..

That would certainly be interesting but after working in real estate for a bit now, I've yet to see an appraisal company that was able to figure out the current market value with any precision. In general appraisals are looking at the intrinsic long term value (i.e. will the bank be able to sell this if the buyer defaults on the loan?), not the current market value which is more about market dynamics. That isn't to say it's impossible... I know that Redfin has done pretty well with their Estimates tool, but I'd guess that their model (like other models I've seen) relies heavily on list price as an input -- which in this case seems to be completely rigged by the participating brokers.

Even if someone came up with an automated valuation model that predicted potential sale price with a high degree of accuracy, you really shouldn't trust it unless it was completely interpretable or open source. As seen here, there's a great deal of money to be had in misquoting that price. Even messier, these sellers would want a model that could predict sale price today as well as in 3 months (when the home is foreseeably being re-assigned).

If anyone has a model like this, I'd like to talk.

The sellers hired the agent to understand the market. If the seller's agent tells them 'you can sell at this price' but buys the house themselves, and resells it at a profit, they clearly misled their customer about the optimal price that they could get for the house, for their own benefit. They're in a conflict of interest.

This is not the first time I hear of real estate agents buying houses from their customers and profiting from them. If my agent tried to pull that on me, I'd fire them, or if it was too costly to do so, I'd raise the price until they're not willing to buy. Then I know I would have reached a price closer to the real market price.

Lawsuits have been filed in similar circumstances, but I'm not aware of one where the seller triumphed.

Is that what's happening? How I read it, the sale was being re-assigned to the buyer's agent. It definitely means the seller's agent left some money on the table for their clients, but not necessarily that they did so on purpose. I guess that's why this exists... the seller's agent can point to incompetence (unintentionally mis-pricing the home) rather than foul play.

He turned around and flipped it for $1M. That's fraud, not incompetence.

Perhaps we're talking about different cases. I'm not seeing any home in the article that's priced at $1M. I was talking about the first case where the seller ends up selling to the buying agent (not their agent) who then marks it up to the real market value. The seller's agent didn't officially have any perverse financial incentives from that sale, other than the oft-cited incentive to price low and sell quick that all brokers have [0].

[0]: http://freakonomics.com/2008/02/26/real-estate-agents-revisi...

I re-read the article and I misread it, I thought they were selling to their own selling agent. I guess they instead sold it to the buying agent. If that's the case, then I guess there's nothing wrong since the selling agent is the one that is guiding the sellers, although it sort of makes one wonder if there was collusion going on.

Yeah, I think the most troubling piece of this is how hard it is to figure out if something illegal was going on. I'd say it's definitely a point in favor of just listing your home on the open market rather than doing a pocket listing (a private sale without listing). Even if you really trust your agent, pricing a home is really hard and is best left to competing buyers. It sounds like a lot of these sales were "listed" by realtors who already had an offer in hand when they contacted the owner so they weren't really soliciting the open market for highest and best offers (which is definitely a violation of their fiduciary duties).

> If I were the buyer in the first transaction, however, I'd be very upset with my real estate agent though

Presumably the first buyer is aware of what the agent is doing, and is okay with it. The first buyer gets $300k out of it (but no house).

I imagine the 1st (and 2nd in the example) buyer was asked by the agent "you'll get 300k for nothing" and he or she agreed, otherwise like you say it looks "illegal" like you said.

>They are almost always paid by the selling party and still even have non-aligned incentives even for that party

I would say they're always paid by the buyer. No matter who pays for it in the contract, the buyer is the one bringing money to the deal.

buyer's money => seller => agents.

The buyer doesn't have any payment terms with the agents. The agents are paid by the seller. This may normally be with the buyer's money, but that's irrelevant.

It's only irrelevant if it doesn't affect the sale price.