QUESTION: Sir John, I am an old widow. I approached by someone who claim to be a licensed Real Estate Broker to sell my mansion at P70M. After 2yrs he was able to convince me to sign a blank (buyer unknown) deed of sale at P45M, and as I did, I was paid P45M Cash. After 3 mo, I found out that he sold it to Mr. Tan at P90M. Did the broker do anything wrong?
ANSWER: Definitely YES. It is called INSIDER TRADING.
After verification, it appears that the broker's name that you have provided actually not a licensed real estate broker but a colorum pretending to be one. Ninety-five percent (95%) of the real estate agents operating in the Philippines now are unlicensed. This scenario has evolved through time at the peak of its worse stage because of the government's inaction against colorum agents. With the pattern it is showing, I am not confident that the Aquino Administration will do something about this big problem in the real estate industry.
Code of Ethics in Real Estate Service, Section 3 paragraph (e) says he (the real estate agent) should not acquire an interest in or buy for himself or members of his family within the fourth civil degree, his firm or any member thereof or a corporation or partnership in which he or his relatives within the fourth civil degree have at least 20% property interest, without making his true position known to the owner, buyer or seller.
QUESTION: Is the broker legally liable? What I mean is that can the broker be sued?
ANSWER: Yes the broker may lose his license and can be sued damages of 25M, which is the difference between P70M and P45M. Mr. Tan can also get a refund of P20M.
QUESTION: Sir John, what is the possible risk for an owner/owners in this situation ?:Their house and lot is for sale and a relative comes in a promises to arrange the purchase with an interested buyer saying that she is nangongomisyon. What if that relative does an insider trading act? Is the relative legally liable?
ANSWER: (1) If that relative is practicing real estate brokerage without a license from PRC, she is in violation of R.A. 9646 and could go to jail for 4 years and fine of P200,000. (2) If she does Insider Trading she is legally liable, regardless of her relationship to the owner/seller of the property.
SIDE COMMENT FROM ATTY. X: She's been swindled -- so yes, the broker is liable criminally.
Below is an interesting related article about this that I found at Money Magazine.
Real estate insider trading
From Money Magazine, April 2003
Property has its own form of insider trading where unscrupulous real estate agents buy a client’s property under true value and quickly sell it for a big profit. Terry Ryder reports.
Few Australian home owners are aware of the prevalence – and dangers – of real estate insider trading. Insider trading occurs when the real estate agent appointed to sell a home ends up buying it at a bargain price, or selling it cheaply to a friend or family member who quickly re-sells at a juicy profit. The practice, legal as long as the agent discloses the buyer’s identity, has caused immeasurable emotional and financial damage to sellers.
Some court cases have resulted, usually in instances where the agent has not made the necessary disclosures or has gained an advantage through misleading conduct.
Agents usually get away with it because the real estate laws in most states allow agents to buy their clients’ properties. So long as they disclose that they are the buyer, they can buy the home they are appointed to sell – even though their fiduciary duty is to obtain the highest possible price for their client.
Dr Simon Longstaff, executive director of the Sydney-based St James Ethics Centre, says ethical considerations should preclude any possibility of a salesperson buying a client’s property or selling it to a relative or associate.
Longstaff suggests all state governments should consider making it illegal. “But short of that happening, any group of people concerned about the welfare of their clients would prohibit this as a matter of self-regulation.”
Denise Brailey, president of the Real Estate Consumer Association, agrees real estate insider trading must be outlawed. “In the interests of consumer protection you should never have a situation where the agent is buying a house for themselves or a family member, when it’s one of their own listings. But wherever you have real estate you have unscrupulous agents who are prepared to trade their principles and their ethics for a quick personal gain.”
Anyone thinking of selling their home, regardless of the circumstances, must engage an independent valuer to assess the property’s true worth before they sell. It’s important to stress independent – this must be a qualified valuer who has no association with the real estate agency who will be selling the property.