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We recently delved into the world of off-market "whisper" listings, and in the process, learned about a whole other under-the-table transaction happening behind closed doors in the real estate world: the so-called "whisper price," or "whisper number." It works like this: when buyers are getting ready to submit their "best and final" offers in a bidding war, the listing broker might give a heads up to the one direct buyer in the situation—that is, the one who's not working with a broker—letting them know exactly how much to offer in order to beat out the competition.
"When everyone knows that offers are over asking but aren't sure how high, it's always magically the direct buyer who comes in at the highest number, or the 'whisper number,'" says Jonah Landman, co-founder of off-market listings site HomeCanvasr. "The broker might say 'Hey, I've got an offer for $1.25 million, if you come in a little over, this place can be yours.' That direct buyer is always going to get some extra coddling, some extra attention, some extra phone calls," he adds.
Why? Because the seller's broker won't have to split commission with the a buyer's broker if an unrepresented bidder wins out. So it sounds like a slam dunk argument in favor of searching sans broker, right?
Not necessarily. For starters, "this is completely illegal," as Neil Garfinkel, an attorney for the real estate trade group REBNY, puts it. Even if the broker is technically getting the seller the highest price in this situation, looking after their own bottom line—and sometimes ignoring more qualified, solid buyers—violates their contractual responsibility to work in the seller's best interest. As such, you'll be hard pressed to find a listing broker who admits to doing this, though some who represent buyers have often suspected this kind of dynamic at play. "In this tight market, where everybody’s fighting for the same apartment, yes, it does happen," says Fabienne Lecole, a broker with William Raveis. "It shouldn’t happen, but it does."
"Not too long ago, I presented an offer on behalf of a buyer and was told that the asking price 'just went up,'" says Luis Martinez, a broker and co-owner of Betancourt Realty Associates. "Yet nowhere was the price raised. I am sure that the broker said that to dissuade my buyer and therefore avoid a co-broke. It worked. My buyer was disgusted."
The nature of this practice will vary from deal to deal, particularly in the outer boroughs, where fewer brokers belong to REBNY, which sets out certain ethical guidelines for members, and practices are frequently more lax. It's possible for the situation to play out in more above board ways, however. For instance, if two buyers are equally qualified and one is unrepresented, "you could potentially go to the seller and say, 'this one is a direct buyer, and maybe we can negotiate commission,'" explains Lecole. "Ultimately, the decision has to come from the seller."
Similarly, says Doug Perlson, founder of direct listings site RealDirect, if the most qualified buyer hasn't put in an offer quite high enough to win out and the broker gives them a heads up, "that's a different situation."
Besides creating a messy (or acrimonious) situation, going direct in hopes of getting the inside track might not even work. "If it's a co-op, the other qualifications can count almost as much as the actual bid," says Lecole.
And Corcoran broker Deanna Kory notes that "something like 30 percent of accepted offers don't end up in contract, and you see a lot of these apartments end up back on the market." Rather than work with an untested direct buyer—who may not have the wherewithal to back up their high asking price—and risk that a deal falls through, "I would rather work through a broker who knows what they're doing and has a knowledge and history of the buyer," she says.
Plus, as Perlson puts it, "As a buyer, you want to go in assuming that your broker is honest, not the thinking 'my broker is self-interested and is going to be violating their fiduciary responsibility.'" In other words, even if you are getting that little extra nudge in the right direction? Buyer beware.