11 Of The Sleaziest Real Estate Practices

http://www.chicagonow.com/blogs/chicago-real-estate-getting-real/assets_c/2010/11/sleazy%20realtor-thumb-252x251-270457.jpgIf you ever wondered to what depths realtors would stoop to jack up their income Inman News has just come out with a pretty comprehensive list of questionable real estate practices. This list was created for a survey of real estate agents in which Inman asked them how bad they thought these practices were and also how frequently they thought they occurred. The results are really interesting - often because the low ethical standards of realtors are revealed in the small percentages that find certain abhorrent practices problematic. Here are 11 that I found particularly bothersome:

1. Listing agent tells buyer that there are other buyers interested or other offers pending on the property when there are not. 94.6% of realtors surveyed thought this was an unacceptable practice and 31.8% thought it was pretty common. I've always wondered how often agents lie about this.

2. Agent or broker makes vague or unsubstantiated claims about market share (example: "top agent" or "No. 1 agent"). 63.5% thought it was unacceptable and 56.1% thought it was common. Of course, I maintain that consumers shouldn't even be paying attention to these claims even when they are true.

3. Buyer's agent does not show homes with lower-than-typical cooperating compensation offered by listing broker. 61.8% thought this was unacceptable and 37% thought it was common practice. Wow! Only 61.8% thought it was unacceptable? It should have been 100%. This would be a blatant violation of fiduciary trust so it's a cardinal sin.

4. Buyer's agent does not show clients homes listed by certain brokerage companies based on reputation or past experiences. 52.9% thought this was unacceptable but only 20.1% thought it was common. Again, it's surprising that so few thought it was a problem. This is just like the previous one.

5. Buyer's agent shows own listings, or company's own listings, preferentially to buyers. 48.1% thought this was unacceptable compared to 49.6% who thought it was common. This is very similar to the previous two. Any agent that does this is not acting in their buyer's best interest and it's surprising that so few realtors thought it was a problem. What's even more interesting is that many agents actually brag about this when trying to get a listing - i.e. you should list with me because my firm routinely engages in this unethical behavior and it will benefit you as a seller.

6. Agent refers clients to other agent without knowledge of the quality of service, value that agent offers. 41.3% thought it was unacceptable and 33.1% thought it was common. Yeah, this is a pretty bad practice and it's encouraged by the fact that referral fees are paid in cases like this - approximately 20% of the commission. I'm really surprised that more agents didn't find this repugnant.

7. Referring agent does not disclose to real estate consumer the referral fee that the referring agent will receive. 37.6% thought this was unacceptable and 59.8% thought it was common. Yeah, as shown in the previous practice, if they have no knowledge about the agent they are making the referral to then I can see why they wouldn't want to disclose the referral fee.

8. Buyer's agent does not show for-sale-by-owner homes. Only 29.6% thought this was unacceptable and 50% thought it was common. Well, this one is a bit stickier. If the buyer's agent is not aware of a home that is for sale by owner then there's simply not much they can do about it. Perhaps this is why the % that thinks this is unacceptable is so low. But if they are aware of it then this would also be a breach of fiduciary duty.

9. Buyer's agent refuses to represent client in purchase of for-sale-by-owner home. Similar to the last practice, 46.8% thought this was unacceptable and 27.2% thought it was common. Not only would this be unethical but it is flagrantly stupid. The buyer is likely to contact the seller directly and cut you out of the loop.

10. Listing agent accepts listing with unrealistic asking price for the marketing opportunity -- the ability to prospect for new clients. 39.8% thought this was unacceptable and 57.3% thought this was common. We see this all the time. Everyone wonders why a realtor would waste their time on an over-priced listing. The truth is that it provides an opportunity to pick up unrepresented buyers as long as you can recover your marketing expenses (hence the charge for marketing fees). But it's unfair to give a seller false hopes.

11. An agent represents both the buyer and seller in the same real estate transaction. This is another one where I'm shocked at how few realtors thought this was a problem - only 25.9%. And 40.9% thought it was common. In reality every time I've checked it looks like less than 15% of transactions fall in this category and a lot of them are developer sales, where the buyer walks in unrepresented. Nevertheless, this is a huge problem. How can one agent represent the best interests of two opposing parties?

There were several other "practices" that were highlighted in this survey that were interesting but not what I would call sleazy practices. For instance, Brokers charging special per transaction fee to agents or consumers in addition to commission splits/regular cost of services. 42.5% thought this was unacceptable but there was no data on how common realtors think this is. However, I can tell you that in the Chicago market this is quite common. However, this is one case where I'm actually surprised how high the % is that think this is unacceptable. As far as I'm concerned realtors can charge whatever they want and as long as the client is aware of the terms of the agreement then anything should be allowed. And if realtors price themselves out of the market with such terms then so be it. There is also a good reason that some realtors charge this way: there is a fixed cost to listing a property that needs to be recovered and if the seller insists on over pricing a property then the realtor is looking for some insurance. Of course, why are these realtors taking over-priced listings to begin with?

Also, several of the questions centered around whether or not consumers were aware of ethical breaches or licensing violations of their realtors. Around 46 - 50% of surveyed realtors thought this was unacceptable and 71 - 73% thought it was common. But, given that this is not really a "practice" at all, I'm surprised that even 46% found it to be unacceptable. Are realtors expected to advertise all of their past problems? Perhaps respondents were merely commenting that they thought it was unacceptable that most consumers don't bother to check on their realtor's past. Well, it's not exactly easy to do. You can look up a realtor's license on the IDFPR site and it will tell you if they've ever been disciplined. If so, supposedly you can click a link to find more details on the infraction. However, the site doesn't appear to tell you all the information that the survey was concerned with.

Comments

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  • #1 seems dumb in this economy. If nothing else, if there is an offer on one property, there are plenty of other houses, including foreclosures and short sales, on the block. Listing agent is not going to be able to screw the price upward.

    #8, #9, and #11 seem variants of the same theme, i.e. all real estate brokers are deemed seller's agents, unless indicated otherwise. The only time I saw different was the one time I sold a house and the agent accompanying the buyers gave me all sorts of garbage about mildew in the basement. Then he gave me a card stamped "buyer's agent." His clients still bought.

    It is quite clear that lawyers can't be agents for adverse parties, at lease except with very detailed exposure, but apparently real estate brokers can.

    Now, maybe your next column could be on unethical practices by mortgage bankers. I could give you several.

  • In reply to jack:

    When buyer's are told that there are multiple offers on a property they absolutely bid higher. In many cases there are not good substitutes available. Most of the foreclosures and short sales are at the low end. At the high end properly priced properties are moving briskly.

    In Illinois only the listing agent is responsible to the seller. When I work with a buyer I have a fiduciary duty to that buyer by law.

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