I have been selling real estate for 22 years. When I was younger I worked for a family owned developer selling tract homes. It was a coveted job and one that required the highest ethical standards. It was hammered into us that the developer was an easy target so we had to protect the Company by always being above board. We weren’t allowed to refer business to Landscapers, painters, mortgage people – no one. Even the suggestion of a kickback could lead to immediate termination. No amount of short term gain was worth losing your job or worse, your license to sell real estate. I had a young family and was vigilant and steadfast in my determination to hold my ethics above any possible reproach. It may sound old fashioned or even “high and mighty,” and while I do consider my honor paramount to my persona, it was equally about self preservation: I feared nothing more than losing my license. To lose my license was to render me unemployed. I’d have to get a job selling cars or appliances because I would no longer be able to sell homes.
Fast forward to the wild west of today’s resale market – the fraud and unethical behavior of some Realtors is enough to make one’s stomach turn. Understand, I am not condemning all Realtors. The National Association of Realtors has very clear ethical guidelines which every Realtor must adhere to. But during these tough times there are some people who simply “bend the rules.” Maybe bending here and there isn’t criminal, but if you bend anything far enough you break it. That’s what’s happening and it’s disappointing, disheartening and it seems there is no one to stop it.
So what exactly am I talking about? Short sales mostly and here are examples of what’s happening:
A seller is losing his or her home. They opt to do a short sale, but they aren’t going to walk away from all their investment with nothing so what do they do? Sometimes, they make an agreement with the buyer through their agents to sell their personal property (furniture, pool tables etc.) for a ridiculous sum of money. The buyer agrees and the seller gets some money. Clever, right? Perhaps, but it’s also lender fraud. The lenders require an affidavit that states the seller is getting nothing. It also means that agents cannot rebate any commission to the seller, yet this happens even though it is also fraud. How about this – a seller short sells and then is allowed by the buyer to remain in possession as a tenant. Seems like a win-win, but everyone is required by the lender to sign a document stating that the seller will not remain in possession. The Realtor is obligated to report it, but they don’t – leading once again to lender fraud. Or this scenario: the Realtor is approached by a distressed seller about selling short. The Realtor knows that the property is really nice and has a buyer, but only if the buyer can “get a steal.” So, the agent sells the home for a ridiculously low price to the buyer, but the home hasn’t been listed on the open market which the bank usually requires. To get around this, the agent lists the property at the stupid price, generates a ton of interest, receives several offer yet already has a signed offer at the stupid price by their own buyer. Since the agent works for the seller (and in this case the buyer too) and not the bank by fiduciary statute, the bank never knows about the multiple offers because the agent is not obligated to tell the bank about them. When the appraiser for the bank comes out, the agent does everything in their power to guide the appraiser to the agreed upon stupid price. So long as the value comes in within 5-10% of the sales price, the bank will usually go along with the sale even if that sales price is stupid low. The agent gets both sides, the bank and the neighborhood (because of the effect of the now ridiculously low comp) gets screwed.
One of my “favorites” is this one: the agent gets a “shill” offer – an offer from someone they know, typically a really low all-cash offer. This allows the agent to start the short sale process with the bank, eventually getting an approved short sale. When the “shill buyer” inevitably cancels, the agent re-lists the home for something close to whatever the bank approved, now usually well below market. Again, this seems like a win-win: the real buyer gets a shortened process and a crazy-sick price, the agent gets a quicker sale and the seller gets out without being foreclosed on. It might sound good, but it’s unethical and more importantly illegal because it’s lender fraud.
Here’s a question: how many offers can a seller sign for one property? Answer: one. So how can a home be listed as active in the Multiple Listing Service when there is either a real buyer or a “shill buyer” with a seller-signed contract in hand? It shouldn’t be, yet it’s happening all the time. The agents will say that due to the nature of short sales, buyers often cancel during the process so they need to keep marketing the property for their sellers. Yet MLS rules clearly state that if a home has an accepted offer, it must have a changed status and can no longer be listed as “active.” While not lender fraud, it is clearly against the National Association’s code of ethics. The vilest breach of ethics however, is the collusion that exists with some investors and some Realtors who have formed multiple LLC’s to acquire distressed properties. They’ll buy a property, sometimes even their own, at steep discounts using many of the afore mentioned tricks and then resell it or even sell it back to themselves (at the crazy low short sale price). This is called “flopping” and has been targeted by the Justice Department and local law enforcement yet it still goes on every day.
The most troubling thing that I have to deal with, given this mine field of an ethical landscape is the acute frustration and disappointment the buying public has as a result of all these shenanigans taking place. It’s not like the real estate profession is held in the highest esteem by most people to begin with. Somewhere just above a used car salesman but below the appliance salesman. It’s the old “a few bad bananas spoil the whole bunch” kind of thing. Sadly, honest Realtors like me and many of my brethren, get stepped on by the public because of this. We are often not respected so people blow off appointments and waste our time house hunting only to circumvent us by going to the seller’s agent directly after we’ve introduced them to the property and so on.
W.C. Fields used to say, “There’s a sucker born every day.” We saw this with unscrupulous mortgage lenders taking advantage of under educated borrowers during the “hey day” of easy lending. We see agents and investors persuading unwitting buyers to sell their homes under market, and we see the elderly particularly vulnerable to being taken advantage of. Is it a sign of the times? Perhaps. In a tough economy people get desperate and do questionable things to survive, so is that it? I really don’t think so. Rather I think it’s just too darn easy to take advantage of the system and the temptation to do so just too great for many to handle; that combined with the seldom prosecuted crimes of lender fraud. In the end, it’s hard to keep your head above water when you’re swimming with alligators. Maybe doing the right thing is just a thing of the past, heck Wall Street has gotten away with murder for years and corporate America does the same by avoiding taxes and circumventing environmental regulations. Clearly real estate agents are far from the only bad guys out there, it’s just that it’s so darned disheartening to have to deal with this day in and day out and to have to explain to some really nice would be buyer, why they didn’t get this great deal or that amazing dream home.