The Five Sneakiest Real Estate Broker Tricks
Lately I have been blogging about the sneaky tricks business - about how businesses deceive people. The comments to my posts have been wonderful - with addenda and new ideas to add to my various lists. I was particularly thrilled when one comment suggested:
"This should be an ongoing column at Huff Po wherein reader's comments that seem reasonable and representative could be edited and perhaps consolidated to be included in the next issue of the blog. It would be a great service to readers and a great tool to mobilize efforts for consumer justice."
So, today's post is about real estate brokers. Here is my list of five sneakiest real estate broker tricks (please add to it as you see fit):
1. "Buying listings" - one of their worst tricks is telling a prospective seller just what he or she wants to hear. This generally means pricing a house too high. Why would an agent do that since he/she knows that there is no commission earned until a sale is made? Well the thinking goes "I will get the listing since I tell the seller he can get the highest price ... a month or so in, I will indicate that the market has softened and we need to lower the price." But that month or so can be critical because quick and dramatic price decreases can signal that further price drops are on the way if the house does not sell quickly. It is generally better to price a house correctly right from the start.
2. Conflicted referrals - suggesting that a prospective homebuyer use a particular mortgage broker, lender or house inspector who is likely to direct the homebuyer in ways that may not be in his or her best interest. Rarely, for example, will a house inspector who gets a lot of business from real estate agents have the courage to find deal-breaking problems with a house.
3. Misrepresenting marketing efforts - it seems that every real estate brokerage company "has the best marketing program in the area." But then once a listing is procured, all the promises and representations seem to be forgotten. When I negotiate a listing contract for a seller, I require that brokers identify with some specificity the kind of marketing program they are going to undertake and the dollars they will be spending.
4. Taking advantage of naive buyers - I go nuts when a young couple comes into town and, a little naive, takes their broker's advice at face value. Recently a couple down the street from me, just in another state, paid the listing price on a house that should have sold for about 25% less than listing. Trusting their agent, the couple was out about $250,000 in real estate value the day they closed.
5. Less than full disclosure - the classic example (an actual lawsuit) is a young couple who bought a house for what seemed like a "steal," until they found out that it had been the site of a triple homicide and was considered haunted. The poor couple could not sell three years later as it seemed they were the only ones who were not aware of the house's history. Legislation in most states has addressed this situation (now brokers have to disclose material events) but making sure that all brokers give full disclosure is not always easy to accomplish.
By the way, I am not suggesting that all brokers pull these tricks! In my experience, many are honest, forthright and desirous of helping their customers. But, like in any profession, there are some who play by a different set of rules.
Jim Randel is the founder of The Skinny On book series - entertaining, quick reads that speak to financial topics and chicanery.
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Jim - I apologize for the multiple comments, but I had already sat down and wrote the entire thing when I discovered that there was a word limit (which I can imagine why they have it, but I have to disagree with). Thanks for a great post!
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And as for the comment of "the baddies will get driven out of the business" - I certainly hope so. There are plenty of us out there who are working hard and trying to help our clients (and the general consumer as well), not chase after commission checks. My theory is that if I do good work, the checks will follow without fail. I suggest you take a look at blogs like AgentGenius (don't want to be seen as spamming so no link) to see how the RE.net community is trying to move the industry past the notion that we're lower than lawyers on the trustability scale (oops, did I just open a can of worms?).
I loved your post and thank you for adding the comments at the bottom of it. Many writers would skip the explanation that we're all different, just to get a rise out of readers. We can often be an unpopular bunch and we're easy to sling arrows at.
Thanks!
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#5 is a good hour or two of discussion in any ethics class or licensing class. It comes up all the time (the case). I think the danger here is that we spend so much time going over what we have to disclose under current law, that we sometimes dismiss things that don't fall within those rules and regulations. Radon wasn't even discussed for years, now it's an issue. Here in South Texas, we have to talk about the possibility of Oak Wilt in trees, but since we're not arborists, we only have to "disclose" that it exists and give the buyer information to let them decide if they should investigate further. The mold-craze is a serious thing these days, but years ago it would have been shrugged off with a "nothing a little cleaning wouldn't fix" kind of attitude. I think a lot of disclosure arises out of lawsuits. Just look at a McDonald's coffee cup for evidence of that.
...to be continued...
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#4 can be caused by two things. Greed on an agent's part or an agent's failure to be familiar with their inventory and market. "Fair market value" is a variable number and in truth, the value of any home is in the eye of the buyer, but to not take care of your clients by advising them appropriately is a shame. More details than simple pricing need to be analyzed to make a good judgment call on a sale like this though - perhaps there were multiple offers, the couple just "had" to have the home, etc. I'd still advise them to rethink it if they were pushing to jump the price, but there are times when people will do it despite the advice and opinion (backed by fact) of an agent.
...to be continued...
(a word limit on comments?...perhaps it should tell me that WHILE I'm typing)
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#3 is definitely a serious thing. Many agents are handed a photocopy of a marketing set-up by their brokers and use those to show what they can do. The emphasis of that sentence should be on the word "can." I try to be very specific with what marketing I will be doing for any listing, but I am very focused on what marketing I do. A great case in point is that many agents will get your home in a magazine or two. Recent surveys have shown between 1% and 2% of consumers report that they have bought a house because of print advertising (some surveys bring the number below 1%). I tell all my sellers up front that I will not do print advertising. If they want their home in a glossy magazine to make them feel better about what I'm doing, we're probably not going to work well together. Print ads are a great way for an agent to advertise themselves, not a great way to advertise a home. Much of the focus in advertising for years was about branding and marketing ourselves and not the home and there is a welcome shift in those theories now. Thanks to the internet and the wealth of real estate information out there, consumers are seeing through much of what I like to call the "pick me pick me" advertising/communication.
...to be continued...
Jim - Unfortunately corruption and greed will always follow money. It's a sad fact, but it exists.
#1 is any good hard working agent's nightmare. We (I'm an agent) watch from the sidelines as we get "outbid" for a listing by someone who's willing to play that game. The shame is that many of those sellers wind up back in the market for an agent, often when it's getting close to it being too late, because their home has sat stagnant on the market for too long.
#2 is something I take some offense to in some ways. I know the point you're trying to make, but it's a tough one to make without making it seem like some incestuous relationship we all share. My lenders, inspectors, and others don't work for me, they work for my clients. And I see to it that they treat that relationship as such. If they don't, they're not going to be used again. Of course, I know that there are those out there that would frown upon an inspector calling attention to something. One of the inspectors I recommend is great, because he'll point out the problems, the possible affect of that problem, and the solutions to the problem. He's called a few major defects out that would easily be seen as cause for termination of a contract, but by educated the buyer, some of it can be avoided. It's all about who you associate yourself with.
...to be continued...
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Hi Malia: thank you for your comment ... those in the business have great insight to all the trickery and if they (like malia) will stand up and speak out, the baddies will get driven out of the business!!
Thank you, thank you, thank you! I have been a Realtor for 10 years and I have seen all of these tricks...It makes me sick. People have no idea how they are deceived. I do not do it, because I have to look into the mirror in the morning. Usually I am the first person to point out defects in the home. i figure, that if the Buyer knows all of the bad stuff and they still want it...then great....no surprises later on. And Sellers get deceived all of the time. Especially by the high end agents who promise outrageous marketing campaigns, when all they really do is blast emails to other other agents....a monkey can do that!
The Real Estate agent for the buyer has a conflict of interest, they get paid more if they convince the buyer to pay more. Some ways this shows up:
Convincing the buyer to buy more house than they need (living for the extra 200 square feet).
Not being aggressive on pushing the price down.
Suggesting that rather than offering a lower price, the buyer asks for a carpet allowance/appliance allowance/etc.
Buyers should pay a flat fee to the Real Estate agent, not the standard 3%...
whenever money is to gain...corruption is sure to follow. Not all are inherently evil, but some are. Plus you never know how desperate one could be for money (i.e. starving kids) so one should always be on the lookout.
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