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Ethics

Just Say NO

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You Said What

Have you ever been asked to compromise your reputation for the sake of closing a transaction? Or, do something you know is not lawful according to the contract and documents your clients are signing?

What would you say to an agent who told you “the seller can just give the buyer cash for repairs at closing”. Or… yeah, the lender and the title officer just leave the room and the seller pays the buyer for repairs. We can put it on an addendum and the lender won’t see it. WHAT?

When I hear stories like this, I assume these things used to happen on a regular basis and some agents just don’t know this is NOT legal. I prefer to believe this is an innocent request and not a blatant attempt at working the system. Of course, I tend to believe the best about people until proven otherwise.

Keeping it Legal

Whether you claim ignorance or stupidity, neither is a valid defense when facing a court or the possibility of losing your license and reputation. As agents, we must know how to protect our clients and ourselves. The only thing worse than having to face disciplinary action would be dragging our clients along. They expect us to protect their interest. Believe me; they are not interested in going to court.

How does an agent know what is acceptably legal? Education and broker supervision! Of course there is our internal BS meter, which says this doesn’t sound right.

With the rampant changes in lender requirements, we must be aware of those who will try to navigate loopholes. When faced with a request to exchange money outside of the contract, remember these words:

If it’s not on the HUD-1, it isn’t done! It’s really that simple.

Paula is team leader for The "Home to Indy" Team in Indianapolis . She is passionate about education and client care and believes an empowered client is better prepared to make good decisions for themselves. You'll find her online at Agent Genius,Twitter and sharing her insights about her local real estate market at Home To Indy.

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13 Comments

13 Comments

  1. Matt Wilkins

    August 18, 2008 at 11:38 am

    I saw this happen a lot in 2006 when lenders would change their maximum allowable seller concessions midstream once a purchase agreement and repair addendums had already been ratified. Just a step in the mortgage industry shift.

  2. Mack in Atlanta

    August 18, 2008 at 12:22 pm

    Although it is not as noticeable from the educated agents that participate in this forum, there are many agents that just don’t know the difference. Of course you also have the loan officers who tell agents to put seller concessions on a separate agreement because the underwriter doesn’t need to see them. That alone should set off the internal BS meter.

  3. Seth Parker

    August 18, 2008 at 1:46 pm

    I’ve got one. I had a lender…from a bank(which is also the bank the seller does business with) offer this to me on a listing I had:

    “Seth, John Doe told me that he only needs to make $75,000 on that listing. I just approved a buyer for the list price (about $95K), but I have an idea. Let’s do this: Why don’t me and you buy the property together for $75K, then turn around and sell it to this lady for $95K and we split the profit.”

    Needless to say, going to a few posts back, when you say one thing, and think something else, here was my thought:

    “Banker, I just don’t believe that I would be fulfilling my obligations to the seller by doing such a thing.”

    What I really meant was: “Banker, are you $&%*@(! kidding me? That’s wrong on so many levels it’s not even funny! You mean to tell me you’ve been doing this for 25 years?”

  4. Michelle

    August 18, 2008 at 2:18 pm

    Amen sister!

    I’m always amazed at how completely casual and comfortable people are propositioning less-than-legal/ethical practices. It always makes me double-take!

  5. Paula Henry

    August 18, 2008 at 3:27 pm

    Matt – Oh yeah, the good ol days of 2006 – when everyone thought this housing mess woudl surely correct itself soon.

    Mack – The difference being educated. Loan officers have just as much culpability as an agent who knows and does nothing. I had an agent friend who told her seller that the buyer was a crook, as was the lender, appraiser and everyone else in the deal. The buyer was getting $100,000 toward repairs (on a home which needed no repairs) paid to a LLC, which the buyer was coincidentally the manager of . She had it in writing she recommended the seller not accept the offer. A year later she was investgated by the Real Estate Commissioner and cleared of any wrong doing. She is a great agent and easily could have been indicted with everyone else in the scheme.

  6. Paula Henry

    August 18, 2008 at 3:35 pm

    Seth – No morals, no ethics – who would really do such a thing to a client? Oh, need I ask? How does he sleep at night?

    Michelle – Me, too!

  7. Mack in Atlanta

    August 18, 2008 at 5:22 pm

    @Paula – I think a lot of the loan originator problems would be cleared up if they were required to be licensed just as REALTORS are. If they knew that they would loose their ability to feed, clothe and house themselves and their families they may well obtain an internal BS meter(BTW I really like that statement).

  8. Paula Henry

    August 18, 2008 at 6:09 pm

    Mack – Here in Indy, we do have legislation which requires loan brokers to be licensed and each brokers office must have a registered principal manager. All brokers and originators are required to have 6 hours of continuing ed and register with the Securities Division.

    I won’t say these issues are exclusively lender territory. I recently had a young agent who mistakenly thought I was a new agent. Not that it should matter. My license number would make one think I was new, but I have seven years experience, most in other states.

    After explaining that my seller can just give him $5000. at closing without the lender knowing, he says to me, ” I can tell by your license number, you are new, but this is completely legitimate. My broker wouldn’t sign it, if it were illegal”. I kindly explained to him, I am not new to the business and my seller will not be giving anyone money at closing. We worked it out legally!

  9. Melissa | Talk San Francisco Real Estate

    August 18, 2008 at 11:48 pm

    I am so glad you wrote this post. My advice; don’t get caught up in the money. I started real estate 5 years ago. It was, I think, my third client that I was about to close, and I was asked to advise my client to lie on her loan app by the lender that I referred my client to being that it was our in house lender. I refused to tell her to lie, and actually advised her to not do so. Needless to say, the transaction fell through. I never used the lender again, and got into a huge argument with her. My client was so grateful that I was honest, and did not try to sway her to do something wrong. I still worked with her in the end. Never do something that you know isn’t right for the sake of closing a transaction.

  10. Vance Shutes

    August 19, 2008 at 5:33 pm

    Paula,

    You are spot-on with this post! It takes years of diligent effort to build a reputation of integrity. It takes only a moment to destroy that reputation.

    The bottom line? Your title says it all. “Just say No.”

  11. Paula Henry

    August 20, 2008 at 4:36 am

    Melissa – Your client obviously knew she was working with an agent of integrity, It seems so casual to tell a little lie – yet the client’s signature indicates everything they submitted is fact. Your lender was obviously only thinking of “the money”.

    Vance – Thanks! We see celebrities and politicians fall from grace everyday and while we are not famous (well, most of us aren’t), our reputation within our community can make or break us.

  12. Steve Simon

    August 30, 2008 at 3:27 pm

    As an instructor for well over twenty years (that means I have attended a dozen Division of Real Estate Instructor Seminars:) ).

    There is very little mercy mentioned or administered for those they catch…

    I am still amazed at what is mentioned in the field (and online for that matter).

    Discussions with agents (when I am in my rare “Agent” mode) from a few companies in my area seem to be the most likely to have me withdrawing or disavowing any part of the discussion.

    These companies are the ones that litteraly hundreds of agents and usually one or two brokers!
    There are quite a few of these “Ant Hills” in my area. The lack of supervision is of course (in my opinion) the reason for the demonstrable lack of ethics or worse.

    There is one shop in particular that actually pays agents for bringing in other agents. I don’t mean a human resource finder fee, I mean an ongoing monthly income! Its as close to illegal as you can get without being illegal, as I see it. The organization rents an office or two the size of a small bedroom and then signs up a couple of hundred agents. Charging them a monthly fee and then returning parts of the monthly fee for each agent they bring in, until they bring in a few and then they start to get paid for each additional agent they bring! Its actually a “down line” concept like you would find in a multi-level marketing oufit… Evidently its legal because the money comes to the employing broker and is then paid out by the broker. Point is can you imagine the lack of supervision in these places?

    I had to tell a client we couldn’t deal with one of their agents because I felt the risk of Federal prosecution for various offenses was too high for me to advise her to continue…

    The fallout of this is evidenced in the size of the debacle we now face in the industry.
    I have posted (on my blog) that the answer lies in the same level of regulation that has been applied to trainee appraisers. New law in Florida, certified appraisers can only supervise a maximum of three trainees. It should be so in real estate, maybe not the number three, but certainly not an unlimited number making money off each others arrival!
    Just my opinion…

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Ethics

The problem with a self-policing industry: you have to be a narc

Ethics violations in the real estate industry can make or break a Realtor’s career, depending on the severity, so it would stand to reason that all would be mindful of the rules, but there are always individuals in the field that act as if the Code of Ethics is irrelevant.

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An animated discussion on ethics training

“Does anyone else find it ironic that NAR – the trade association for Realtors – has to mandate that members take an ethics class every four years?” An agent who attended one of my company’s broker opens yesterday posed that question to the wine and cheese grazing attendees. Of course, that opened up an animated discussion on the value of etchics training and the lack of enforcement when the rules are violated.

One agent volunteered that the guy sitting next to her in her last ethics class played games on his cell phone and then cheated during the test at the end of the class. Seriously, dude? You cannot even pay attention long enough to pass what should be the easiest test you’ll ever have to take in your career? Perhaps he was just seeing how far he could push it by cheating during an ethics test, to see if anyone else around him caught the extreme irony there. None of the other agents around him – including the agent he cheated off – turned him in and the instructor didn’t notice.

This same agent later called one of my sellers and tried to convince him to break a listing contract with me, because he had a “guaranteed buyer” in the wings. The seller was an attorney, and this bozo tried to get me cut out of the deal, offering the seller a reduced fee to dump me. The seller held firm and directed the agent to call me, then the seller called to let me know about the conversation.

“But you know if you file something the other agent will know.”

It gets better. After the deal closed, I requested paperwork from our local Board of Realtors to file an ethics complaint. The person in charge said, “But you know if you file something the other agent will know.” Gee. Really? I asked her to send the paperwork over anyway.

I called the seller/attorney and asked him to repeat the conversation to me, because I was documenting it to file a complaint. He turned wishy washy on me at that point and his story changed from “The other agent tried to get me to dump you as the listing agent to cut you out” to “Well he really only asked a few questions and I told him to call you. He probably didn’t mean any harm by it.” So there goes my star witness, who doesn’t want to rock the boat.

I didn’t file the complaint. I resorted to the “turn the blind eye but never trust the sleazeball again” path. And that is what happens to almost all ethics issues I hear about / see in person.

That’s what happens when you have a self-policing group of “professionals” who would rather not “narc” on a fellow agent. After all you’re probably going to end up on the other side of a deal from this guy some day, right? The guy in my example has sold two of my houses since that run-in. Why tick him off by filing a complaint and going through all that hassle? If he stops bringing buyers to my properties then my sellers ultimately lose, right?

Boiling down the CoE

The NAR Code of Ethics takes up pages and pages of tiny print, and it runs each year in their trade magazine (I think it’s the January issue). Does anybody read that? Probably not many. I’d argue none of us ever should have to read it again. Simply follow this advice instead. The thousands of words in the Code boil down to one thing: Do unto other agents, and consumers, and clients, what you would have them do unto you. It’s the Golden Rule. Simple. Well, obviously not, for many agents and brokers.

The sad part is the agent in my example had no clue how close I was to filing that compaint, and if he did know he’d probably scratch his head and wonder why his actions were “wrong.” Making us take a one-day class every few years won’t “make” the unethical agents suddenly operate ethically. Most of them just don’t get it.

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Ethics

Ethics hearings in private a disservice to consumers?

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Fight Club and real estate

For those of you that saw the movie ‘Fight Club’ you’ll remember that Rule #1 is “You do not talk about fight club,” followed closely by Rule #2, “You DO NOT talk about fight club.” Which, believe it or not, brings me to today’s topic: The Real Estate Code of Ethics and Arbitration. Article 17 obligates Realtors to resolve fights disputes with another Realtor through arbitration (not litigation). Arbitration is conducted at the local board level, and I am not aware of a local board that doesn’t require arbitration to be confidential.

I respect that public internecine warfare amongst Realtors isn’t in the interest of our industry, and doesn’t belong in the public spotlight. I’m not here to advocate the collective airing of our dirty laundry. That said, I wonder if our collective agreement to keep our concerns confidential can inadvertently harm the consumer and ultimately makes all of us look a little shoddier?

To find the first arbitration guidelines created by NAR and distributed as a set of suggested rules for boards to follow, we have to travel all the way back in time to 1929. NAR’s first Code of Ethics & Arbitration Manual wasn’t created until 1973, and it credited a 1965 California Association of Realtors version as its model.

Appalling conduct

I can think of two instances in the past year where I was so appalled by the conduct of a fellow Realtor that I went to the trouble to inquire about how to lodge a Code of Ethics complaint with my local board. After weighing the time required to make a competent complaint and comparing it with the best case outcome (a closed-to-the-public hearing in which they were found to have violated the code of ethics), I decided not to pursue a complaint in both cases. My association’s bylaws (and probably yours) give it the power to discipline any member based on the results of a Code of Ethics hearing, “provided that the discipline imposed is consistent with the discipline authorized by the Professional Standards Committee of the National Association of REALTORS® as set forth in the Code of Ethics and Arbitration Manual of the National Association.”

“Sanctioning Guidelines” – (Appendix VII of Part 4 of the 2011 manual for the very curious), guides member boards to impose disciplinary consequences that are progressive and fair, taking all considerations into account. Sample first-time disciplinary actions include suggestions of a letter of warning, a fine (amounts range from $200 to $5,000 depending on the severity of the violation), and attendance at relevant education sessions. Not to sound defeatist, but a confidential letter of warning and a fine of around $200 doesn’t seem like an outcome worth investing much of my time in.

Practicing in the internet era

Given that we live and work in the internet era, and review sites like Yelp abound, it seems a bit odd to me that a local board might know of an agent with problem behavior that is documented yet choose to make that information unavailable to consumers. My understanding is that the results of a code of ethics hearing are confidential with disclosure authorized in a few situations, none of which deal with informing the public.

Many of my fellow colleagues feel that the best response to a bad agent is to be patient and give them enough time to work themselves out of business. I can respect and understand their hands-off approach. But what about the damage that individual does to our industry as a whole? While we whisper, warn in confidence and know amongst ourselves how awful they are, the public doesn’t get the benefit of our perspective. Deprived of it, they turn to consumer review sites like Yelp.

How do you think we, as an industry, can help consumers in their quest to find a trustworthy agent?

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Ethics

Realtors, we really need to get over ourselves already

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A letter from the child of a Realtor.

Real estate now vs. 1987

In Real Estate, some things are always changing, like financing, education, laws, rules and technology. The two that will always remain constant, as long as they are within the law, are following our clients’ directions, and working with their best interests in mind.  I’m not sure we always follow through with this, though.

Some of us knowingly take over priced listings.  Some of us take listings that are out of our area of expertise.  Some of us won’t show short sales or REOs.  Some of us won’t show homes with low co-op splits.  Some of us don’t have Supra/e-Keys, and miss out on those listings entirely.

Putting our interests first

When these things occur we are putting our own interests first, not our clients’.  We may think that by having as many listings as possible is a good thing, that’s what we’re taught after all, isn’t it?  It may not matter that some are overpriced, eventually, whether one month or four months down the line, the price will be reduced.  It’s just a matter of time and money, for our clients, after all.  The same can be said when we take listings outside our area of expertise, just to add on to our inventory.  If we don’t know what we’re doing, on a short sale listing, for example, it will only cost our clients a lot of time and money.  A lot.

By eliminating certain houses our clients see, that may already fit their criteria, we’re taking away their choices.  Distressed sales account for close to 40% of the market.  This is probably higher in some local markets.  There is no legitimate way to ignore roughly 1/3 of the homes being sold.  Co-op fees are often a touchy subject, especially when they are, not “enough.”  If everyone utilized a Buyer Broker Agreement that stipulated what their fee was, the issue would take care of itself.  Not being able to access listings with the use of Supra/e-Keys is a choice.   Choosing not purchase one will mean agents will not be able to access Fannie Mae (and eventually, probably additional Gov REO homes) along with the listings that are already using them.

Our priorities versus theirs

We totally need to get over ourselves already.  We are not bigger than our clients.  Our priorities are not more important than theirs when it comes to the actual listing and selling of homes.

Recently, my awesome parents dug through a few boxes and rounded up one of my first art projects. About 25 years ago I did the poster featured above about my Mom, and her Real Estate career.  It was for an Open House (no pun, honest!!!) for the elementary school where I attended first grade.  It was just, what she did according to me way back then.  Things are way more complicated now, than when I was six.  There’s a heck of a lot more paperwork for one.  But the same basic principle still applies.

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