realtors’ top 10 ethical problems

Real estate agents are among the least ethical business practitioners. They desperately need a culture of conformance to a code of ethics.

codeofethicsThe law defines what a society deems as minimally appropriate conduct. People who violate the law (and get caught) pay penalties or endure incarceration for their transgressions. However, within the real estate law firm people may engage in a wide range of behaviors that many others find morally repugnant. The moral compass of each individual determines whether or not they behave in ways others find objectionable. Calibrating this internal moral compass is the world of ethics.

Religion is a widespread source of ethical precepts, and many people look to their religious teachings when determining their behavior in the business world. Unfortunately, many people in business believe anything they do within the confines of the law is acceptable behavior. In businesses like real estate sales, the law allows for a wide range of behaviors most people recognize as immoral. Those without a moral compass feel no compunction about mistreating others, so the real estate sales field is rife with behavior most people revile.

The problem with unethical behavior is recognized by the largest real estate sales trade association, the National Association of realtors. They publish their own code of ethics, and they investigate and sometimes punish claims of misconduct. However, my experience with realtor associations demonstrates they generally whitewash bad behavior and protect their own. The give lip-service to ethics, but they rarely act on it.

In fact, the most widespread ethical lapse among realtors is actually encouraged by the NAr. In a real estate transaction, both the buyer and seller are supposed to be represented by an agent who puts their clients interests first. In the real world, many (if not most) buyer’s agents work to manipulate their clients in favor of the seller’s interests.

believed_realtorWhy do they do this? First, it helps close the deal so both agents get paid. And second, buyer’s agents who twist arms for listing agents get more referrals from listing agents. Any buyer’s agent who represents their client poorly is rewarded by the system. Good agents are sometimes punished.

Real estate agents get new code of ethics

Buyers agent organization gives new, stricter rules

Kelsey Ramírez, June 23, 2016

A new organization just for buyers’ agents announced its new code of ethics and standards of practice that are stricter than many other realtor organizations.

The National Association of Exclusive Buyer Agents, an organization of companies dedicated to representing only buyers of real estate, announced its new set of rules by which its member must abide.

Because this organization is exclusive to buyers’ agents, it can be stricter with its rules than other real estate organizations.

shady_realtorThis is a good step forward, but as you read this, contemplate that someone actually had to write this stuff down. These ethical guidelines wouldn’t need to be codified if agents already followed these principals.

Here are some of the new rules in NAEBA’s code of ethics:

  • A NAEBA member shall provide undivided loyalty to a Buyer-Client and not advance the interests of sellers, themselves, or their real estate company above the interests of the Buyer-Client.

Isn’t this common sense? Doesn’t every person who uses a real estate agent already expect this? Would anyone use an agent if they didn’t already believe this was a given?

  • A NAEBA member shall not accept any compensation, commissions, bonuses, gifts or profit resulting from the transaction not disclosed to his/her Buyer-Client.

Shady kickbacks are too common in real estate transactions.

  • A NAEBA member will protect a Buyer-Client from foreseeable risks and will recommend that a Buyer-Client obtain expert advice when their needs are outside the scope of the NAEBA member’s expertise.
  • A NAEBA member shall not knowingly direct a Buyer-Client to any service which is less than what is in the best interest of the client.

Most kickback schemes involve third-party service providers.Mistaken_realtor

  • A NAEBA member shall assist in negotiating price and terms with direction from a Buyer-Client

I thought this was already their primary responsibility, isn’t it?

  • A NAEBA member shall disclose information available or reasonably available to them concerning a property which might impact a Buyer-Client’s best interest.

Agents often conveniently forget to tell their clients about things that might turn them off to a particular property. For most agents, the deal is primary and the interests of their client are secondary.

The new code of ethics can be found in full here, and the standards of practice can be found here.

Anyone who works with realtors soon discovers the overall lack of ethics in the field. While it’s possible my experiences are unique, based on feedback over the years, I don’t think so. The following is one of the more vile realtor experiences I endured.

No’ethics Docuforge

When I first began in Las Vegas, I was buying properties at auction, fixing them up, and flipping them. Since we were doing such high volume, my lieutenant in Las Vegas, Jacki, needed help from an agent to process the offers and counteroffers on all our properties.No’ethics_Docuforge_Las_Vegas_realtor

For the three or four years prior, Jacki had gotten to know No’ethics Docuforge through her church. This woman was active in Bible study, and had what appeared outwardly to be a vibrant real estate business. She had been an active agent for over 25 years. Based on those credentials, she seemed like a good candidate.

Jacki arranged for her to be our agent for $1,000 per transaction. Since we were doing such high volume, and since she didn’t have to do anything to get the work, the deal was appealing to her.

Unbeknown to us when we started, all was not well for No’ethics financially. The crash in Las Vegas real estate had nearly wiped her out financially, and she was on the edge of bankruptcy. When she started making demands on Jacki for more money, we explained to her that we could find other agents who would handle our listings for even less (we ultimately went to a different agent for $500 per listing for a while). No’ethics didn’t want to hear it. We decided to move our business elsewhere.

That’s when it got interesting.

When we informed No’ethics we were cancelling our listings and moving our business, at first she filled out the paperwork to comply with our wishes, but then she changed her mind. She wasn’t going to release our listings. WTF? Who does that? What agent would want to work with a client who wants to fire them?


It’s not like she spent any money on advertising or promotion on our properties. Basically, she just wanted the money — no, she needed the money.

It gets worse.

No’ethics didn’t just want $1,000 per listing, she wanted a full 3%. When Jacki pulled our contracts with her, they had all been changed to show a 3% commission rather than $1,000. So how did that happen? This realtor changed the terms and forged the signatures on the contracts.

Jacki had been using Docu-sign an online document signing program at No’ethics’s office. No’ethics hacked into Jacki’s account and created a number of contracts showing a 3% commission rather than $1,000. No’ethics Docuforge originally claimed Jacki filled out these contracts.

Fortunately, each of these is timestamped, so we knew exactly when this happened. Unfortunately for No’ethics Docuforge, just by chance she picked a time when I was in a meeting with Jacki in Las Vegas with another witness who happened to be an officer of the court (a Las Vegas police officer who runs a property management business part-time was soliciting our business). We could prove Jacki didn’t create those contracts.

When confronted with fraud and forgery, how did No’ethics respond? A wise person would have quietly settled for what we offered and hope we didn’t sue her, report her to the Department of Real Estate and the local district attorney. That’s not what she did.

No’ethics Docuforge claimed Jacki had stepped out of our meeting, called her, and authorized her to make the contract changes. Apparently, she put this phone conversation on a speaker phone and even had a witness to the call (a friend willing to commit perjury). Really? Does she often put private phone conversations with clients about financial matters on speaker phone for others to hear? And what about the fact we were witnessed being in a meeting with an officer of the court? (Her transparent lie prompted the DRE and DA not to pursue proceedings against her due to “reasonable doubt”.)

Despite the overwhelming evidence my attorney recommended we settle. The cost of taking No’ethics Docuforge to court would exceed what I could reasonable hope to recover, particularly since she was on the brink of bankruptcy and had no unencumbered assets. We settled with her and ended up paying about $2,000 per property, plus my attorney’s costs. I came out under 3%, but not by much. Further, No’ethics Docuforge was rewarded for committing fraud and forgery.

It still pisses me off when I think about it.


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