Bad behavior amid the bust

‘Pinocchio' practices increase as brokers, firms, developers look to protect wallets
By Candace Taylor | July 01, 2009 02:08PM

behaving_badly-210x266In New York City real estate, unethical behavior is the elephant in the room: a subject brokers generally avoid. And with the average apartment selling for more than $1 million even in this down market, it’s hard to reconcile Manhattan’s power brokers, who have armies of assistants and star-studded clienteles, with the historically unsavory image of the stereotypical real estate salesman.

In part, that’s due to the work of organizations like the Real Estate Board of New York and the Manhattan Association of Realtors, which have focused intently on training and ethics as the industry has grown, said Peter Marra, an executive vice president at Brown Harris Stevens and chairman of the residential ethics committee at REBNY.

“Professionalism is at an all-time high,” Marra said of the current era, recalling a time when agents rarely worked together. “In the old days, there was no co-broking. Now cooperation is very important. We really need each other to succeed.”

Still, there are always bad apples. And experts say some kinds of unethical behavior —whether perpetrated by brokers, developers or firms — are on the rise.

Those violations are generally attributed to the poor market as agents, and others, become desperate to do deals and protect their finances. Not that boom markets don’t have their own problems — the subprime crisis was in many ways initiated by unethical behavior when mortgage brokers put people in homes they couldn’t afford.

“You would think everyone would just be trying to help each other, but I’ve heard that there’s some bad behavior going on,” said Diane Ramirez, the president of Halstead Property.

This month, The Real Deal delved into this most taboo of topics, shining a light on some of the industry’s most unsavory practices and examining how the real estate downturn is impacting them in New York.

Sources that we talked to said they are seeing more brokers inflate asking prices, steal buyers from colleagues and even make fake offers. Meanwhile, in the Hamptons, a lack of technology in the real estate industry has allowed a number of questionable practices to flourish, with far-reaching consequences.

For developers, behavior that seemed innocuous during the boom, such as exaggerating the number of units sold in a building, is now an extremely serious matter. Indeed, those false claims often lead to litigation and can sabotage a buyer’s chance of getting a mortgage.

Some brokerages have also been infuriating clients and brokers recently with their mishandling of finances by bouncing checks, stiffing brokers on their commissions and improperly commingling brokers’ commissions and customers’ deposits with funds used to pay the firm’s bills.

It’s not that homeowners, buyers and sellers are blameless. Cash-strapped co-op shareholders are now much more likely to improperly sublet their apartments, attorneys said, while some wayward customers are attempting to cut their agents out of their deals.

Stiffed brokers fight back against firms

Condo developers cut corners

For some agents, ethical code starts to erode

Co-ops minus ‘cooperation’

Breaking the Hamptons’ clubhouse mindset