As real estate brokers watch their incomes plummet in a vastly weakened market, experts say there’s an accompanying increase in unethical behavior, from inflating asking prices to stealing buyers to making fake offers.
While most brokers are well-behaved and cooperation is even improving on certain fronts, insiders say some agents, desperate to make deals, are committing more ethical violations. Buyers, too, are guilty of transgressions in their frenzy to get the best possible deal.
Extreme conditions, like the very hot market of a few years ago and the much slower market of today, provide a fertile environment for rule-breaking, said Diane Ramirez, the president of Halstead Property.
“In a very good marketplace, where everyone’s fighting for the same carrot, you see some bad behavior,” she said. “[And] now that it’s a challenged market, people are anxious about not doing business. It’s when the anxiety level is high that you see bad behavior come out.”
One agent, who asked to remain anonymous, said he represented a buyer in the purchase of a new development condo recently when the listing broker attempted to negotiate the commission, threatening to kill the deal if he didn’t go along with it.
“It was totally inappropriate,” said the source, adding that while unethical brokers exist in any market, desperation seems to be leading some otherwise well-behaved brokers astray.
“If somebody feels like they’re going to make less money, maybe they find ways to cut corners or be more aggressive in a way that’s not necessarily ethical,” the source said.
The same conditions may lead brokers to provide false or misleading information.
For example, an apartment’s square footage is often misstated in listings, said Halstead Property senior vice president Richard Hamilton. He said he gives away free tape measures at open houses so that buyers can see that his measurements are accurate.
He recently saw a listing that claimed to be 900 square feet, which he estimated was closer to 750 square feet. Agents fear that “no one will come [to open houses] if they tell the truth,” he said.
False and misleading information comes into play elsewhere.
For example, it’s common for agents to pitch homeowners in hopes of getting them to consider selling, particularly if the agent has a buyer who is interested, said Peter Marra, a Brown Harris Stevens executive vice president and REBNY’s residential ethics committee chairman.
“It’s not a bad strategy,” he said. However, it’s not acceptable for an agent to suggest they have an interested buyer when they don’t, he said.
One such situation occurred at 555 West 23rd Street recently, a resident of the building said. The resident, who asked to remain anonymous, received several letters from agents suggesting that if she wanted to sell she would have a buyer. “We have been asked by a very genuine buyer to look for an apartment in your building,” the letter, obtained by The Real Deal, said. “She has just missed out on buying a property similar to yours and is eager to purchase at 555 West 23rd Street soon.”
Since no apartments with the same number of bedrooms had been sold in the building recently, the resident suspected that no such buyer existed. Moreover, the same letter was sent three different times in the course of the year to many units in the building.
Another phenomenon is buyers’ brokers attempting to negotiate without their clients’ consent.
Last month, Hamilton said he was surprised to receive an offer for an apartment at 200 West 20th Street. He knew the buyer had an application in on another apartment, convincing him that the offer hadn’t come from the buyer, but rather the buyers’ agent, who was likely trying to keep the deal alive though the buyer had lost interest. The hope is that the buyer will come back around if a lower price is locked in.
Hamilton said these problems seem to be worsening because agents are anxious to do deals. “There’s a lot of desperate agents out there,” he said.
Marra said he has also received complaints about agents not submitting buyers’ offers to their clients, probably because “offers are lower than they were previously.”
In general, there is a lot of competition over buyers, which can lead to unethical behavior, said John Wollberg, a Halstead Property director of sales who teaches a brokers’ etiquette course at the firm’s “Broker Bootcamp.”
“As buyers become more important in the market, they become a hotter commodity,” he said. “You have agents trying to steal buyers, or sway their loyalty.”
Antonio del Rosario, the president of sales at brokerage AC Lawrence & Company, encountered such a situation recently.
“Just this week, a broker from another firm directly contacted a customer we represented and offered them a financial advantage if our customer worked with them directly – an obvious REBNY and State Law violation,” he said. Luckily, “we found out quickly since our clients are very loyal to us. “
Sometimes, buyers are the culprit.
That’s what Terry Naini, a Prudential Douglas Elliman senior vice president, discovered recently. Naini had been helping a client look for a home for three years when the customer lost an apartment to another buyer. Hoping to nab the unit, Naini’s buyer contacted the listing broker directly and offered to cut Naini out of the deal.
“My buyer called that other broker and said, ‘If it will help, we don’t have to have Terry represent us,'” Naini recalled. As tempting as it must have been to be presented with a direct deal, the listing broker refused the buyer’s offer, she said.
Another area that’s ripe for unethical behavior is the practice of inflating apartment prices, or “buying listings,” something The Real Deal reported on in its April issue.
“One of the nastiest things that really comes out in a softer market is that a lot of brokers, especially those who are newer, are tempted to inflate asking prices to sellers to get exclusive listings,” said Douglas Heddings, head of the Heddings Property Group at Charles Rutenberg Realty. Heddings has posted on his blog, TrueGotham.com, about overhearing a listing broker laugh after listing a property for $3.5 million — far above its worth — in an attempt to recruit potential buyers. “No one will buy that, but we’ll get great buyers from it,” Heddings remembered the broker saying.
Some former agents at the now-defunct brokerage JC DeNiro & Associates blamed the brokerage’s closure partly on inflating listings, claiming they were told to “run different comps” if their properties were not priced high enough, as The Real Deal reported last month. Officials at JC DeNiro attributed the firm’s closure to the weak real estate market and high overhead costs.
Inflating listings is prohibited by the New York Department of State, which licenses real estate professionals. An agent may be suspended or fined for committing “fraud or fraudulent practices, or for dishonest or misleading advertising,” according to the agency’s Web site.
In addition, REBNY’s code of ethics states that agents have a fiduciary responsibility to advise a seller about the “proper pricing level” for a property.
But the weak market is bringing out brokers’ good sides as well, Naini said. Listing brokers are now more accommodating when it comes to showing apartments.
“What I’ve seen is that getting my buyers into places is a lot easier, because the brokers are bending over backwards to get their apartments shown,” she said.