Tricks of the Real Estate Trade
Unfortunately, there are tactics used by some real estate agents that can be used to take unfair advantage of a buyer or seller. I don’t often run into agents that use, what might be considered, unethical practices to get a sale or listing but I have included examples of some of the ones that I have seen used. The following is a list of some of the things that I have run into while working with both buyers and sellers and how to spot some common ones:
- Listing the Property Above Market Value: Get the Seller to Sign the Listing Agreement- whatever it takes: Listing a property for substantially more than the Market Analysis indicates that the property should be listed for is a too often used tactic. This is done in order to get the seller to sign an agreement with the agent in order for the agent to get a “sign in the yard”.A Correct Initial Listing Price is critical in getting your house sold quickly and for a fair price. You should have a good idea of your property’s value, from your own research. It’s not a matter of how much you would like to get, how much you have put into the property, or how much you need from the sale. The listing price is determined from a good Market Analysis of similar properties, in your area, that have sold recently. Make sure that the agent shows you the comparable properties in the area and what they are selling for and how long it is taking to sell. When a property is listed for more than it’s Market Value, it will not get showings and will be on the market too long. The Days On Market value, for a property is an important consideration for buyers. If a property has a high DOM, it is usually assumed that it is overpriced or has something wrong with it that causes other buyers to pass it buy. The longer it sits on the market, the fewer showings it will have and the offers will be lower than would have been if the property had been listed correctly in the first place.
- Convincing the Seller that they have a Better Marketing Plan. REALTORS® use the local MLS to list houses for sale. The MLS sends this data, through IDX, to to other licensed services where the same data is displayed. Most buyers find their homes through the internet ( MLS data) or through their REALTOR®, not social media or open houses. Real Estate Statistics One of the most important parts of a good marketing plan is the photographs that are displayed on the MLS (and sent to subscribing services like Zillow, etc.). You should always insist on the use of a professional photographer that knows how to photograph real estate.
- Listing the Property Below Market Value: I have seen this done when an agent wants a quick payday, at the seller’s expense. The property will sell very fast, the agent will get paid quickly and without doing much work at all. Check the agent’s Market Analysis and make sure that he is using the correct comparable sales. The agent might also want to help a friend or acquaintance buy properties at below market value in order to resell the house and pocket the profits. Find out what properties, around you, have sold for or get a price opinion or appraisal before listing your property. Do not use the County Appraisal District Appraised Value. These values are automatically generated for tax assessment purposes and have little to do with the price that a property will bring when listed for sale and are generally much lower than the Market Analysis Indicates. Many agents, like myself, will provide you with a detailed market analysis to help you determine how much you want to list your house for.
- Making an Offer to Purchase Without Showing: Why would anyone sign a purchase offer and send it to the listing agent if the buyers haven’t even seen the property? This is a tactic that is used to get the property under contract, and off the market, with an option period that allows the unrestricted right to terminate the contract for about ten days. The Option Fee only costs the buyer about $100 so the buyer has little “skin in the game” and gets exclusive right to review and inspect the property and make a decision later to purchase or cancel the contract. When the property is off the market, other potential buyers move on and are probably lost for ever. Investors use this tactic to get several properties under contract, and off the market, at one time and discard the ones that they don’t want later. One way to help make sure the buyer is serious is to require a larger option fee. An option fee of $500 – $1000, to be applied to the purchase at closing, would help discourage this type of activity and help “weed out” buyers that aren’t really serious.
- Making a Unrealistic High Offer with the Intent to Lower it Later: The highest offer is not always the best offer. Sometimes agents, or buyers, will offer an unrealistic amount for a property in order to get it under contract without the intent of ever paying that amount. This tactic is used to “Put the Squeeze” on sellers to lower the selling price or contribute the maximum allowable, or both, in order to prevent the buyer from terminating contract during the option period. The property is off the market. Other buyers have moved on. This puts the buyers in an advantageous position but can be dealt with by good preparation. Most sellers will not do a pre-listing inspection of their property in order to make sure that there are no major defects, in the property, that would allow the purchaser a reason to ask for reduced price or contributions. There are three things that I always recommend that sellers do prior to listing the property for sale: Get a New Survey; Get a Home Inspection done by a Home Inspection Company; Repair any Major defects or at least know what the repairs will cost and be prepared to lower your list price; Complete the Seller’s Disclosure after the property inspection. Some buyers may make claims (which may be unsubstantiated) that their inspector has found major defects but will not let you see the inspection report. Without having your own inspection done, prior to listing, you don’t have a good way to counter the claims and there will probably not be enough time to have an inspection done when there is little time left in the option period.
- Taking on Certain Types of Sales that They Have No Training or Experience In: Short Sales, Foreclosures, Probate Sales, Auctions, Estate Sales, Commercial Sales and Leases require special knowledge and experience but are sometimes attempted by inexperienced agents. Ask questions of the agent to determine if they have the knowledge and experience necessary to perform the tasks necessary to complete the transaction in a way that meets sellers’ requirements. Ask about Training, Certifications, and previous sales of the same type as yours. Do your homework and get educated on the preparation and procedures necessary to do the job that you require.
- Failing to Disclose Relationships with businesses that they are recommending that you use. They may have a relative employed by a business or they might be getting compensated by the business or some type of “quid pro quo” directly or indirectly from the business or individuals. Lenders, Title Companies, Other Agents, Home Warranty Companies, Home Inspection Companies, HVAC Companies, Repair Companies, etc. sometimes reward agents for referring business to them. Agents are required to work on Your Behalf and not for their own benefit. Ask questions of your agent to make sure that you understand all relationships and rewards that your agent might benefit from. Use independent services to find the companies that you want to do business with.
- Fake Offers From Non-Existent Buyers: Some agents may tell you that there are offers “On The Table” or they have received “Multiple Offers” in order to get the potential buyer to up their offer for the property. The agent will, of course, not disclose how many or how much the offers are for and there may be, in fact, no offers at all. If you really like a property and are made to think that there is a lot of interest in the property you may feel pressured to “Bid It Up” so that you don’t lose this property. You should avoid getting into a bidding war. There is no way to be sure that the listing agent is being honest with you but you should get the assistance of an experienced agent, that you trust, and offer what you feel is a reasonable price for the property. If you require a loan in order to purchase the property, the loan amount will depend on the Appraised Value that is determined by an Appraiser, not the offers being made. You could find yourself in need of more money than you planned on in order to make up the difference between your offer price and the loan amount.
- Tell the Seller that They Can Sell the Property for More Than Other Agents Can: Where a loan is required, the Market Value for a property is Determined by an Appraiser, Not the REALTOR®, and is used by a lender to determine the amount that will be loaned to the buyer for the purchase of the property. You can certainly list a property for any amount that you desire, but it’s sales price is determined by the sales of comparable properties in the same area. REALTORS® market properties and help sellers prepare their properties for sale by giving advice about the suggested listing price range, base on a Market Analysis, improving the curb appeal, making repairs or improvements that will add value and not be a waste of time and money. Buyers generally work with their own REALTOR® and will be protected from paying more than fair market value for a property.
- The Pocket Listing. A pocket listing is a property that has a real estate agent with exclusive rights to list your house for sale but delays listing the property on the MLS in order to sell the property to their own seller client and get the entire commission rather than splitting the commission with another agent. Since the agent represents both the buyer and seller, the agent’s fiduciary duty is limited and he cannot give advice to either party. Why do you hire a REALTOR® ? You want advice, right? I do not ever represent both parties in a real estate transaction because I believe that I have a duty to my client to put their needs above mine (fiduciary duty). This could cost you money by limiting the number of potential buyers that see your property and not having an expert working for you in negotiating the price and terms of your contract.
- The Fake Buyer Client. An agent might call you if he thinks that you might be willing to sell your house and convinces you that he has a ready and willing buyer in order to get his “foot in the door” and get you to sign a exclusive listing agreement. After the home gets listed, the agent explains that his client has decided on another property, or makes up some other excuse, and continues to list your house for sale. This is a real issue for those trying to sell their property themselves since the seller has agreed to pay a commission to the agent and is “on the hook” after that.
- Not Showing You all Properties. When you hire an agent to assist you in purchasing a house, you probably expect that he will be honest with you and show you all properties that meet your requirements. Some agents will try to push his listings on you and not tell you about competitive listings. He might not tell you about listings that do not pay a commission that is less than he wants. Do your own check using the web to make sure that you are getting truthful and complete information from your agent.]
- The Open House. – Is For REALTORS® and Not for the Sellers. When an agent convinces you that you need to hold an open house, you should be aware that open houses is great for the agent but probably won’t sell your house. At open houses, agents get to introduce themselves and hand out business cards to potential buyers and rarely produce a sale. There is not control over who enters your house or how many people might be there at one time. Burglars love open houses because they can come and tale a close up look inside your house and see what you have and how to get into your house later, especially if the house is vacant. I have seen people unlock first floor windows, which is rarely checked by the agent before locking up for the night. If you are still living in your house during the open house, you will have strangers going through everything that you own and maybe taking some things for themselves like electronics and medications. Your neighbors will surely come buy to see what your have and how you have been living and will, of course, bring all of their children to run around your house, leave muddy footprints, spill their drinks, drop their food on your beautifully cleaned carpets, and break things.
- Your House is Ugly. My favorite! Some agents might tell you that your house is so ugly that no one will make a significant offer or repairs are going to cost more than the house is worth. They won’t tell you how much money they are going to make on the property, without doing a thing! If they couldn’t make a substantial profit, like $20K to $40k, on a quick sale to an investor. Why not put that money in your own pocket? Talk to someone that has experience in helping people make better decisions about repairs and sprucing up your house to get you a reasonable price for your house.
Remember, You Are In Charge. Your agent cannot make decisions without your consent or that you do not agree with. You determine how much your property is listed for, not your agent. Get educated. Read the contracts and agreements, before signing. Ask questions about anything that is not clear to you. Ask a real estate attorney about anything in a contract that you don’t understand. Interview several agents before making a decision as to who will represent you. Hire a REALTOR® that you are comfortable with and trust to act in your best interest.
For more information read Texas REALTOR® Code of Ethics.
If you feel there has been a violation of The Real Estate License Act(law), or TREC rules, you have the right to file a complaint with TREC. To file a complaint follow the steps in this website: How to File a Complaint against an agent.