According to the National Association of Realtors (NAR), in 2022, 87% of home buyers used a real estate agent or Realtor, and 90% of home sellers did the same. With numbers like that, you’d think it’s safe to assume that real estate agents are ethical and always work with your best interest in mind.
However, while this is true most of the time, just one instance of unethical Realtor behavior could damage one of the most important financial transactions you make in your life — regardless of whether you’re buying or selling. Most real estate agents act ethically, but there are always bound to be a few shady characters in any industry.
That puts the burden on you as the client to identify unethical Realtor behavior before you get burned by it. No matter where you are in the home buying or selling process, it’s important to educate yourself about what qualifies as unethical or illegal behavior by a bad real estate agent.
If you’re shaky on what “good ethics” actually is, well, you’re not alone. Identifying unethical behavior isn’t always clear, and what’s ethical to one person may not be to another. Illegal activity, however, is easier to peg.
The United States has a number of federal laws that govern real estate transactions, while every state also has its own real estate commission that sets licensing requirements and rules for professional conduct and integrity.
These are some of the more common illegal actions to look out for from real estate agents.
The Federal Fair Housing Act protects home buyers from discrimination on the basis of race, sex, religion, national origin, color, familial status, and disability. That means real estate agents cannot refuse to work with someone because they take issue with some aspect of that person’s identity. Even an innocuous line in a home listing about a house being right for newlyweds starting a family could be construed as a violation of fair housing laws.
In addition, real estate agents can’t willfully steer buyers to areas based on factors outlined in the Fair Housing Act. The inverse is also true — they can’t restrict buyer access to homes based on the same factors. Broadly speaking, real estate agents cannot:
A federal law known as RESPA prohibits agents and lenders from giving or receiving “kickbacks, referral fees, and unearned fees” in connection with a real estate closing. Prior to closing, agents are allowed to accept referral fees or kickbacks for recommending the services of a home inspector or appraiser, for example.
Real estate is a licensed profession. As such, you should verify that your agent’s license is valid before you agree to work with them. Every state has a database of active, licensed agents, so ask for your agent’s real estate license number to verify that it’s still active or if any disciplinary actions have been levied against them.
Real estate agents and real estate attorneys are separate people with separate qualifications. Agents want to be helpful, certainly, but there’s a fine line between real estate advice and legal or tax advice. The Realtor code of ethics prohibits Realtors from providing legal advice, which means your agent shouldn’t interpret contracts or discuss their implications with you. They also shouldn’t draft contracts.
Most lawsuits brought against real estate agents fall under the category of misrepresentation. This occurs when an agent presents false information about a home, both intentionally and unintentionally. Usually, errors are accidental but if you feel like a misstatement of a home’s property boundaries or structural features led you to pay more for a home, you may pursue legal action against the agent.
In many states, real estate agents may represent both the buyer and seller during a transaction as long as both parties agree to the arrangement of this “dual agent.” However, this practice is illegal in the following states:
Done properly, buyers and sellers are left to their own devices during the negotiation process. Real estate agents are not supposed to provide advice to either side since they’re supposed to represent the interests of both parties. In states that allow dual agency, real estate agents can head into murky ethical waters through these arrangements so they’re generally not advisable.
Breaking a law is one thing, but Realtors may also engage in shady, unethical practices that can be more difficult to identify or address.
One benefit of working with a certified Realtor over a real estate agent is that Realtors with membership in the National Association of Realtors must sign the NAR Code of Ethics. This code outlines a clear code of conduct for members and compels them to act in their clients’ best interests, serve customers fairly, market homes honestly, refuse kickbacks, and more codes lest they lose membership.
While these Realtors operate with an official Code of Ethics, ethical behavior isn’t so clearly defined throughout the rest of the industry. These are some of the red flags to look out for.
As we touched on in the previous section, steering buyers to avoid certain neighborhoods or only focus their search on one neighborhood could be a violation of the Fair Housing Act. They could do this by only showing you homes in a specific neighborhood without such a request or by just making judgements about certain neighborhoods being “bad” or “good.” It can be difficult to prove a violation of the Fair Housing Act but even subtle steering qualifies as unethical.
Sometimes, an agent may push a buyer to make an offer on a specific home. In states that permit dual agency, there’s a non-zero chance that the agent is trying to close a double commission as fast as possible. Insisting that you put an offer on a specific listing constitutes a violation of fiduciary duty which isn’t necessarily illegal but it is unethical.
Real estate agents must market homes accurately. That said, to increase buyer interest, they might use older photos of when the house was in better shape, round up the square footage of a home, or count a half bath as a full bath. All of these are examples of deceptive marketing tactics that are at best unethical and, at worst, illegal.
Sellers must disclose known material defects with their property, especially if an issue may not show up on a home inspection. Different states have different requirements but common issues that must be disclosed include the presence of lead, asbestos, or radon, a history of flooding, and structural or mechanical problems. This means issues both past and present.
An agent who tells you not to disclose an issue is likely prioritizing a quick sale rather than an ethical one, and they could put you in legal danger. Disclosing all of a property’s past problems may feel frustrating and risk your highest closing price possible, but it will give you the legal protection you need.
Little white lies on legal paperwork can have devastating consequences. One example of unethical Realtor behavior is tweaking contracts to decrease the purchase price by allocating a portion of this price to personal property rather than a home. As such, the resultant paperwork looks like a home cost less, reducing a seller’s tax burden.
That’s great, except it’s likely going to get you audited. And, in some instances, it could constitute federal tax fraud. Make sure to review all documentation with an attorney before signing anything to verify that everything on the contracts is on the up and up.
All real estate agents have a fiduciary duty to keep your information confidential, disclose relevant facts, and act in your best interest.
Unethical agents will put their own interests first. One of the biggest tells of an agent acting counter to their fiduciary duty is advising you to accept a low offer or lower your listing price very soon after hitting the market. They’re paid on commission, so they want the highest price possible, too, right? Some agents play a quantity game instead, trying to sell as many homes as possible to close as many commissions as possible — and that’s not in your best interest. An ethical agent works on your timeline.
Once you’ve identified your agent as engaging in unethical, or worse, behavior, what do you do next?
If you’re ever concerned about a real estate agent’s behavior, talk to them. Ostensibly, they’re working in your best interest and it’s possible that you two just aren’t on the same page. Discuss the specific concerns you have about their behavior.
If you aren’t satisfied with your agent’s answer, voice your concerns to their broker. They could assign you a new agent or let you terminate the listing agreement early to avoid bigger issues down the line.
Your local Board of Realtors has mediators who can help you resolve an issue with a local agent. If your agent or broker won’t let you out of an agreement or is behaving unethically, this board can help resolve the issue. However, they cannot revoke licenses.
If you believe your Realtor has done something illegal, you may want to bring it up with the state licensing agency. They’ll open an investigation to determine whether or not the agent is guilty of any misconduct. This investigation could result in penalties, suspension, or even the suspension of the Realtor’s license.
If you’re convinced your agent is guilty of a crime, report them to local law enforcement as well as the state licensing agency. The agency may opt to protect one of their own, in which case law enforcement may offer a more independent and impartial investigation.
After contacting law enforcement, make sure to get a lawyer because you may have to testify against the agent. Likewise, if you suspect they’ve cheated you of money, you’ll want to sue for damages to recover your losses.
Finally, despite a bad experience, you’re probably going to stay in the real estate market. So, moving forward, you should find an agent you can trust. That starts with finding a licensed real estate attorney through a local office and verifying their legitimacy through state records.
After going through a bad experience, you’ll have a better eye for unethical or illegal conduct. Remember, most agents are trustworthy, ethical, and want to do the best job possible for you, so don’t get discouraged by one bad experience.
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