4 majorly unethical moves in real estate (and how to avoid getting duped)

Posted: 2 March 2022 1:35 pm
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It's natural to trust the "experts" giving you advice when buying a home or investment property – unless they're working in their own best interests instead of yours, that is.

For many people, buying and selling a home may only occur once or twice in a lifetime. Therefore, they heavily rely on the experts in property to give them the best advice and guidance possible.

All industries have ethical and trustworthy professionals within them, who are genuinely passionate and want the best outcome for their clients' individual needs and circumstances.

However, most industries also include unethical and not-so-trustworthy professionals that don't always have a client's best interest at heart.

Unfortunately, the real estate industry is no exception.

Through my 20 years as a property investor and developer, I've seen unethical conduct come at a great cost to buyers. The consequences can be huge, as I've seen people lose money, spend their savings where they could have bought a property for better value or pay too much for a property. Unfortunately, I've also seen how it has set buyers back for years.

Here are a few things to look out for and some common misconduct within real estate, and how to spot it a mile away:

1. Agents who have a dual interest or additional skin in the game

Whether it is a real estate agent or a buyer's agent, either of them could have a dual interest in the outcome. This is where they receive not only a payment from the seller or purchaser, but they also receive another payment from a developer or marketer, or some other second party payment from the sale of the property.

How do you avoid this?

Ensure your agent listens and understands your needs and what you are trying to achieve. Ask them to explain your options in detail and the benefits it can bring to you and your individual situation.

Also, ask the question directly: "Do you receive any commissions or payments if I buy this property?" You'll know straight away based on their response, whether they are acting in your best interests or not.

Seek advice from an accountant and broker to understand what is possible based on your current circumstances to understand the impacts as well. If you feel the agent is pushing you in a certain direction and not listening to your individual needs and goals, try getting a second opinion from another agent.

2. Misleading or deceptive conduct

Real estate agents should always act in a manner that is honest and ethical towards all parties involved. Clients engage their services with large sums of money at stake, therefore the client should always feel they can trust and rely on their agent to be responsible and trustworthy during the entire process.

By not disclosing all information, it can be misleading and deceiving. It can also cause problems for you later down the track whether you are a purchaser or a vendor.

A common form of deceptive conduct is gazumping. This is where you have an offer accepted and have signed the contract but then the agent stalls in getting the contracts exchanged. You then find out from the agent that you have missed out on the property, as suddenly they have taken a higher offer from another buyer.

Also, underquoting auction price guides and potential sales prices for properties is a grey area but it can be very deceptive and misleading, as the agents are often trying to drum up more interest in a property, even though they know it will sell for more than the price they're quoting in the current market.

How do you avoid this?

Find an agent who is open, honest and transparent with you, along with all parties involved and willing to disclose all facts about the property.

Also, ensure the price is based on a reasonable estimate according to the market and that the location, images and features listed about the property are accurate and not misleading in any way.

Gavel and Small Model House on Wooden Table.

3. Unofficial "Dutch auctions"

A Dutch auction is a verbal pre-auction, where the sales agent receives multiple offers before the actual auction date.

This is fine if all parties are aware of what is going on, and they know they have a date by which to submit their best and final offer. It's not fine if the agent uses this as an opportunity to leverage buyers in "one-upping" each other to nudge the price ever-higher.

Remember the agent works for the vendor, not the purchaser so they will sometimes use whatever it takes to get the best price for the vendor. A Dutch auction is not technically illegal, though some would call it unethical.

The purchaser can end up overpaying in this silent auction method, as the sales agent creates the sense of urgency in fear of missing out and often does not disclose all information. You may never know if there is a legitimate bid from another interested buyer hiking up the costs, or if it's the sales agent making up a bid to get you to increase your offer.

How do you avoid this?

Try not to get emotionally attached to the property so you can walk away if this occurs. Hire an independent buyer's agent who is there to work for you, in your best interests.

4. Real estate agents that act as both sales agent and buyer's agent

This can be seen as a conflict of interest, if the real estate agent appears to act for both the seller and the purchaser.

The sales agent should be paid by and act for the vendor only to get the best price for the property, while the buyer's agent's focus should purely be on seeking the best price and terms for their purchaser.

How do you avoid this?

Research the type of agent you require. Look into the company profile, its credentials and reviews from past clients, and consider your own goals and objectives. Do you want a buyer's agent who can help you secure a property for the lowest price? Someone who can find you an off-market deal in a hot market? Or are you looking for a sales agent who has a big database of interested buyers, and has the potential to get you multiple offers?

I recommend you review the agent's experience and expertise, and ask to speak with past clients as well. Ensure you are comfortable that the agent is solely working for you.

All in all, it's important to do your own research and spend time seeking the right professionals to assist you when buying and selling property. Working with genuine experts could mean a difference of tens of thousands of dollars (sometimes more), plus a lot less of your time and stress in the process.

Lloyd Edge is the founder and director of Aus Property Professionals, and author of the best-selling book Positively Geared.

Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.

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