What’s considered unethical in real estate?

Now that you know some of the rules, let’s cover specific areas of ethical concern.

Deceptive marketing tactics

Listing agents are required to market homes accurately. This means, for example, that they generally shouldn’t edit listing photos or significantly round up the square footage of a house. Of course, sellers and agents want to present properties in the best light — but they still have to be accurate.

Inaccurate disclosures

Typically, sellers are required to disclose known material defects with their properties — particularly issues that may not show up on a pre-purchase inspection. The process and the specifics vary by state, but common examples of issues that must be disclosed about a home are the presence of lead, asbestos, or radon, a history of flooding or leaks, and structural or mechanical problems.

If an agent advises you not to disclose an issue, they may be prioritizing pocketing more or quicker commission at significant legal risk — since you both could be sued by a buyer who later finds an undisclosed problem. While it may feel nerve-wracking to tell all, it’s also crucial to protect all parties.

But let’s say we’re talking about a one-time issue that is now resolved — like water damage to a basement three years ago that has since been restored. According to Stachel, “It’s still a defect that’s happened at some point in time. Because after the repairs were made, that water damage is not something that would be found . . . but it was damage to the property, so it should absolutely be disclosed.”

An ethical agent will advise you to disclose everything so you are both more protected from potential legal risk.

Taking liberties with legal documents — aka tax fraud

Beware if a real estate agent suggests what may seem like a “white lie” on legal paperwork as a way to save money on taxes.

Stachel says some of the most common unethical behaviors she witnesses during the closing process involve agents tweaking contracts in ways that essentially amount to tax fraud.

Some Realtors, for example, “will try to decrease the purchase price by allocating a portion of the purchase price to personal property” — only there is no “personal property” changing hands, nor is any sales tax being paid on that imaginary “personal property.” While the total money exchanged is the same, on paper it appears homes cost less than they did, reducing transfer taxes and future property taxes for buyers.

In Florida, where people from all over the world frequently buy and sell, agents also may fudge on the paperwork to save foreign sellers money in taxes, says Stachel. All they have to do is “write into the contract a requirement for the buyer to sign an affidavit stating that they intend to either make the property a primary residence . . . or that they intend to live in the property a certain number of days, even if they don’t.”

Yet if caught, that buyer could ultimately be liable for any capital gains the IRS lost when the seller didn’t pay taxes.

While doctoring the documents might initially seem harmless, “there’s actually huge implications on a state and federal level if they get caught,” Stachel warns.

Failure to exercise fiduciary duty

As your representative, a real estate agent has a fiduciary duty — meaning they must keep your information confidential, disclose relevant facts to you and other parties to the transaction, and act in your best interests.

However, an agent acting unethically may put their own interests first. So, for example, an unscrupulous agent might encourage you to accept a low offer or prematurely lower your listing price, because ultimately they could make more money from a higher number of closed sales than from helping you garner, say, $30,000 more in the sale.

On the buying side, an agent acting unethically might push you toward purchasing a home for which they’re also the listing agent, so they will pocket both the listing and buyer’s agent commissions.

An ethical real estate agent, on the other hand, will help you negotiate the best deal for you without rush or pushiness.

Referral kickbacks

RESPA prohibits agents and lenders from giving or receiving certain “kickbacks, referral fees, and unearned fees” in connection with the closing of a real estate transaction. Prior to closing, however, RESPA does not prevent an agent from taking a kickback from a home inspector, for example, for recommending their services.

Ethical Realtors frequently recommend other professionals like inspectors, contractors, roofers, title companies, and more — but they do so because they want their clients to receive excellent service. Taking kickbacks in return may violate RESPA, the NAR Code of Ethics, undermines agent credibility, and may even take pressure off of others to perform work worthy of recommendation on its own merit.

Fair housing violations

By federal law, all real estate agents are prohibited from steering buyers to certain areas based on the factors outlined in the Fair Housing Act mentioned above. It’s also illegal for agents to restrict buyer access to homes based on those same factors.

This means that Realtors cannot legally:

• Market to certain buyer demographics (i.e. “This house would be great for families!”)
• Deny equal professional services to people based on race, color, national origin, religion, sex, gender identity, sexual orientation, familial status, or disability
• Encourage clients to buy in particular neighborhoods based on race or other protected status (known as steering)
• Blockbust — convince homeowners to sell at lower rates due to fear of property devaluation because of alleged changing neighborhood demographics
• Comment on the crime rates or demographics of specific areas

Ethical Realtors will provide the same services to all clients and let their clients determine the neighborhoods and homes to consider based on their own research and preferences. We should note, this could mean there are questions you’d like to ask your agent that they can’t answer.