code of ethics Archives - Page 2 of 2 - Real Estate News and Commentary

November 10, 2011September 17, 2019

Are internet Realtor® reviews real or fake?

The internet is a great tool. It conveniently provides access to information about real estate activity and home sales to assist you in your decision making. It’s only natural that people tend to gravitate to the internet because it provides somewhat of a buffer from aggressive real estate agents; it allows a certain amount of anonymity. This may also be a reason for the rise in popularity of internet Realtor® reviews.

But, internet anonymity can be a two way street. Besides reading online what others are saying about your agent, without anyone being the wiser; online reviews are often posted without verification.

An August 19th New York Times article by David Streitfeld (In a Race to Out-Rave, 5-Star Web Reviews Go for $5: Printed August 20, 2011, on page A1 of the New York edition) is an exposé of the fake review business. Yup, fake online reviews. Streitfeld describes how in an effort for online businesses to appear better than the competition, “an industry of fibbers and promoters has sprung up to buy and sell raves for a pittance.” Streitfeld illustrates the “game” as it’s played; posts on websites such as Craigslist and help for hire sites offer a positive review for a fee.

Also known as “deceptive opinion spam” or “review spam, Cornell researchers claim “these fake reviews are fictitious opinions deliberately written to sound authentic, in order to deceive the reader.” They conclude that the detection of fake reviews is “well beyond the capability of human judges;” and recommend an analysis of reviews to include, among other things, psycho-linguistically motivated features. (Proceedings of the 49th Annual Meeting of the Association for Computational Linguistics, pages 309–319, Portland, Oregon, June 19-24, 2011.)

“There have always been fake reviews from employees and competitors,” states Greg Sterling, of Sterling Market Intelligence, in a March 7th blog post “Fighting the Rise of Paid Reviews.” Describing the increase of “guaranteed positive reviews” for a fee, “… the increasing importance of online reputation to consumers and the potential influence on rankings that reviews bring the stakes are higher than ever. Hence the emergence of services that will guarantee positive reviews.” He further states, “I don’t know this but my guess is that somewhere in some room … there are minions writing positive reviews without ever having actually used the business or visited its location.”

The National Association of Realtors® (NAR) code of ethics prohibits deceptive practices, which includes posting or encouraging fake reviews. However, Lani Rosales of AGBeat argues that there has always been an element posting fake Realtor® reviews and testimonials (“Sketchy new trend – hiring fake online review writers”).

What to do?

Suresh Srinivasan of agent reputation platform ReachFactor (ReachFactor.com) stated in email correspondence that review spam is a “big and growing problem. It’s extremely cheap to pay others …to write a review of any service professional.” He states that many websites get “gamed” because they only require the reviewer to register but don’t actually verify that a transaction took place with the agent. He points out that even though some popular real estate websites try to read every review, it is not entirely effective in weeding out the fake reviews. Mr. Srinivasan’s company verifies factual information collected about Realtors® so as to ensure consumer transparency as well holding Realtors® to a higher ethical standard.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

May 4, 2010October 5, 2019

Ethics, Wall Street, and Real Estate

Watching the recent Congressional hearings on the financial crisis makes you wonder about ethical leadership in Corporate America. The hearings can be characterized by Senator Carl Levin (D- MI) trying to explain to a seemingly confounded Goldman Sachs CEO Lloyd Blankfein about an alleged conflict of interest. Senator Levin made a salient point when he said, “…you want people to trust you…I wouldn’t trust you…”

My purpose is not to pass judgment on anyone; however, I feel there is a parallel to real estate practice. These hearings remind me why the National Association of Realtors has maintained a code of ethics since 1913 (Realtor.org). Much like security traders who take their code of ethics seriously, as well as Goldman employees (yes, Goldman posts their code of ethics that on their website under corporate governance); Realtors comply with the NAR code of ethics communicates to ensure there is integrity in all dealings.

Unfortunately, having a code of ethics does not guarantee that all members adhere to it; adherence is up to individuals and enforcement is based on the general milieu. Fortunately, in some states such as Maryland, aspects of the NAR code of ethics are incorporated into the real estate licensing law protecting consumers from rogue agents.

The preamble to the NAR code of ethics states, “In recognition and appreciation of their obligations to clients, customers, the public, and each other…” So, if you’re involved in a transaction with a Realtor, you can expect ethical conduct that includes (but not limited to) honesty, disclosure, commitment, and truthful communication.

Article 1 of the NAR code of ethics states that even though a Realtor’s “primary interest is to promote and protect the interests of their client”, they are obligated to treat all parties in the transaction honestly. An example that is given by the NAR is to present a client’s ability to purchase honestly even when they have issues that may interfere with a home purchase (such as credit issues). Another example is that a seller should not be mislead in an attempt to obtain a listing (standard of practice 1-3).

Article 2 indicates that Realtors are obligated to disclose any material facts they know of without exaggeration or misrepresentation. For example, a Realtor must disclose all property condition facts they are aware of, as well as a true picture of the nature of the problems if known.

Article 11 states that Realtors are committed to provide professional services for which they are trained and to ask assistance in situations where they lack training, while disclosing that fact. If the transaction exceeds a Realtor’s competence, the agent must seek competent assistance and disclose that fact to their client.

And finally, article 12 states that Realtors are required to be truthful in all communications including advertising. Besides identifying themselves as real estate professionals, Realtors are obligated to accurately depict all information communicated to the public. A contemporary example is the use of photo editing software- room photos should not be distorted such that rooms appear larger.

The point that is brought home is that ethics and business (including real estate) are not diametrically opposed, but rather coincide with each other. Ethics is not only good business, but as Senator Levin pointed out, it’s ultimately a matter of trust.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 3, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

December 10, 2009October 5, 2019

What is DOM; why some agents choose to manipulate the material facts about DOM

“Days on Market,” or DOM is self descriptive – it is basically the number of days a home is “active” on the market. DOM is used by real estate professionals and economists to gauge the market and home inventory. Since real estate is a major component of the United States economy, these statistics are used by economists in examining the condition of the real estate market and the economy as whole.

Home buyers and sellers have also given meaning and significance to DOM. To some home buyers, the belief that an inverse correlation exists between the length of time a home is on the market and the seller’s motivation gives them the justification to make a lowball offer. But is the correlation accurate? If a home has been on the market 120 days when the average is 60 days, the seller maybe more motivated- but not necessarily ready to take a lower offer. Realistically, the high DOM may be an indication of a home that is over-priced to begin with; some sellers may reluctantly reduce the price as time goes along, while some are apt to hold on to the higher price.

In addition to supply and demand, home prices can be correlated to various factors through equilibrium models, such as price and condition, and price and size. As far as I know, no one has discussed an equilibrium model to indicate a correlation between price and DOM; DOM is not only dependant on market conditions but also dependant on variables such as seller’s personality and financial situation.

Just like home buyers, home seller’s assign meaning to DOM based on conjecture rather than sound reasoning. If a home is on the market longer than the average DOM, many sellers tend to focus solely on their real estate agent’s effort (or lack of effort); conversely, some sellers are led to believe they may have sold for too little if the home sells in less than the average DOM.

Real estate agents give credence to the emphasis of DOM placed by home buyers and sellers; and some agents add their own emphasis such that they are compelled to manipulate a material fact about a home. Yes, my local MLS (MRIS) considers DOM a material fact about a home. Manipulating DOM is not only manipulating a material fact, it also appears to be a violation of National Association of Realtor’s Code of Ethics Article 1 (“…REALTORS® remain obligated to treat all parties honestly.”) and Article 2 (“REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property…”).

If the reasoning behind the emphasis for DOM by home buyers and sellers is speculative, and the DOM may be manipulated by the listing agent any way- what’s the big deal anyway? I honestly have never had anyone list DOM as criteria for their home search. Need more information about DOM? Talk to your Realtor about DOM and its significance to your purchase or sale.

This article is not intended to provide nor should it be relied upon for legal and financial advice.

November 19, 2009October 5, 2019

Is there a duty to disclose recent low-ball appraisals?

(Home Buyers Beware)
Nothing can hurt a real estate transaction more than a home that doesn’t appraise to the contract price. In this depreciating market, I have heard many colleagues bemoan the “low-ball” appraisal. For a listing agent, a low-ball appraisal doesn’t just mean the possibility of losing a home buyer because the lender would not finance the purchase at the contract price; it’s also a dilemma of disclosing the valuation to future potential home buyers.

Although low appraisals also happen in appreciating markets, this market is unique. Along with depreciated values, the new Home Valuation Code of Conduct (HVCC) has also impacted on residential real estate appraisals and transactions. The HVCC was created out of an agreement between Fannie Mae, Freddie Mac and the Federal Housing Finance Agency to increase the integrity of residential appraisals by prohibiting lenders (or third parties) from “influencing or attempting to influence the development, result, or review of an appraisal report” (www.freddiemac.com/singlefamily/pdf/hvcc_746.pdf). The HVCC went into effect on May 1st 2009, such that Fannie Mae and Freddie Mac would no longer purchase residential mortgages with appraisals that did not adhere to the Code.

Before the HVCC was enacted, it was not uncommon for real estate agents and/or loan officers to try to influence valuations by offering alternate comparables or other pertinent information. This type of communication may have been necessary in cases that involved unique properties or where the appraiser was missing important information. However, it is also this type of communication that attempted to influence the appraisers to increase valuations!

To address the issue of appraisal influence, the HVCC requires strict rules on appraiser selection and communication; lenders and real estate agents are not allowed to hire appraisers nor are they allowed to communicate with appraiser in such a way that may influence the appraisal process (www.fhfa.gov/webfiles/277/HVCC122308.pdf).

Some critics of the HVCC complain that lenders are using third party appraisal services which hire appraisers who are unfamiliar with the neighborhood or worse- hiring appraisers from out of state. A colleague, relaying a recent experience, told me that a low-ball appraisal that was provided for a client may have been due to one appraiser coming to a home in Bethesda for the “inspection,” while another appraiser from Texas completed the appraisal for a national lender.

Low-ball appraisals do not kill all transactions. In fact, many buyers and sellers come to agreement on a new price and settle without any other obstacle. However, there are transactions where the buyer and seller cannot agree on new price and the home is back on the market. This is where the listing agent has to decide what information to disclose about the previous appraisal. Although Article 1 of the Code of Ethics and Standards of Practice of the National Association of Realtors (NAR.org) pledges Realtors “to protect and promote the interests of their clients,” it also obligates Realtors to treating all parties honestly. Additionally, Article 2 of the code of Ethics prohibits Realtors from misrepresenting or concealing pertinent facts relating to a property or transaction.

In the current market environment, low-ball appraisals may be an increasing trend. Revealing or not revealing these low valuations to future potential home buyers may also become a source of future disputes.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 16, 2009. Copyright © 2009 Dan Krell