Disclaimer: Information in this blog post is meant to be used for educational purposes only and is not to be taken as legal advice. HomeLight always encourages you to reach out to a legal advisor regarding your own situation.
For many home buyers and sellers, finding a trustworthy real estate agent is top of mind, since unethical real estate agent behavior could endanger one of the largest financial transactions they will ever make. HomeLight is one tool that can help you find top-rated real estate agents local to you — someone with quality reviews and a track record of integrity.
Most real estate agents do act ethically. Kara Stachel, a Florida-based real estate and title attorney who works with agents nationwide, says, “99% of the agents we have worked with, if not more, are absolutely ethical, very hard-working . . . and very transparent. They are on their clients’ side.”
Nonetheless, as in any profession, there are a few unscrupulous characters. And working with an agent who operates unethically may put you at legal risk, as well.
Learning a few basics can help you discern whether your agent is above-board — and better yet, help you avoid working with an unethical real estate agent in the first place. We’ll discuss what’s unethical, who sets and enforces the rules, how to spot shady behavior, and what recourse is available if you feel your affairs have been mishandled.
What’s legal and what’s not?
While some laws and rules apply across the United States, every state has its own real estate commission which sets licensing requirements, as well as rules for professional conduct and honesty in real estate. When necessary, real estate commissions can also dispense discipline, including revoking agents’ licenses.
The Fair Housing Act
Regardless of state, every real estate agent must comply with the Fair Housing Act, a federal law prohibiting discrimination in housing based on someone’s race, color, national origin, religion, sex, gender identity, sexual orientation, familial status, or disability.
Another law applying nationwide is the Real Estate Settlement Procedures Act, or RESPA. To protect consumers, RESPA prohibits certain perks (such as kickbacks and referral fees) that may incentivize unethical behavior among real estate professionals and harm buyers or sellers.
Does it matter whether I choose a Realtor® or a real estate agent?
Many real estate agents commit to even higher standards of ethics than those required by law when they choose to join the National Association of Realtors (NAR).
Often the label real estate agent is bandied about to describe any agent — like Kleenex® for any facial tissue — but in actuality, it refers to an agent who is a member of the NAR and has therefore agreed to be bound by the Realtor® Code of Ethics, which goes beyond baseline ethical requirements. To join, agents also have to meet certain qualifications, like maintaining active licenses and showing no civil judgments against them in the previous seven years.
What’s in the NAR Code of Ethics?
The full code is lengthy — 17 articles, in fact, and each with multiple, detailed standards of practice. The Code of Ethics requires that Realtors® act in their clients’ best interests, serve customers fairly and without discrimiation, market homes honestly, refuse kickbacks, and more. Realtors® also agree to cooperate when their local chapter of the NAR investigates complaints against them and to allow the association to mediate contractual disputes.
So, yes, working with a Realtor® could make a difference.
Any real estate agent regardless of affiliation can choose to handle your affairs either ethically or unethically. However, since Realtors® voluntarily agree to higher standards, choosing a Realtor® may increase your chances of landing an agent with impeccable ethics, and thereby increase your peace of mind.
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.
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.
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.
Signs of unethical real estate agent behavior
Now that we’ve covered some of the categories of unethical behavior, let’s identify red flags to listen or watch for if you’re working with an agent and want to make sure you can trust them.
Red flags for buyers
- If your agent discourages you from looking for homes in certain areas, this could be a sign of steering.
- If a buyer’s agent seems to be pushing you to put an offer on one particular listing, that could be a sign of shirking fiduciary duty.
- If a real estate agent makes judgments about a neighborhood being “good,” “bad,” or high-crime, they may be violating the Fair Housing Act.
Red flags for sellers
- If your agent says you shouldn’t disclose the termite damage that was repaired 5 years ago so you can set a higher list price, this would be in violation of Article 2 of the Realtor® Code of Ethics and may go against your state’s seller disclosure requirements.
- If an agent you’re considering signing a listing agreement with tells you, “Buyers are lined up for your property,” that may be true or it may be a misleading tactic.
- If your listing agent asks for money before your home is sold, that could be a sign of financial mismanagement. The listing agent’s pay will almost always be deducted from the sale proceeds at closing.
- If an agent is initially very positive about your home’s features and price point but repeatedly negative after showings, then encourages rapid price reduction, they may be undervaluing your home and manipulating you to sell faster. (However, if you set a higher asking price than advised by your agent and then end up having to reduce the price, that is not a sign of an unethical agent — it probably means you’ve actually overpriced).
Red flags for all
- If your real estate agent is giving you legal or financial advice (other than the value of your home and timing of selling in light of the market), they’re acting outside the scope of their own expertise, violating Article 11 of the NAR Code of Ethics.
- If an agent shares your bottom line or highest price with someone else, they’re violating your confidentiality.
- If you find out your real estate agent is also representing the other party in a transaction (“dual agency”) without your knowledge or consent, that’s a probable conflict of interest.
- If your agent suggests an easy way to save lots of money on taxes, that may be a sign of potential tax fraud for which you could be held liable.
Is dual agency unethical?
In the majority of home sales, one real estate agent represents the buyer, and a different agent represents the seller. In 10% to 20% of sales, however, the buyer and seller work with the same agent — a practice called dual agency. While this is legal in most states as long as both parties give consent, it is either illegal or heavily regulated in eight states, according to Forbes.
In Stachel’s experience, “Most agents I have dealt with where they are representing both parties end up regretting it as much as the parties do.”
Dual agency puts everyone in a precarious position. It can be very difficult for a real estate agent to pursue the best interests of two parties with opposing interests. As Stachel puts it, “It’s very hard to negotiate with yourself.” In fact, some states do not allow the dual agent to even participate in negotiations because of conflicts of interest.
While it may be possible for a dual agent to represent both sides ethically, an agent in this position is limited in how they can serve the clients — which will likely result in more work for each client as they navigate negotiations without an agent fully in their corner. To avoid possible extra work and a potentially ethically dubious situation, you may be better off avoiding dual agency.
How do you deal with an unethical real estate agent?
So, we’ve reviewed many of the major ethical considerations for real estate agents — and still you suspect your agent has managed your affairs unethically. What are your options?
Hire a licensed real estate attorney
In this situation, your first step should be to hire a licensed real estate attorney. An attorney can assist with reviewing any pertinent contracts such as your listing agreement and advise you on your options.
File a complaint with your state’s real estate commission
If you believe an agent has done something illegal or violated state regulations, you can report this to your state’s real estate commission. To find out how, try a web search with your state name and “real estate commission complaint” — for example, “Oklahoma real estate commission complaint,” and you will likely find an online system for submission.
Contact or file a complaint with the local Association of Realtors®
If you’re working with a real estate agent whom you believe has violated the NAR Code of Ethics, you can contact or file a complaint with your local chapter of NAR. Chapters can investigate complaints made against members and may levy fines, require additional ethics education, or revoke membership. Some also offer alternate methods of resolving conflict — such as mediation — before filing an official complaint.
You can find your local chapter’s website via the NAR directory. Since information about disputes and complaints isn’t likely to be front and center on a chapter’s website, you may have to hunt under subsections, such as Professional Standards, Ethics, or Dispute Resolution.
Finding a real estate agent you can trust
Work with an agent practicing unethically, and you endanger your home sale or purchase and may be at significant legal and financial risk. To prevent this, keep an eye out for red flags like deceptive marketing, inaccurate disclosures, finagling documents, steering, pushiness, or kickbacks.
Work with an agent practicing with integrity, and you’ve got a hard-working professional in your corner whom you can trust to do things right.
Most agents are eager to guide and advocate. As Stachel reflects, “I am really impressed with most agents that we work with. . . . I’ve seen them scrubbing floors of their clients’ houses, helping them move furniture out of houses — doing much, much more than they’re paid to, to try to help their clients and make sure everybody leaves the closing table happy.”
If you need help finding a trustworthy agent with such an impressive work ethic, consider starting with HomeLight. Our service is 100% free, with no catch. In two minutes, you’ll get recommendations for the best agents near you with a history of satisfied clients.
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