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Top 10 Worst Business Practices.

The top 10 Worst Business Practices and how home buyers and sellers can avoid them.

Every day is independence day for home buyers and sellers.  Every day more consumers are freeing themselves from the deceptive business practices that so often lead to uninformed and bad decisions when it comes to buying or selling a home.  That means that more consumers are seeking out conflict free real estate professionals whose advice is not marred by secret incentives that undermine the very reason those professionals were hired. 
 
In the spirit of independence, CAARE is releasing this list of the top 10 worst business practices and how to avoid them.  It is CAARE’s mission to empower consumers to make intelligent and informed real estate decisions and free themselves from bad practices when buying or selling a home.  
 
Free Yourself from the Top 10 Worst Business Practices
 
1.   Dual Agency (click here for the article).  This is the most deceptive and anti-consumer practice – avoid at all costs.  No one can serve two masters and when they do the conflicts are on the verge of absurd and usually insurmountable.  Dual agency occurs when the brokerage firm represents the buyer and seller on the same transaction (even if different agents are involved).  Dual agency arises with little warning and results in the abandonment of the services for which the agent was hired.  In a dual agency, the broker gets paid double and the buyer and seller forfeit their right to representation on such things as negotiation of price and terms (2 of the top 3 reasons consumers hire Realtors*).
 
Solution.  Look for quality agents from small brokerages or from brokerages that exclusively represent buyers or sellers.  Never call on real estate advertisements or visit open houses.
 
2.   Controlled Business Arrangements with Title and Closing Services (click here for story).  Title companies that are owned or affiliated with other real estate professionals destroy the integrity of this vital check and balance. In addition, they destroy the consumer advantages that are borne by competitive business practices such as good service and competitive pricing.
 
Solution.  (click here for our growing list of independent title agents). Only hire a title company that is truly independent of your brokerage, builder, lawyer or lender firm.  Never use an affiliated business in real estate.
 
3.   Lawyers Who Sell Title Insurance.    Attorneys cannot negotiate title coverage on behalf of their client when the attorney also represents the title underwriter providing that coverage.   In addition, the commission paid to attorneys on the sale of title insurance is very large and is only paid if the transaction closes interfering with the attorney’s representation of the clients’ best interests.
 
Solution.  Hire an attorney whose practice focuses on real estate and who will not sell you or your lender title insurance.
 
4.   Lawyers Who Represent Home Buyers, Sellers,  and Who Also Represent or Receive Referrals From Real Estate Professionals.  Many of the worst business practices will not be disclosed to buyers and sellers if the attorney represents, seeks to represent or gets referrals from real estate professionals.
 
Solution. Only hire a real estate attorney who does not represent or get referrals from real estate professionals.
 
5.   Marketing Manipulation That Fosters Dual Agency.  Many real estate brokerages engage in market manipulations disguised as selling strategies.  These practices usually involve limiting demand in order to collect a double commission.  
 
a.       Pocket listings (aka Sneak Peaks) (click here for story).  Properties are shown only to in-house agents prior to being placed on the MLS.  If the strategy works, the broker gets paid a double commission and the seller will have sold their property in a severely manipulated market situation in which demand was intentionally curtailed.   In addition, the seller and buyer forfeit their right to representation.   
 
b.      Internet Marketing Plan Manipulation (click here for story).  Some firms have actually pulled their sellers’ listings from the top buyer frequented real estate websites in order to collect double commissions. 
 
Solution.   Walk away from any brokerage firm that encourages you to do a pocket listing or excludes third-party internet websites from their marketing plan.  Only use brokerage firms that offer a complete marketing plan that includes their listings on Realtor.com, Zillow, Trulia, MSN RealEstate, Yahoo Real Estate, NeighborCity.com, and others.
 
6.   Buyer Broker Compensation (click here to learn how to negotiate your buyer broker’s fee).  Buyer brokers typically get paid by the seller which creates a horrible conflict of interest.  Combine that with the fact that the listing broker actively conceals this offer of compensation from both the buyer and seller and the result can be outright bribery.   Many listing companies and builders will provide huge secret incentives to buyer brokers who are successful in convincing buyers to purchase their listings.
 
Solution.  Use a small brokerage and hire the broker (they don’t have to split their commission with agents).  Negotiate your buyer broker’s fee upfront and before you are shown any properties.  Insist that your broker disclose all compensation being offered prior to showing you any house.  Insist that your broker pay all seller or listing broker incentives to you.
 
7.   Open Houses (click here for story).  Open houses do not even make the list of effective ways to sell a house.  Open houses are traps for home buyers and sellers that foster dual agency and double commissions.  Walking into an open house could easily result in a commission dispute if the buyer decides that they want to hire their own broker to negotiate the transaction.    As a result, it is likely that the buyer will forfeit both their and the seller’s right to representation.  Open houses serve no purpose other than to provide the listing broker with a free platform to solicit buyer clients to find other homes.  They also create a security risk for sellers. 
 
Solution.  Do not let your Realtor hold ANY open houses and do not go to any open houses.
 
8.   Bad Forms (click here for Consumer-Friendly Listing Contract) (click here for Consumer-Friendly Seller Representation Clauses) (Click here for Consumer-Friendly Buyer Representation Clauses).  The negotiating power of buyers and sellers are ignored in the industry forms (mostly drafted by Realtor Associations).  The forms that exist include many unsavory elements to which no consumer should ever agree.  Extra fees and commissions payable even if the deal does not close are two examples. 
 
Solution.  Use a small brokerage firm that is willing to negotiate their contract (large firms rarely do.)  Hire an attorney to help negotiate this key form.
 
9.   Home Warranties (click here for story).   Home warranties are rarely worth the expense and provide secret incentives to real estate brokers and agents.   There exists so much misinformation about home warranties that a google search of “problems with home warranties” now leads you to many self-serving blogs.  Try searching “home warranty rip-offs” or go to sites like the Ripoff Report.  Many Realtor Associations have now included a checkbox for buyers to select the purchase agreement requiring the seller to pay for a home warranty as part of the transaction. 
 
Solution.  Do not buy or sell a home warranty.  If a home warranty is required as part of the transaction, require your broker to pay you the compensation that they would have collected for selling this.
 
10. Arbitration (click here and see clause 8).   Many Realtors advise their buyers and sellers to agree to arbitration if a dispute arises in the transaction.  Arbitration only benefits the broker in that it reduces their liability.  The act of advising a client to agree to arbitration is most likely the unauthorized practice of law reserved for lawyers, not Realtors.  Arbitration usually costs a lot more than Small Claims court, has a reduced statute of limitations and the arbitrators are often unqualified and sometimes biased. 
 
Solution.  Do not ever sign the arbitration clause unless your attorney advises you to do so. 
 
Bonus 11.  Bad Laws.  Realtor Associations are the top lobbyists in the country (click here for the link to statistics) and that comes with a high price tag for consumers. Whether it be the one year statute of limitations on RESPA violations (most laws have a 6 year statute of limitations) or states that legalized the price fixing of buyer broker fees, the fact is that there are an unreasonably large number of anti-consumer laws that serve to abrogate common law rights and manipulate licensing and regulatory laws to protect brokerage firms from consumer legal actions.
 
Solution. Sign our petitions(petition to eliminate the ban on broker fee negotiations in 11 states)  (petition to increase anti-kickback statute of limitations from 1 year to 6) to help change some of these laws and tell us your stories by clicking on Talk To Us. 
 
 
*National Association of Realtors Survey. 

Edina Realty, in the Web Business or House Selling Business?

Consumer Alert – Edina Realty is pulling “their” sellers’ data from key online real estate websites that homebuyers frequent. We believe they are doing it in order to collect double commissions. Unfortunately for home sellers, to us that means that houses listed with Edina may take longer to sell and sell for less money. It also means that buyers and sellers will forfeit their right to representation. CAARE believes that it is the primary function of a listing Realtor to sell their client’s house for the highest price, in the shortest time and in the process avoid conflicts of interest whenever possible. It would appear to us that Edina Realty’s actions will negatively affect all three of those duties.

CAARE believes that it is the primary function of a listing Realtor to sell their client’s house for the highest price, in the shortest time and in the process avoid conflicts of interest whenever possible.  It would appear to us that Edina Realty’s actions will negatively affect all three of these duties.

The first rule of being a fiduciary (an agent) is to always place your clients’ interests above all others, especially your own.  When you put your own interests first it is called self-dealing (a form of theft).  In real estate, that means the brokerage firm should be doing everything they can to help sell their sellers’ homes and avoid ancillary business opportunities found while representing their clients – especially if those opportunities conflict with their clients’ best interests.  They should also be trying to avoid conflicts of interest in the process.  We don’t presume to accuse Edina Realty of violating their fiduciary duties (as we do not have their listing contracts or their disclosures in hand), however, we do not believe that Edina Realty is acting in their clients’ best interests by excluding their clients’ listings from some of the top buyers frequented websites in the United States.

Edina Realty is apparently no longer just in the business of selling houses.  They are also in the business of profiting from distributing online real estate data that they collect.  To prove that point they have once again made national news (read Inman News story here) for removing their sellers’ listing information from one of the top three websites in the United States, Realtor.com.  That new business model appears to directly conflict with their business of selling houses.  That means that buyers will not see Edina listings if they use some of the top real estate websites in the country like Realtor.com or Neighborcity.com.  For home sellers who have listed with Edina Realty, that means a lot less market exposure (especially to out of state buyers) and likely less market activity which could translate into longer listing times and reduced purchase prices.

If you have your house listed with Edina Realty, in two weeks try searching on Realtor.com, Trulia.com, Neighborcity.com and the other real estate sites for information on your house.  If you find it is missing, you may consider asking your agent to manually list your house on those other online sites – it is free….  And these sites are considered the most frequented by buyers (see our previous story here).

Edina Realty, as a broker, is in a unique position to profit from being in the online real estate data business.  And that position directly conflicts with their clients’ best interests in selling their homes.  If a buyer finds an Edina listing on Edina’s website, they will be directed to an Edina agent.  If the buyer uses that Edina agent to buy the house, the commission that is designed to be split with a buyer’s agent who represents the buyer will be “hogged” (yes, it is an actual real estate term) by Edina Realty.  In other words, Edina Realty will get a double commission if a buyer finds their house on Edina’s website (click here for more info on how dual agency could be the primary motivation for Edina’s actions). 

So we believe that if a cost-benefit analysis were done that it would likely show that Edina Realty profits more from collecting a double commission than they will lose from the extra listing time and lower purchase prices that result from pulling their data from other sites.  Great for Edina, not so great for sellers.

This scenario is bad for buyers and sellers for another reason.  In the situation where a buyer uses the listing agent to buy the house, most buyers do not understand that doing so deprives both them and the sellers of any meaningful agent representation.  By law, in a dual agency situation (double commission – click here to learn more about dual agency) both the buyer and seller forfeit their right to advice and guidance from their agents.  The broker gets paid twice as much for half the work.  The buyers and sellers are left to half hazard guess as to what is an appropriate way to fill out a purchase agreement.  A disturbing result that causes a lot of consumers to make serious investment errors.

Realtor Association owned Multiple Listing Services (“MLSs”) around the country are punishing one online company, Neighborcity.com.  Neighborcity.com actually refers people to real buyer agents who can actually represent buyers and who are not with the listing company.  They also have a rating system for these buyer agents.  Their business model is both innovative and a huge asset to consumers.  It actually protects buyers and sellers by eliminating dual agency (double commissions) and preserving two of the top three reasons buyers hire Realtors: to help them negotiate price and terms (taken from National Association of Realtors survey)(the third reason is to help find the house).  We find it hypocritical and anti-competitive that NAR is funding lawsuits against Neighborcity.com when the company is helping facilitate exactly what NAR’s surveys indicate buyers want from an agent – help in negotiating.

Minnesota is leading the way against Neighborcity.com with a lawsuit filed by Northstar MLS (owned by the Minneapolis Association of Realtors) for copyright infringement.  They are claiming a copyright on the sellers’ house data when this company was using that data to help their Realtors do the job for which they were hired and will be paid to do – to sell the house.  We believe that Northstar MLS is working counter to the sellers’ best interests by asserting a copyright on the sellers’ data.  In essence, since Northstar MLS is owned by the Realtor Association, these Realtors are suing for the right to take longer to sell your house and for less money – all so that they can try to get a double commission (our opinion).  Coincidentally, a licensing complaint was filed against this same firm by no other than the corporate counsel for Edina Realty. 

We think that if we were to interview informed home sellers that we would find that most would want their online house data to appear on all the real estate websites, not just Edina’s.  In fact, some of the best listing brokers in town should be having a field day beating Edina Realty out of listings by just showing sellers how their marketing plan is superior to any marketing plan Edina Realty can offer. 

We are disappointed to write this story.  We want to see real estate practices that are honest, competitive and benefit consumers.  We do not believe that is what is happening in this situation.

by CAARE guest writer

You just landed on the ONLY non-profit consumer protection site in the country for real estate consumers.

Neighborcity was a great consumer-friendly business that was innovative and challenged the real estate cartel. The owner of that firm now runs the web design firm (click here) that donated this website to our non-profit charity, Consumer Advocates in American Real Estate (CAARE.org). We are the only organization in the U.S. dedicated to protecting consumers from the real estate and title insurance industries. Our site is over 200 pages deep and is filled with advice and assistance for residential real estate consumers.

It’s Unanimous – 3 Trade Associations Support Change To RESPA

We approached three real estate trade associations and asked if they would support our movement to fix a mortgage fraud law called RESPA (Real Estate Settlement and Procedures Act).  All three trade associations have now given us their support.   What makes this significant is that all three of these trade associations’ members are regulated by RESPA.  Sign our petition by clicking here. The proposed change?   To increase the statute of limitations (or look back period) from one year to six years (read more about this by clicking here). 

We believe that a one year statute of limitations encourages bad conduct, rather than deterring it, because it almost eliminates the risk of prosecution.  We believe, and so do industry professionals from the real estate brokerage, title insurance and mortgage industries, that this law needs some teeth in the form of a longer statute of limitations.

If you want to help stop mortgage fraud, improve mortgage disclosure enforcement actions and stop illegal kickbacks in residential real estate, then please sign our petition to increase the statute of limitations to 6 years. 

Thank you to our most recent supporter, the National Association of Exclusive Buyer Agents (NAEBA).  The other two trade associations are the National Association of Independent Land Title Agents (NAILTA click here for our post)  and, the National Association of Independent Housing Professionals (NAIHP).

For the next stage of this project, we will be approaching consumer advocates and non-profit consumer organizations for their support.  

 

 

 

The Regulated Regulating the Regulators?

ARELLO (The Association of Real Estate License Law Officials) is an organization of real estate licensing regulators. They are comprised of governmental regulators who regulate real estate licensees. They recently appointed a real estate broker as their CEO.

ARELLO  (The Association of Real Estate License Law Officials) is an organization of real estate licensing regulators.   They are comprised of governmental regulators who regulate real estate licensees.   They recently appointed a real estate broker as their CEO.

The current CEO of  ARELLO®,  William John Michael Wald, is a licensed real estate broker and used to be the Senior Director of the Chicago Association of Realtors.  The Chicago Association of Realtors is a trade association comprised of real estate licensees (the people who are regulated by ARELLO members).   Mr. Wald is a licensed real estate broker whose credentials continue, “Previously he was the Senior Director, Business, Professional Development, and Standards for the Chicago Association of REALTORS® a position he has held since 2009.    He was also the Managing Broker of the Northern Illinois Real Estate Information Network (NIREIN), which holds over 580 Illinois Real Estate licenses.”

ARELLO is supposed to be a highly respected group of governmental officials as their website indicates, “ARELLO® is comprised of the official governmental agencies and other organizations around the world that issue real estate licenses or registrations in addition to regulating real estate practice and enforcing real estate law.”  Their mission is: “Support jurisdictions in the administration and enforcement of real estate license laws to promote and protect the public interest.”   And they appoint a real estate licensee to run their organization?

We thought it was strange when ARELLO previously appointed Debbie E. Campagnola as their CEO because she used to be the CEO of the Colorado Association of Realtors.  We are noticing the continuation of a disturbing trend that was first brought out by the Consumer Federation of American in this report.

Sign Petition to Improve This Mortgage Fraud Law

The mortgage fraud law called RESPA (Real Estate Settlement and Procedures Act) has only a 1 year statute of limitations. That means that someone intent on violating this law has very little risk of being held accountable. Lawyers representing consumers in mortgage foreclosure or mortgage fraud situations are reporting that by the time consumers realize that they need help, that far longer than 1 year has elapsed and there is often no recourse.

Click here to Sign Petition

The mortgage fraud law called RESPA (Real Estate Settlement and Procedures Act) has only a 1 year statute of limitations. That means that someone intent on violating this law has very little risk of being held accountable. Lawyers representing consumers in mortgage foreclosure or mortgage fraud situations are reporting that by the time consumers realize that they need help, that far longer than 1 year has elapsed and that there is often no recourse. The Consumer Finance and Protection Bureau (CFPB) enforces RESPA and their hands are tied on most consumer fraud cases involving RESPA because of this limitation. If we are going to have this mortgage disclosure and anti-kickback law, then it needs to exist so as to make enforcement practical.  As it stands now, the law provides bad actors related to mortgage finance an opportunity to break the law with impunity or at least very little deterence. 

If you want to help stop mortgage fraud, improve mortgage disclosure enforcement actions and stop illegal kickbacks in the residential real estate process, then please sign our petition to increase the statute of limitations to 6 years.  

Click here to see an example of how a one year statute of limitations limits liability and deterence.

Our petition is supported by two national trade associations which are regulated by RESPA.  National Association of Independent Land Title Agents (click here for our post), the National Association of Independent Housing Professionals (NAIHP) and the National Association of Exclusive Buyer Agents (NAEBA).

 

Dual Agency Plagues Boston Luxury Homebuyers and Sellers

 

Luxury home buyers and sellers are certainly not immune to the problems of dual agency. Commissions on luxury homes often exceed $50,000 so why would anyone give up such important services as assistance with negotiating a price or negotiating terms of the transaction? When homebuyers use the listing agent to buy their homes not only are they giving up their right to representation on a million dollar asset, they are rewarding the agent for this betrayal with a double commission.

Here is a sampling from the blog post and a link to it:

“Looking at single family homes sold over $900,000 in one community, we were stunned to discover that 70% of one well-known listing agent’s sales were in-house; and in more than one in four sales, the MLS listed her as both listing agent and sales agent.” Click here for a link to the story. The story first appeared in the Boston Globe (the story is no longer online).

Will more Realtors pull MLS listings from Trulia & Zillow in 2012?

opposingteams

Recently, Edina Realty made national news by pulling their sellers’ listings from two of the most popular websites frequented by home buyers, Realtor.com (the number 1 real estate website in the country) and www.Trulia.com (in the top 4). Both of these sites are free and provide valuable information to consumers.  Industry critics and real estate consumer advocates like CAARE believe Edina Realty did this to capture more double-sided commissions (called “hoggers” or “double dipping”). Although that may be great for Edina Realty, the inherent conflict of interest is very bad for real estate consumers – both homebuyers and sellers.

What would you do? If you were interviewing Realtors to sell your home, which agent would you pick: One from a firm that has a marketing plan that includes placing your home in the most popular (and free) real estate portals in the nation or one from a firm that excludes those sites?

Ironically, if Edina’s plan works, they could get paid about twice as much while hiding their listings from potentially millions of potential site visitors per month. If buyers find Edina Realty listings on Edina’s website they will be directed to an Edina agent. If they use that agent to buy an Edina home, Edina will pocket a whopping double commission and expose both clients to dual agency. Dual agency is the worst conflict of interest an agent can impose upon their clients. It means that both the buyer and seller would forfeit their right to an advocate and representation, at the exact time when they need them most – when they are ready to negotiate. When the buyer selects an Edina agent, he does not just forfeit his right to representation, he neutralizes and forfeits the seller’s as well. Dual agents are prohibited from negotiating price or terms (negotiating advice is one of the top reasons consumers hire Realtors). That means less work for the firm and a lot more money. It also means less service from Edina’s agents; and potentially less PROFIT for sellers and less potential SAVINGS for home buyers.

By forgoing potentially millions of eyeballs on two leading real estate portals, one could argue that Edina is betting the “double dip” they will get from dual agency transactions will more than make up for the loss in visibility — a loss that could increase market time of listings and loss of clients who DO want wider distribution of their home. Still, if they play their cards right, consumers will never notice the change and Edina will see a lot more hoggers. Even worse is if the speculation pans out that HomeServices of America, Inc. (Edina’s parent company) is using Minnesota as a testing ground for the rest of the country. If other brokers see that Edina is profiting from double dipping, their conflict of interest (and self-dealing?) could spread across America as other brokers follow suit.

www.Trulia.com, www.Zillow.com, and www.Realtor.com do not just provide great market exposure for sellers, their business models help reduce the risks of encountering dual agency (zero representation). Through links, banner ads, and agent directories including buyer agents, consumers using Trulia, Zillow and even Realtor.com are given a choice of agents to work with, rather than simply being directed to the listing agent. The result, hopefully, is that fewer buyers are trapped in a dual agency situation without their consent or knowledge.

BOTTOM LINE: Home buyers should ALWAYS select an agent from a brokerage firm unrelated to the listing so their advocate can negotiate tangible financial benefits. That is possible when buyers use real estate portals which allow them to choose a real buyer agent without a conflict of interest. By pulling their listings from Realtor.com and Trulia.com, and funneling them through their own website, that is not an option with Edina.

Edina Realty should be concentrating on giving sellers the best possible representation, rather than how to reduce their seller’s properties’ market visibility. In this day of monumental real estate mistakes, do we really want to have consumers unrepresented? And then charge them twice as much to do it? Does Edina really think buyers and sellers will miss the obvious conflict of interest in the cartoon above?

Home buyers and sellers, if you are confused by broker babble and fine print about dual agency, designated agency, and other forms of counterfeit buyer agency, ask your buyer agent to sign this Pledge of Allegiance to reveal if he is really on your side!

Note: If you have a home listed with Edina Realty and are not pleased with this situation, you may want to have your listing agreement reviewed by an attorney.

CAARE says:  Sellers should ALWAYS review marketing plans of prospective listing agents and make sure that plan includes listing their property in all the free websites that buyers frequent (www.Trulia.com, www.Zillow.com, www.Yahoo.com, www.Realtor.com etc…).  In addition, review CAARE’s consumer-friendly LISTING CONTRACT for ideas in terms to include in your contract.  Buyers should avoid websites that are affiliated with brokerage firms and choose independent websites so that they are not automatically directed to an agent that will cause them to forfeit their right to representation.  Finally, if you are an Edina Realty agent, please address this matter with management.

This story was submitted to CAARE by Bill Wendel.   Bill is an exclusive buyer agent (EBA) from Boston.  In order to avoid conflicts of interest that come with dual agency, his firm only represents buyers and will not accept listings.Bill also is a strong advocate for the negotiation of buyer brokerage fees and is included in our LIST of brokers who discount.

His website: www.realestatecafe.com and can be reached at RealEstateCafe@gmail.com

Invitation to the Real Estate Industry to Change RESPA

This is an invitation to the real estate industry to strengthen the Real Estate Settlement and Procedures Act (RESPA).   We challenge anyone to defend the current one year statute of limitations of RESPA as being reasonable.  We believe that a one year statute of limitations encourages dishonest industry participants to engage in illegal conduct with little prospect of being caught in time to be prosecuted.  A one year statute of limitations provides zero deterrent to dishonest industry participants.  We are appealing to industry participants to support change that will make the business of doing real estate better for both consumers and business.

It is time for everyone connected to the real estate industry to take a stand and stop the illegal kickbacks and other illegal activity defined in RESPA.  RESPA is a worthless statute without a meaningful statute of limitations.   

We will post the names of the trade associations that support this change on our website.  We hope to send out invitations directly to these trade associations the week of March 5th, 2012.   Some organizations are already indicating their support before the invitations have even been sent out (see below).

Trade associations that wish to announce their support of this change only need to send an e-mail to ChangeRESPA@caare.org.  The e-mail needs to come from an authorized representative of their trade association and state that they wish to see the RESPA statute of limitations increased to six years.  They may alter the term if they like.   However, the only issue we are addressing is the statute of limitations. 

We also encourage them to send e-mails to their membership encouraging them to sign the petition which can be found here: SIGN PETITION (CLICK HERE)    

The Following Trade Associations Support This Change 

The National Association of Independent Land Title Agents ()

The National Association of Independent Housing Professionals (NAIHP)