Real estate agents are often accused of telling lies to seal the deal. Here are some of the most common mistruths in the real estate industry — and the disruptive effects they wreak on all involved.
Lies abundant and nebulous
Real estate agents are inherently liars. Whether they are deliberately omitting critical information or misrepresenting the facts, agents are fluent in the language of falsehood.
At least, that’s what many homebuyers and sellers think. However, these opinions are tainted by the actions of an unethical few — actions which unjustly reflect on the numerous, ethical agents who deal honestly and are straightforward with clients.
Although most agents don’t outright lie to their clients, agents on the whole haven’t necessarily proven this assumption wrong. After all, it is a natural human tendency to tell little white lies; a startling 60% of people tell at least one lie every ten minutes. Some of these minor fibs may even come from altruistic intentions.
A study conducted by researchers at Baylor University indicates real estate agents are highly likely to use neutralizations to justify their lies. Neutralizations are excuses which make a fib seem like a viable business practice since the lie is told to benefit someone or something else, like the agent’s family. For example, a buyer’s agent whose client is wavering may misrepresent a home as faultless in order to secure their fee, which helps the agent provide for their kids.
Still more alarming is that people are more likely to lie through digital modes of communication, established in yet another study from the University of Massachusetts Amherst. As the real estate industry continues its segue into the digital world with online home search tools and digitized transactions rather than handling paper in face-to-face discussions, this tendency is cause for serious concern.
Common lies among real estate agents
Two types of lies are most common in the real estate industry: misrepresentations and omissions.
Misrepresentations are frequently made regarding the sales agent themselves. For example, agents may:
- advertise as an undefined “neighborhood specialist”;
- pad their production numbers to look better to clients;
- stretch the truth about their past experience in particular transactions;
- inflate their base of buyers when seeking a property listing; and
- take credit for transactions completed by their brokerage, but not by them.
For example, a buyer seeks an agent who specializes in condominiums. A local agent offers their services, claiming they have experience in several condominium purchases. Unknown to the buyer, the agent hasn’t worked with a condominium buyer before — but another agent in their brokerage has. The agent figures they can fake expertise using what they know about their colleague’s transactions.
Although this misrepresentation may not seem like a big deal, an agent who claims a false specialization exposes themselves to liability when they lack the knowledge represented. If an agent fakes knowledge about a particular specialization, they likely are not aware of fine details peculiar to that specialty that only a person with experience can recognize. Not only is the agent potentially harming the buyer by failing to deliver the insight they promise, they are exposing themselves to potential liability to their client and disciplinary action by the California Bureau of Real Estate (CalBRE).
Omission of the facts
Lies by omission, on the other hand, tend to be made about the properties with which agents deal. These omissions include:
- disclosures of material facts or property conditions adverse to value or use;
- potentially negative neighborhood or area conditions;
- appropriate demographic information, such as the presence of senior communities; and
- conflicts of interest.
For example, some agents fail to disclose underlying damage on a property, such as water damage they’re aware of which is hidden from the buyer’s sight. Other disclosures are avoided under the principle of “don’t ask, don’t tell,” or more commonly, “as is.” Agents often apply this rationale to criminal activity or noisiness in the area, or demographics which may not appeal to the buyer. For example, a buyer seeking to downsize to a quiet home may not want to live in a rambunctious neighborhood near a high school.
Additionally, agents sometimes omit information about conflicts of interest that arise when working with a client.
Consider a buyer’s agent who enters into an employment agreement with a buyer who is interested in a particular commercial property. The agent knows one of their colleagues has a partial ownership interest in the property, which is owned by a limited liability company (LLC). However, the agent doesn’t mention this conflict to the buyer — a lie by omission. [See RPI Form 527]
Consider also a broker working as a dual agent for the seller of a property and a buyer. The broker discloses their dual agency, but omits their knowledge of the buyer’s intent to flip the property — and list it with the broker, who will receive a fee for the second transaction. The seller in turn loses the opportunity to negotiate for a higher sale price with the knowledge that the buyer intends to sell for a higher price than they offer the seller. Thus, the broker is liable for failure to disclose pertinent information which causes the seller to lose money. [Jorgensen v. Beach ‘N’ Bay Realty, Inc. (1981) 125 CA3d 155]
Omissions and other lies about property conditions, or failure to deliver an accurate Transfer Disclosure Statement, subject the lying agent to liability for the amount of actual money losses suffered by the injured participant in the transaction: the buyer or seller. [Calif. Civil Code §1102.13; see RPI Form 304]
The injured buyer has up to two years after the transaction closes to pursue the agent for money losses caused by the agent’s negligence or nondisclosure. [CC §2079.4]
Despite the consequences, many agents still try to omit critical information to avoid killing a deal. These agents may figure if the client doesn’t ask the question, they don’t have to answer it — a dangerous gamble against the agent’s duty to disclose known adverse facts. All too frequently, as a matter of improper custom in the industry, agents deliberately wait until after a seller accepts a buyer’s offer before disclosing material facts to the buyer.
The belief seems to be that as long as the disclosures are made before the buyer takes title it doesn’t matter when they are disclosed. However, agents are required to disclose any condition within their knowledge which might negatively affect the property’s value for a client — before the seller accepts the buyer’s offer. [Holmes v. Summer (2010) 188 CA4th 1510; CC §1102.4(a)]
Still, agents will make omissions and, when called out, claim to be unaware of the adverse property conditions. Such backpedaling also occurs when agents who misrepresent themselves or their experience are caught: “Well, I didn’t personally negotiate the transaction, but my company did…”
Why do agents continue to lie?
As previously mentioned, many agents lie — ahem, misrepresent or omit — to close a deal without a hassle. They fail to consider how their conduct affects anyone but themselves.
Clients who trust a dishonest agent are basing their most significant lifetime investment decision on the agent’s false claims or failure to correct or provide missing information. Essentially, the agent leads their client into a trap, representing a property as better than it actually is and letting the client suffer for their silence.
If the unethical conduct isn’t enough to deter lying agents, their financial liability to the client might. Clients who completed a purchase transaction based on fraudulent misrepresentations or omissions made by the seller’s agent may cancel their purchase agreement and collect the purchase price and money losses, a process called rescission. [Wong v. Stoler (2015) 237 C4th 1375; CC §§1689, 1692]
Wronged clients and ethical agents may choose to file a complaint against the agent with the CalBRE, which might result in the agent’s license being:
- suspended; or
Thus, the consequences of a lie vastly overshadow any benefit the agent may hope to gain. Agents who lie in transactions continually work against themselves and against the reliable environment built by ethical agents. They contribute instead to the public perception of agents as swindlers and tricksters. This perception only serves to make clients warier of using the services of real estate professionals. Such public distrust makes other agents’ job more difficult, reduces the volume of sales transactions and induces dishonest agents to lie again to seal the deal.
When in doubt — disclose. A savvy agent works with their clients to address and resolve adverse property conditions, rather than hiding issues and exposing themselves to financial liability and disciplinary action. Although little can be done to stop agents who compulsively lie, ethical agents reap their reward through appreciative clients – after the deal is done.