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Ethics in Commercial Real Estate, Research Paper Example

Pages: 6

Words: 1700

Research Paper

Dear Potential Employer and Chief Ethics Officer,

In today’s society there is a growing concern with ethical behavior of employees in every business.  This is true in the Real Estate profession as well.  In light of the recent events such as predatory lending, White Water, and other scandals that have surfaced directly associated with Real Estate, it is becoming increasingly important to understand and operate in an ethical manner.  As an agent, there is a personal choice to educate oneself in a manner that will prevent any participation in unethical behavior.  Knowing many of the common practices and “grey areas” is the first step in avoiding participation.  This letter will lay out the common ways that home buyers and home owners are cheated out of thousands of dollars and conclude with personal expectations set as an agent.   Personal and professional ethics will differentiate this Real Estate agent from all others.

There are many reasons why unethical behavior can occur in Real Estate.  First and foremost, it is a big money business.  The more money you sell a house for, the more personal profit can be made by the agent and the company that the agent works for.Being that the Real Estate market is essentially controlled by agents, it makes it easy to mislead consumers out of excessive amounts of money.  The government inquired about the Real Estate market in order to help establish controls, but the majority of the input was received from agents.  This allowed the input to be tainted in the market’s favor, preventing the government from having control.  Without the government being able to actively regulate it takes away the best interest of the consumers and makes the housing market vulnerable to money hungry agents.

Lastly, there is a lack of knowledge from the consumer stands point.  Customers do not educate themselves in a manner that allows them to know if they are being offered too much or too little, essentially opening themselves up to be exploited.  They rely heavily on the agent for guidance, and if that agent operates in an unethical manner, they are easily able to mislead and cheat their customers.“Ethical standards are living values.  They represent a vital and critical guiding force in the functionality of our society.” (McNicols & Zimmerer, 1985)  This standard is not well known within the housing market.  There is no set governing entity in the Real Estate market that directly benefits the functionality of it. Therefore agents can operate with as little or as much integrity as they choose to.

As an agent, there are many ethical issues that need to be acknowledged. It is important to studies such practices that can be considered questionable or down-right unethical in the Real Estate business.

It is important to understand whatones personal responsibility is,and to operate with the utmost honesty and ethical practices. According to the Jenman website the following nine areas of misrepresentation for home sellers:

⋅ Up-front expenses: this is the practice where home owners are convinced to pay the                                  agent prior to the sale of the home.  This allows an agent to take more time to sell the house                         because they have already received prepayments.

⋅ Advertising: keep the focus on selling the house not promoting oneself as an agent.  Some                        agents have taken more concern in getting their personal name out there instead of promoting the house they are representing.

⋅Kickbacks: when money is used with one intention, and the agent profits from it,                                        instead of the homeowner.  An agent collects fees for marketing, and the paper gives them an                      incentive for using their services, giving that agent an additional bonus.

⋅Auctions: this can cause substantial financial loss with the hope of the sales price                         increasing. The agent starts the bidding low to “bait” consumers to the auction, however there is no guarantee that the house will sell for more than the starting price. The agent profits from the                    quick sale.

⋅ Conditioning: this is when the agent talks the homeowner down on the sales price, knowing that                the longer the house is listed, the greater chance they have of getting their asking price.

⋅ False or Misleading offers: when the buyer’s offers are lowered and the home owner counter                    offers a lower amount than they had asked for.  The agent then presents the real offer in hopes                   that the home owner will take the lesser amount.

⋅ Bait Price: this is used to get offers on the home, and the seller is left with low-ball                                     offer not nearly reaching their expectations.

⋅Open Inspections: this is done with the intentions of lowering the price of the house.

⋅ Betrayal of Confidence: this is using personal ailments against the seller in order to                                    make a quick sale by exploiting personal trauma.

It is not only the home sellers that are exploited and misled in the housing industry.  The buyers are also subject to being cheated out of their intended investment.  They have a lot of money tied up in this market as well.  This is another area where an agents ethical practices can come into question.  According to Jenman website, there are ethical issues that agents need to address with the home buyers as well.  These include the following:

⋅Untruths: baiting the potential buyer to a house under the pretense that they can afford it                            knowing that once their heart is set they will most likely buy above their means.

⋅ Apathy: the lack of interest and concerns given by the agent in their personal needs and                            wants.

⋅Needless Expense: when they are misled to believe they can afford a house, they pay                                 for unnecessary expenses in inspections and legal services.

⋅ Auctions: lured to the auction with the low starting price with the intentions of it rising higher than the buyer can afford.

⋅ Dummy Bidding: this is initiated by the agent with the intentions of raising the price                                   of the house.

⋅ Gazumping: this is when the buyers are told they bought a home, later to find out it                                    was sold to a higher bidder.

⋅ Investment Advice: agents intentionally mislead buyers into an investment that is not                                 worth the money.

⋅Negative Gearing: this is when agents intentionally mislead buyers to invest in property                               with the hopes of having huge returns on their investments.

⋅ Over Borrowing: agents encourage buyers to pay more than they can afford to buy a                                 property for. (Ethical Concerns in the Real Estate Industry, 2011)

As an agent it is important to understand why there is a growing concern with the lack of ethics in Real Estate.  When it comes to the almighty green, all knowledge or right and wrong usually goes by the wayside.  Agents are trained and encouraged to act with the intent to deceive, for the well-being of the company and personal profit.  An even bigger factor is that the consumer protection agencies have never thoroughly investigated the Real Estate market.  This provides too much lead way for consumers to be intentionally misled, costing them thousands of dollars.  The false information presented to consumers is also presented to the government.  This eliminates all abilities to monitor the true actions of agents.  There is no real accountability outside of the money that they make themselves and their company.

This is where personal ethics can distinguish an agent, setting them apart from the others.  Knowing what is right in wrong is not always an easy task, especially when an employer is providing different directives.  According to Stace, “any ethical position which is equally applicable to all men at all times may fairly be called a species of ethical relativity.”  (Stace, 1979)  This is an old but very relevant consideration in regards to ethical behavior.  Agents need to consider what is fair when presenting offers, options, and alternatives.  Just because there is away to mislead either the buyer or seller, is not equal or fair to both parties and should not be practiced.  In 1979, Stace had a much better idea on what ethics really meant, more so than what is understood in today’s society.

Knowing what is black, white, and even grey in this type of market can be quite difficult.  When in doubt, there are some considerations that can be used as a guide in making the best decisions.  An agent in a very imperfect work, many situations do not always have clear solutions.  Analyzing all potential information and alternatives can aid agents in ethical practices.  The benefits, likelihood of success, and potential risks are just a few considerations.  This is a great tool to use with decision making. In Management and Organizational Behavior, they created a chart to use as an ethical guide in business decision.

Personal and professional ethics will differentiate this Real Estate agent from all others. It is important to know all the areas that are typically encouraged to mislead and defraud consumers.  Many practices encouraged by Real Estate companies are not created to protect the best interest of the consumers.

When an employer trains and encourages their employee to mislead and misrepresent that is when it is important to review personal ethics as an agent. Operating in the best interest of the home buyers and sellers will make a name as an agent.  This is not an easy task in such a cut-throat demanding market.  However, being taught ethics in classroom settings and personal standards will provide the tools to know how to handle difficult situations when they arise.  When approaching potential customers and sales, it will be done with the mentality of treating them with the respect that they deserve.  Entering the market as an ethical agent is important, and by choosing not to participate in the typical market practices will aid in the overall personal success.

References

McNicols, Charles, W. & Thomas W. Zimmerer. (1985) Situational Ethics: An Empirical Study of Differentiators of Student Attitudes.  Journal of Business Ethics, Volume 4 (3) 175-180.

Stace, Walter T. (1979) Ethical Relativity and Ethical Absolution in Ethical Issues and Ethical Issues in Business. Prentice Hall Inc.  (82)

Ethical Concerns in the Real Estate Industry. (2011) Retrieved from             http://www.jenman.com.au/Ethics_Concerns.php

Bloisi, Wendy, Curtis W. Cook, & Phillip L. Hunsaker. (2006) Management and Organizational Behavior.  McGraw-Hill Education.

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