Whether you’re a buyer, seller, or agent, it’s important to educate yourself about illegal real estate practices. As a buyer or seller, you can’t protect yourself from unethical behavior that could jeopardize your transaction unless you’re familiar with real estate laws. Agents also need to keep rules and regulations at the top of their minds to avoid making mistakes that could open themselves up to lawsuits.
No matter which side of the real estate transaction you’re on, here are some illegal real estate practices to watch out for.
What Are illegal in real estate practices?
Practicing Real Estate Without a Valid License
Everyone knows that it’s illegal to practice real estate without proper certification. But how many people ask an agent to see their license before they agree to work with them? The Realtor code of ethics should prevent this.
Whether you’re a buyer or seller, it’s a good idea to get your real estate agent’s license number and look it up to make sure it’s active. Every state has a website where you can verify that an agent is licensed and see any disciplinary actions taken against them. In California, you can use the Department of Real Estate’s database to get some background on an agent, which can help you decide if you want to hire them.
Giving Legal Advice
During a real estate transaction, buyers and sellers often have questions about contracts and taxes. As an agent, you want to be helpful and give your clients the benefit of your many years of experience. But it’s important to avoid crossing the line into providing legal or tax advice, because it could open you up to lawsuits and violate the Realtor code of ethics.
Don’t interpret contracts or discuss their potential implications with your clients. You shouldn’t draft real estate contracts either, even if you’re very familiar with them. Agents are only allowed to fill in the blanks of pre-written contracts that have been approved by an attorney.
It’s important for real estate agents to avoid doing anything that could be construed as discriminatory. Although it seems harmless to say a house is perfect for growing families in a listing, mentioning marital status actually violates fair housing laws.
The Federal Fair Housing Act protects buyers from discrimination on the basis of race, sex, religion, national origin, color, familial status, and disability. Realtors can’t refuse to work with someone just because they belong to a certain racial group or religious organization.
It’s also illegal for real estate agents to answer questions about the racial composition of a neighborhood. Realtors can’t accommodate a buyer’s request to live in an area with a specific ethnic makeup either.
Agents also have to be careful about the way they word their listings. Saying that a property would make a great bachelor pad for example could get you in trouble. It may also limit the buyer pool by making people outside that group think the house isn’t right for them.
Misrepresentation is one of the most common illegal real estate practices. It accounts for over half of all lawsuits brought against real estate agents.
Misrepresentation occurs when an agent misstates important information about a home like property boundaries or structural features. Most of the time these errors are accidental, but some agents may intentionally misrepresent facts about the property to push the sale forward. Either way, buyers who feel misled may pursue legal action, especially if they think that knowing the truth would’ve caused them to walk away from the home.
Practicing Dual Agency in States Where It’s Illegal
Dual agency occurs when an agent represents both the buyer and seller during a real estate transaction. In many states, dual agency is legal as long as everyone is aware of the arrangement and consents to it. But the following states have made the practice illegal because of the inherent conflict of interest it involves.
Realtors have a fiduciary duty to act in the best interest of their clients, but that can be difficult when they’re representing both parties. That’s why some states have outlawed dual agency and the rest have strict ethical guidelines agents must adhere to.
Realtors aren’t supposed to provide advice to either side about offers, counteroffers, or repairs after the inspection. If your agent doesn’t follow the rules, it may negatively affect the outcome of your transaction.
When dual agency is done properly, it leaves both buyers and sellers mostly on their own during the negotiation process, which is less than ideal. You may get discounted commissions or a buyer rebate for agreeing to a dual agency, so the arrangement can seem attractive on the surface.
But the discounts usually aren’t worth it unless you feel totally confident in your ability to handle the transaction by yourself. After all, you’ll probably save more money by having a qualified agent in your corner who can help you negotiate the best deal possible.
What to Do If Your Agent Does Something Unethical
What should you do as a buyer or seller if you’re unsatisfied with your agent or think they’re doing something unethical? Here’s a list of steps you can take to address the issue.
Talk to Your Agent and Their Broker
First, it may help to discuss the issue with your agent. It’s possible that hearing their perspective may change your mind about the situation.
If you’re not satisfied with their explanation, you can speak to their broker to let them know about your concerns. They may be able to resolve the conflict by assigning you to a different agent or allowing you to terminate the listing agreement early without incurring any fees.
Contact the Local Board of Realtors and State Licensing Agency
If you still feel like your grievances haven’t been addressed, you can contact the local Board of Realtors. They have mediators who may be able to help resolve the issue and a formal hearing process to deal with ethics violations.
However, keep in mind that they don’t have the ability to revoke licenses. So if you believe your agent has done something illegal, you may also want to file a complaint with the real estate licensing agency in your state. They’ll investigate the issue and determine whether or not your agent has acted unethically. If they’re guilty of misconduct, they may be penalized, suspended, or stripped of their license.
If Necessary, Contact Law Enforcement and Get a Lawyer
If you believe that your agent’s actions rise to the level of a crime, you can report them to local law enforcement. You may also consider consulting a lawyer if you lost money during the real estate transaction. You might be able to sue your real estate agent for damages to recover your financial losses.
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