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Fraud or Human Nature? They Look Awfully Similar

FEB 8, 2012 4:30pm ET
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Here’s a current-day dilemma to ponder: a listing agent lands a new bank-owned listing. Before marketing, the property needs an occupancy check, a clean-out, some minor repairs, and a few other maintenance items. Agent hurries to get the sign in the yard. A week or two passes before the bank approves expenses and determines list price based on BPO and appraisal.  

Meanwhile, people are calling. They want this house. They want to know when they can see it.

The agent keeps them at arm’s length, waiting.

Then he dangles a carrot: you can look at the property before it’s listed…if you agree to purchase via me.

When the property finally shows up in the MLS, it’s too late. The listing agent is double-dipping and no one has a chance.

Frustration hits the fan. Other agents eagerly submit offers and place calls, but the listing agent says, sorry, already found a buyer.

And it doesn’t matter that several of the interested parties are willing to pay more than list price. Significantly more. It doesn’t matter because in these lean times, some agents would rather claim both commissions than be fair about selling a property.

There’s storytelling going on here. The agent tells himself a story that it’s ok to do this because the bank has determined the price, and the purchaser is paying it. The house sold. The property is off the books.

Rationalizations, these stories, but they sound good and keep him from feeling bad about not showing the bank all the information. A lie by omission? The bank’s too busy and too big to know the difference.

Everyone involved knows that this happens daily. But who is going to do anything after the ink dries?

Real estate laws in each state require listing brokers to deliver all offers to the seller. Article 1 of the Realtor Code of Ethics states, as a primary duty to clients and customers: “Realtors protect and promote their clients’ interests while treating all parties honestly.”

The agent's fiduciary duty is to the bank when selling a foreclosure. Agents helping homeowners get through short sales have an obligation to not only treat the bank honestly but to minimize any possible deficiency balance that may be left when the sale is completed.

What if the seller weren’t a big bad bank? What if it were you or me?

Unfortunately, human nature, a.k.a. survival of the fittest, can make it really hard to follow any moral codes.
But that doesn’t make it right or even justifiable.

The only solution is to ensure that every seller (read: bank) gets every offer. It takes technology to make that happen, and every bank or servicer should install software that diminishes fraud and increases transparency.

There is a housing recovery waiting to happen...but until the market closes the gaps that allow scammers and fraudsters to purposely depress values for personal gain, it won't come soon enough.

Comments (7)
TEST
Posted by Emily L | Thursday, February 09 2012 at 4:19PM ET
Is it ever ok to lie? What about if no one will ever find out? I've always been taught to never tell a lie, because things done in the dark will always come to light. In this article, the Realtor was not being ethical! The Realtor committed fraud! And, unfortunately, this happens a lot. My mother is a Realtor in the Midwest and I shared your post with her. She frowned upon the Realtor in the post stating, "That happens all the time, however we have a close net of Realtors especially at (name of Real Estate agency where she works) who keeps us honest."
Posted by Emily L | Thursday, February 09 2012 at 4:22PM ET
(part two) In your post, the agent tells himself a story that it's ok to do this because the bank has determined the price and the purchaser is paying it. The house sold. The property is off the books. This reminds me of J. Barton Bowyer's rationalizations for cheating and/or excuse lying. These rationalizations include (1) I need it; (2) they deserve it; (3) it won't matter anyway; and (4) no one will know anyhow. You later posted, rationalizations, these stories, but they sound good and keep him from feeling bad about not showing the bank all the information. A lie by omission? Absolutely NOT! He knew very well what he was intending in my opinion. It's a dirty way of selling. As you said, "Unfortunately, human nature, a.k.a. survival of the fittest, can make it really hard to follow any moral codes. But that doesn't make it right or even justifiable."
Posted by Emily L | Thursday, February 09 2012 at 4:22PM ET
(part three) In chapter 7 of Ethics in Human Communication the authors write about The Ethics of Lying. Contemporary philosopher Charles Fried contends that lying (asserting as true what we believe to be false) always is wrong because it demonstrates disrespect for persons as beings capable of rational judgments and of free and intentional choice. At the same time, Fried believes that withholding a truth which another needs may be perfectly permissible because withholding truth is not defined as lying. (Ethics in Human Communication; Johannessen, Valde
Posted by Emily L | Thursday, February 09 2012 at 4:23PM ET
(part four) In Lying: Moral Choice in Public and Private Life, Sissela Bok distinguishes between intentional deception and intentional lying. She says that deception is the larger, more encompassing category of which lying is a subcategory. When we "communication messages meant to mislead" others, to "make them believe what we ourselves do not believe," then we are engaged in intentional deception. (Ethics in Human Communication; Johannessen, Valde
Posted by Emily L | Thursday, February 09 2012 at 4:24PM ET
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