Wednesday, September 30, 2009

Real Ethics in Real Estate Transactions

Recently someone said I should write an article on the need for increased real estate ethics. I told them, “There’s no such thing as real estate ethics”. After a moment to let that sink in, I finished my comment. “There is only ethics.” We become our own worst enemy when we live under the assumption that every situation allows for its own code of behavior. For many, our ethics become malleable to a situation instead of our response to the situation becoming malleable to our established ethics.

Every real estate transaction potentially involves at least a dozen different parties. Two realtors and their brokers, the appraiser, the home inspector, the pest inspector, the mortgage provider and the national lender, the title company, a survey company, a well and septic inspection and a contractor to affect any necessary repairs. We all have heard of or experienced horror stories involving straw buyers, forged income documents, shoddy repairs, and grossly inaccurate home disclosure documents. Is it any wonder that buyers and sellers express an anxiety level that is off the charts?

Every participant in a real estate transaction has undergone some level of training, whether formal or informal, and each of these professions has at a minimum, annual “continuing education” programs that in most cases is required. Most of these remedial courses contain a small section on ethics for their particular business. The trouble is most people settle for a level of ethics that simply “keeps them legal”. This then becomes the standard of measure which everything they do in their business must pass.

But is this standard too low? Is it enough to do our jobs with the aim of performing only what is legally required, or do we need to raise our sights to some higher ground?

Think with me for a moment the difference that would be made if everyone in your next real estate transaction operated under one simple rule. “I will treat you in the same way I would want to be treated; and I will handle your business the way I would want someone to handle mine.” That’s it. The Golden Rule applied to real estate transactions. What would such a transaction look like?

Appraisals would portray accurate home values. In recent years one of the primary reasons home values shot up was because of inflated appraisal reports. As a result the entire appraisal industry is currently under close scrutiny and the natural response is paranoia. Many appraisals report an artificially low home value. This is because appraisers don’t want to risk losing their license. But left unchecked, this practice could prove just as potentially damaging to the real estate industry as was the practice of inflating home values.

Home inspections are a critical part of any real estate transaction with both buyers and sellers anxiously awaiting the inspector’s report, but for very different reasons. If the report reveals repairs, the sellers will have to pay and the buyers will demand that the repairs be made correctly and be performed by a licensed contractor. I have personally experienced customers who have closed on a home only to find out that the heating and air system that passed inspection only a few months prior now needs replacing.

Mortgages are a necessity for most home buyers. Investigations have shown that in many cases uneducated home buyers were steered into risky adjustable rate loans that now place them in jeopardy of losing their houses. The industry is filled with stories of surprises at closing that involve much higher interest rates and inflated closing costs. The buyers have already removed everything out of their old home while the workers wait for closing to move their belongings into their new home. They have few options but to sign the papers at the higher interest rate.

It’s a nice thought that everyone would conduct their business and personal lives under the same code of ethics. But how can this be accomplished? How is possible for the Golden Rule to become the standard of ethics? How can this be made the bar under which everything must pass? Let me suggest that when the cost of doing what is right exceeds the price we are willing to pay that we make the difficult choice to pay the price and treat others better than we would want to be treated. This is a great concept that almost everyone believes is true, all that is lacking is the will to implement its practice into our lives. Will you be the first to commit to living by this one simple rule?