What is Considered Illegal and Unethical Realtor Behavior

Being a real estate agent doesn’t just mean that you are just a member of a profession. When a real estate agent passes their exam and becomes licensed, they are bound by specifically outlined rules and regulations for ethical behavior. They needed to be educated on the realtor code and illegal real estate practices to get their license.

While each state and licensing body will have its rules, the National Association of Realtors also has a Code of Ethics and Standards that members must abide by.

If you’re working with a real estate agent, it can be helpful to understand what is ethical and unethical behavior. While a governing body can step in if ethics are violated, it’s up to the client to protect themselves and understand what their agent is and is not allowed to do as part of their services.

To protect yourself and ensure you’re working with an above-board agent, educate yourself on ethical behavior, including the Fair Housing Act and your agent’s fiduciary duty. It’s important to know what to watch out for with real estate agents to know when it’s time to find a new professional or take legal action.

Unethical Real Estate Agency Behaviors

Unethical actions from a real estate agent can be personally and professionally harmful to clients and the entire industry. When working in the real estate industry, agents are responsible for what’s often their client’s most significant life purchase.

Several codes of conduct and ethics have been established to protect their investment and serve customers fairly. Here are some of the most common unethical real estate agent behaviors you should be aware of:

1. Dual Agency Without Disclosure

Dual agency is a term applied to a transaction where the same agent represents both the buyer and the seller. While a dual agency is not entirely unethical, many realtors will not put themselves in a situation where they will be a dual agent because it leaves them open to liability.

In real estate transactions, an agent has a fiduciary duty, meaning that they must act in their client’s best interest. If the agent has to work on behalf of both clients, they have to navigate a conflict of interest.

Working as a dual agent can bring up several ethical concerns, such as:

• A conflict of interest. The inherent challenge with a dual agency is the potential for a conflict of interest. How can one agent genuinely represent the best interests of both the buyer and seller, especially when those interests are often at odds? For instance, a seller typically wants the highest price possible, while the buyer wants the lowest.
• Confidentiality. A real estate agent must keep information about their client confidential. Their confidentiality requirements extend to finances, a willingness to negotiate, or other factors that could impact the deal. When a dual agent possesses information about a seller that might benefit the buyer, it puts the agent in a challenging situation.
• Reduced advocacy. Buyers and sellers rely on their real estate agents to be their advocates. However, if the agent works for all transacting parties, they no longer have an exclusive right to their advocacy.

Often, an agent represents both the buyer and seller when the transacting parties are already in (or almost at) agreement. For example, a real estate professional may be comfortable working as a dual agent if his clients are parents selling their home to a child.

While dual agency is not expressly forbidden in most states, it is illegal for an agent to be a dual agent without disclosing. A dual agency without disclosure means that the agent represents both buyer and seller but hasn’t disclosed that or has it approved by the parties they represent.

In these situations, the agent cannot provide the advocacy, confidentiality, and trust expected in an agency relationship. Furthermore, the parties they represent don’t have the information to choose not to enter a dual agency transaction but instead seek independant advocacy. 

In many jurisdictions, dual agency without disclosure is not just unethical but also illegal. Agents have a responsibility to adhere to industry regulations and laws.

2. Misrepresentation or Concealment of Property Flaws

Misrepresentation or concealment of property flaws involves a real estate agent deliberately hiding, downplaying, or providing false information about defects or issues related to a property. This could be a selling agent hiding property flaws or a buyer’s agent overlooking flaws to progress the real estate transaction.

This behavior is considered unethical because buyers rely on their real estate agent’s expertise when deciding whether to purchase a home. By concealing material facts, the agent breaches trust, which can lead to potential financial consequences for the buyer. Concealing certain defects, like structural issues or mold growth, can pose safety risks to the occupants of the property, which can take years to uncover independently.

An example of a seller’s agent not disclosing a known termite infestation. Termite infestations can cause significant “invisible” damage. If the seller and their agent knew about the infestation but didn’t put it in their property disclosures, they could both be held liable for damages.

An example of a buyer’s agent concealing property flaws would be if the agent has visibly seen a suspected crack in the brick foundation of a home. Still, when the buyer chose to forgo an inspection, the agent didn’t advise them of their suspicions. The agent’s motivation was not to hinder the deal while running with the logic that the buyer was choosing not to get a home inspection. However, this is not acting in their client’s best interest. While the agent is not a home inspector, it is their responsibility to voice both known and suspected property flaws.

In many jurisdictions, failure to disclose known defects is illegal and can lead to lawsuits, penalties, and even the revocation of a real estate agent’s license/

Most agents will actively be on the lookout for and will disclose property flaws. However, the most common property misrepresentations usually fall under the following categories:

• Structural issues.
• Water damage.
• Pest infestation.
• Electrical or plumbing issues.
• Land or soil issues.

While you should always be able to trust your agent, know that buyers can sue sellers, the sellers’ agents, or their own buyer’s agents if they discover undisclosed defects after purchase. Sellers or agents might be required to compensate the buyer for repairs or the property’s diminished value.

3. Manipulating Property Photos or Descriptions

If an agent manipulates property photos or descriptions, it can erroneously hide property defects or make a home appear better than it is in reality. This can be misleading to buyers and considered a breach of trust.

However, there is a fine line between ethical and unethical manipulation of property photos for marketing purposes. For example, it is common for real estate agents to have a photographer make the sky blue or make the grass appear more green in a property photo. The agent is not allowed to hide or cover up property flaws. For example, if a kitchen ceiling panel is damaged, the agent cannot have it digitally “repaired.”

While property descriptions should be written to present the property at its best, they cannot be decieving. That means it’s considered acceptable to call a small living room a “cozy living room.” However, it’s unethical to directly give the wrong measurements of a room, even if it’s only a slight discrepancy.

Photos and descriptions should reflect the property’s true condition. While it’s okay to present the property in its best light, it shouldn’t be at the expense of honesty. If certain enhancements are made to photos, such as digitally staging rooms, it is recommended that this should be disclosed.

Sellers should review the listing their agent puts together to make sure their property is represented honestly. On the other hand, home buyers must remember that photos and descriptions are meant to be preliminary and only meant to attract potential buyers. They cannot rely on photos or descriptions to provide a complete portrayal of a home.

4. High-Pressure Sales Tactics

High-pressure sales tactics refer to aggressive strategies real estate professionals use to persuade potential buyers or sellers to make decisions quickly. This often results in clients not being given ample time to consider options or without providing complete information.

A common high-pressure sales tactic is putting a time limit on a seller to make a decision. While a buyer can put an expiration on an offer, which the seller’s agent must communicate to their client, the seller’s agent cannot apply their time restriction.

Other high-pressure sales tactics that should be considered red flags include:

• Statements like, “This is a one-time offer,” or “This is the highest offer you will get.”
• Emotional manipulation, such as guilt-tripping or using personal stories to sway their decision.
• Refusing to take no for an answer. A buyer and seller always have the right to say no (unless locked into a contract). If, during the negotiation process, you feel like your agent is pushing you into a decision you’re uncomfortable with, they are partaking in unethical behavior.
• Bait-and-switch. While bait-and-switch tactics are not commonly seen on the resale market, they are more common on the rental and new home market. An unethical agent may choose to market their least expensive unit with specific features, then when customers show interest, they claim it is no longer available and point them toward a more expensive option.

While real estate agents are salespeople, they must prioritize ethics and the best interest of their clients over their own interests. Pushing for a quick sale or quick decision can result in contractual disputes or financial loss. An ethical agent will advise their client honestly and provide the necessary information they need to make an informed decision.

5. Failing to Present All Offers

An agent must present all written offers to a seller during a property sale. Failure to submit all offers is considered a reportable offense and may be cause for the Department of Real Estate to revoke a license.

If the offer is only verbal, then the agent doesn’t have to present it because a verbal offer or contract in real estate is not binding.

Why Would a Selling Agent Not Present an Offer?

A real estate agent may not withhold an offer out of malice. Part of an agent’s job is to manage their client’s expectations. A low offer can cause a seller to stress or become aggravated. If a real estate agent receives a lowball offer they know will be rejected, do they have to present it to the seller?

Yes.

While the agent may think the offer will only cause problems for the client relationship, it is still their ethical responsibility to present it to the seller. These situations are where agent training becomes paramount.

Another scenario in which an agent wouldn’t present an offer is if there is another offer on the table that they either perceive as better or that belongs to a client or a colleague. No matter the scenario, agents must present all written offers unless their client has expressly waived this right in writing.

Illegal Real Estate Practices

While the above scenarios are unethical, they aren’t necessarily illegal. The real estate industry is also bound by strict laws designed to protect buyers, sellers, tenants, agents, and the general public.

A real estate agent’s responsible for being aware of and up to date on any legal restrictions that impact their industry and work. Negligence is not considered an excuse for illegal real estate practices.

Fraudulent Misrepresentation

Fraudulent misrepresentation refers to the intentional deceit or provision of false information by agents to mislead clients, resulting in personal gain. Unethical agents will often use fraudulent misrepresentation to win a listing, sell a property faster, or push for a property to sell faster.

Such actions violate ethical standards and are illegal in many jurisdictions.

Examples of Fraudulent Misrepresentation

Examples of behaviors that can be considered fraudulent misrepresentation include:

• Marketing false property details. Agents cannot market a false property size, location, number of bedrooms, condition, etc.
• Concealing defects. Agents must communicate any known property defects in disclosure documents.
• Fake documentation. Forging documents in any scenario is always illegal but is particularly punishable in the real estate industry.
• Misrepresentation of market conditions. Agents cannot tell buyers that the property market is booming with the connotation that a property will appreciate in an effort to push a sale.
• False representation of qualification. Like any industry, it is illegal for a real estate agent to claim they have credentials they don’t have.
• Phantom listings. If an agent markets a home that either doesn’t exist or is unavailable for sale, this is called a phantom listing. It’s an illegal strategy used to attract buyers and potential clients.
• Inaccurate or misleading financial information. If selling an investment property, the agent must market and communicate financial information honestly and to the best of their ability. Buyers are required to complete their own due diligence. Still, if a real estate agent inaccurately communicated property financials that led to financial loss on behalf of the buyer, the agent could be held liable.

Discrimination in Property Transactions

The Fair Housing Act, established in 1968, protects parties in a real estate transaction from discrimination based on race, color, religion, sex, gender identity, sexual orientation, familial status, or disability.

Actions that could fall under discrimination include:

1. Denying housing sales or rentals.
2. Imposing unequal conditions for housing transactions.
3. Misrepresenting housing availability.
4. Advertising with biased preferences in housing.
5. Promoting panic sales based on incoming residents’ characteristics.

However, the list is much more extensive. If you feel like you are being discriminated against, start by reviewing the Fair Housing Act and your local jurisdiction’s code of ethics.

Examples of Listings that Violate Anti-Discrimination Laws

Discrimination in real estate isn’t always obvious. Here are two examples of listings that violate anti-discrimination laws.

Real estate agents must be well-versed in anti-discrimination laws to ensure their practices meet legal and ethical standards. Violating the Fair Housing Act can result in lawsuits, fines, and even the revocation of the agent’s license.

Example 1: Religious Discrimination

Listing: “Beautiful 3-bedroom apartment available in an exclusive, predominantly Christian community. Perfect for Christian families looking to maintain a consistent cultural atmosphere.”

Violation: This listing blatantly discriminates based on religion by suggesting that the property is intended for Christian families only. This is a direct violation of anti-discrimination laws, prohibiting any preference, limitation, or discrimination based on religion.

Example 1: Racial Discrimination

Listing: “Stunning one-bedroom condo in the heart of downtown. Strictly no children allowed. Ideal for singles or couples without kids.”

Violation: While certain properties might be more suited for adults due to their size or amenities, explicitly stating a policy against families with children violates the Fair Housing Act’s provision on familial status. This listing discriminates against families with children, which is prohibited.

Unauthorized Practice of Law

A real estate agent is not a reliable source for legal advice. While agents are required to have legal knowledge, they are expressly forbidden from providing legal or tax advice. A real estate broker can also be a licensed real estate attorney, but not all brokers are lawyers. Unless a broker is licensed to practice law, they cannot provide legal advice.

Providing legal advice requires specialized education and knowledge. If an agent were to provide legal advice, they could provide incorrect or misleading information that results in significant financial or legal consequences. Forbidding agents from practicing law protects both the agents and their clients.

An agent is not allowed to:

• Draft legal documents.
• Interpret legal documents.
• Discuss land use or zoning laws.

While an agent should be familiar with the legalities of the real estate industry, professional conduct requires them to advise their clients to obtain legal advice when needed.

What to Do When Faced with Unethical or Illegal Agent Behavior

If you suspect you are facing unethical or illegal behavior from a real estate agent, then it’s important to know how to take action. The simplest option is to fire your agent and find another trustworthy realtor to work with. However, firing your agent isn’t always possible, especially if you are locked into a listing agreement or the transaction has already closed.

Here are some actions to take if you think you have an unethical agent or if they are using illegal practices.

Document Everything

What you document can be used as evidence to support your complaint against the realtor. If you choose to pursue legal action, you must be prepared to supply all legal paperwork and copies of communication. Keep records of phone calls, texts, and emails.

It can also be helpful to take screenshots of websites. This is particularly crucial if you think a property has been fraudulently misrepresented or if there is discrimination in a listing. Web pages can easily be removed, and evidence of their existence is difficult to retrieve, so take a screenshot when it’s available.

Consult with a Real Estate Attorney

A real estate attorney is your best resource for information on real estate law, including real estate agent ethics and legal obligations. Before making any allegations, consult with an attorney who will help clarify if the agent’s behaviors are illegal or unethical. Next, they will advise you of your rights and potential courses of action.

Report to the Appropriate Licensing Board

If you suspect or have witnessed unethical or illegal behavior by a real estate agent, you need to take the matter seriously. Once you’ve compiled all your supporting documentation, report the matter to the appropriate licensing board or regulatory authority that oversees real estate professionals in your jurisdiction.

In the United States, each state has its own real estate commission or board that handles licensing and complaints. Most regulatory boards have standard complaint forms. Carefully fill out the form by providing as much detail as possible and attaching any supporting documentation. If you feel it’s necessary, you can engage a real estate attorney to help you complete your complaint.

Most complaint boards have the option to send complaints either electronically or by mail. Make sure you keep a copy of the complaint and any supporting documents for your records.

After you’ve submitted your complaint, the state licensing agency may contact you for additional information.

Contact the National Association of Realtors (NAR) if Relevant

The National Association of Realtors (NAR) is the largest trade organization within the US real estate industry. If the agent in question is a member of the NAR, they are bound by the association’s Code of Ethics. Not all real estate agents are Realtors®; only those who are members of the NAR carry that title.

If the agent is a member, you can contact and file a grievance with the NAR. Typically, this involves submitting a written complaint outlining the specifics of the alleged violation. Once a complaint is submitted, it may lead to an ethics hearing where you and the accused realtor can present your cases. The NAR may choose disciplinary actions such as fines or, in more severe cases, revoking membership.

Leave Honest Reviews

Reviews hold a lot of weight in the real estate industry. If you are convinced of unethical realtor behavior, one of the most impactful actions you can undertake is leaving an honest review describing the situation. Sharing your experience on a public platform like FastExpert will warn others of potentially unethical behavior. 

Most real estate agents are worried about their online reputation, and the threat of a negative review is enough to keep them following best real estate practices.

Consider Mediation or Arbitration

In more severe cases where financial damage has occurred, consider mediation or arbitration before pursuing a lawsuit.

Mediation involves a neutral third party (the mediator) facilitating communication between the disputing parties. The goal of mediation is to help both parties reach a voluntary agreement. Arbitration, on the other hand, is a process where a neutral third party (the arbitrator) makes a binding decision about the dispute after hearing arguments from both sides.

Legal action can be extraordinarily expensive, and mediation or arbitration are often more cost-effective and efficient ways to settle a legal matter with an agent.

Know When to Walk Away

If no severe damage has been done and you suspect unethical or illegal real estate practices, your best course of action may be simply walking away. If you voice your concerns, most real estate agents will terminate any agreement or active listing contract with you to avoid further consequences.

Knowing when to walk away can be the least expensive and fastest way for you to progress with your real estate transaction. Instead of trying to pursue legal action, which can be a huge challenge, you move on and find a new professional to work with.

Start by Finding the Right Agent

When working with a realtor, you are trusting a professional to have your best interests at heart. Avoiding unethical and illegal real estate practices starts with finding a reputable and experienced agent from the start.

Research their background and track record before agreeing to work with an agent. Ask the right questions before you start working with them.

Don’t leave finding a good agent up to chance. FastExpert makes finding top real estate agents in your area easy. Buyers and sellers can read thousands of reviews and find ethical realtors to guide them through their real estate deals.

Begin your real estate agent search with FastExpert today.