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Ethical Dilemma of a Real Estate Professional

After weeks of looking for a prospect, finally Esther met a family who is quite bent on buying a property for their retirement home. The buyer, however, is an insurance salesman and has asked Esther for a big part of her commission.

In another transaction, the brother of the buyer is handling the transaction with Esther because the buyer is based in the UK. The brother told Esther that he wants to gets a big commission, else he will not allow the transaction to push through. In many of these cases, the relative abroad does not know that the brother or sister here transacting in his or her behalf is getting a cut from the pie.

Real estate is a highly competitive industry where, in many case, commissions of sellers are hefty. However, most of the sellers don’t have salaries but rely mostly on commissions based on actual sales.  This combination, together with other factors, make it a dog eat dog industry, especially because most of the sellers have no other means of living, can’t get other jobs, and have to struggle to survive.

No Ethical Dilemma

It is not surprising then that Esther would think that she has no choice but to give in to the “requests” of the buyers and their relatives for a rebate. If she would not do it, other sellers would be more than willing to do it and she would lose her sale. “If you were in my shoes, what would you do,” she asks.

Sellers don’t actually view this as an ethical dilemma. It is for them a matter of survival and is presumed to be a natural part of the many other practices of the industry.  What many of the real estate practitioners do not realize, however, is that this could be bad for the industry in the long run. Besides, it is actually written in the code of ethics for real estate service practitioners that such practice is unethical.

“Because it is such a common practice, the profession is degraded and the value of the professional services rendered is cheapened,” says Esther, a sales agent for more than five years. She admits, though, that she hasn’t any choice for now but to play along.

Overall, she takes home a smaller amount than she would have, had she not shared her commission. But it is still better than nothing. Esther has long retired from her job. One of her sons is jobless though with a family of his own already. While she struggles for her survival, she also has to think about her son and her grandchildren.

Effect on the Industry

The most obvious effect of such a practice is that the seller would get lower commissions for their sales. But it actually goes beyond that. “Buyers may not realize it, but every time they push a seller into this situation, they also unknowingly and slowly destroy the industry allowing incompetent, unprofessional, and unethical practitioners to flourish,” says Esther.  “In such a scenario, the buyer goes to the highest bidder and no longer to the one who can give the best and most honest service. Yet buyers often grumble about the poor service given to them or how they were victimized by a dishonest seller.”

At the seller’s level, there is no incentive to professionalize. It would be easier to simply “sell” one’s service by giving the buyer a cut.  It seems that even buyers can be bought, as Esther puts it, and there would be less need to be professional and knowledgeable about what you are doing. The question becomes rather how much rebate you can give to the buyer.

Alternative Scenario

“Consider an alternative scenario. If all agents would not give rebates, how would they compete against each other? They would have to compete on the basis of who is giving the best service and who is the most honest. The sellers will get the bigger cut of the pie and the buyers will be more at peace knowing they are in good hands” says Esther. “Only the worthy will really be able to stay in the industry, and those who do are at least assured that they will be able to put food on their table three times a day,” she continues.

The Code of Ethics for real estate professionals actually does prohibit the giving of rebates or split the pay to anyone who is not a duly licensed real estate practitioner mostly for the reasons stated above.  “But as long as the situation exists where buyers ask for rebates, sellers are in dire need of sales, real estate sales managers care less about the industry and more about their sales, and that buyers do not realize nor care about the negative long term impacts of their actions, the industry will remain to be the immature. Buyers should expect no more than the unprofessional, incompetent service they have often complained about,” Esther concludes.

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