The Culture of Real Estate Fraud

Ralph Roberts at Realblogging gives us a Marcie Geffner column (as long as we’re talking ethics, hope they had Geffner’s permission to reproduce the whole thing!) about the culture of real estate and how it contributes to fraud. For instance, Geffner writes:

Until the culture of hard salesmanship disappears altogether, fraud will continue to exist because fraud also places a higher value on money than fair and honest transactions.

The peculiar structure of the real estate brokerage business also contributes to a culture that enables fraud to occur without repercussions. The necessity for close cooperation among competitors makes finger-pointing, tattling and ratting out either outright fraudsters or practitioners who push the envelope of ethical and legal practices potentially risky and destructive to one’s own career. The perceived need to do business with these shady operators protects them from the consequences of their dicey behavior.

Real estate is by no means unique in this respect, as similar "codes of silence" exist to the detriment of other professions (e.g., law enforcement) as well. Yet in real estate, a reputation of being an honest broker and a stickler for ethics can alienate competitors whose cooperation is vital to success. Sadly, doing what’s right can chase away more business than it attracts.

She has several great suggestions.

Me? I believe that in addition to stiffer laws regulating real estate agent/broker behavior, the barrier to entry for real estate agents should be WAY higher.

It still boggles my mind that stock brokers endure rigorous Series 5 and/or 7 exams, to trade a few stocks for you. Yet the person who is ultimately responsible for buying and selling the biggest part of most portfolios only requires 45 generally pathetic hours of classroom work. (Often, it’s an instructor reading a textbook for 45 hours. Shoot me now.)

Then there’s the test! It’s unbelievably easy. Anyone with a pulse could pass it.

Until the consumer demands greater credentials from those who “manage” their largest asset, fraud will remain a problem within the industry. In real estate, people who barely graduated from high school can represent the sale of your multi-million dollar property. More stringent education requirements and perhaps even a two year program followed by the real estate equivalent of the CPA or CFP exam would do wonders for the industry.

I’m certainly not suggesting that education would eliminate fraud, but it would certainly be a step in the right direction.