Legalities of RE description misrepresentation by professionals

5 Replies

Hi guys,

I am a new member.  I was recently involved in some real estate transactions and one is still ongoing.  During both I was shocked to discover a lot of unethical / fraudulent practices by licensed RE professionals.

1) Rental fraud - While marketing my luxury condo in a building with very low inventory I caught one broker advertising my friends condo unit in the same building without her knowledge. Another broker copied some of the pictures from the listing and fake listed apartment next door. Both listed the unit for $500 less than the market price and only appeared on select RE websites, never officially listed on MLS. In the same building (~400 apts) there are less than 10 available rentals across all sizes and spotting fakes was easy. I was able to find 2 more fake listings and the brokers claimed they were already rented when I emailed them for shits-n-giggles. Several weeks later the ads are still up. Bait and switch tactic at its finest.

I know that during the ~75 hour training RE agent undertakes has parts that deal with ethics.  Marketing fake properties in order to gain RE clients would be grounds for license suspension or maybe even more.

2) Selling agent misrepresentation - In another location I am involved with a sale of a condo in a market where there are only 12 similar units (including mine).  During my research I uncovered a lot of interesting data on similar recent sales and current inventory.  My next door neighbor that has nearly identical unit as mine sold it a few years ago.  During the sale his broker misrepresented total sqf and the seller was penalized for the mistake to the tune of close to $10k and also agreed to prepay RE taxes for a year.

a) One of the similar units that has been on the market for 6+ months had me puzzled.  I knew it was first floor but it was over 1000 sqf and had parking yet had psqf price $75-150 lower psqf.  I did more digging and found out that the unit was marketed as a 1 bedroom but according to local regulations a bedroom must have a window of 10% or more as compared to the size of the room.  This loft room had a window of around 8 sqf only.

b) Size misrepresentation - When listing my property for sale I used the total sqf of my condo as defined in the condo declaration documents the same number that shows up in plan drawings. This is what has been reported to the city and is in public records.  I noticed a lot of agents list the total size with an inflated number of 3.5-5%.  The reasoning behind this is that condo ownership gives right to common areas which are shared space but some think its ok to count it as exclusive space.

There is an apartment for sale in same building that lists total size with 39 sqf higher than it is actually is.  I tried to do some math to see how they could come up with this number and was not able to figure it out.  The apartment in question does not have a parking space which is 153 sqf and in condo declaration it lists the % ownership of common areas that belong to each apartment.  In my case I own over 1.25% more due parking space with livable space being only 1 sqf different.  One can try to calculate by taking % owned of common areas of the building and total size of the building and / or total size of the land owned by the condominium.  A lot of the outside land is dedicated to parking spaces and therefore condos that dont have parking cannot claim it as their exclusive space. In this market the price psqf is around $500 and 39 extra sqf can be around $20k.

What are your thoughts? If I use the same logic I can take my legal living space + parking space + inflated number of common area ownership and have ~200 extra sqf.

Some agents will try to game the system.  They know the chance of getting caught is low and the penalty will likely be a slap on the wrist.  It is an unfortunate reality in this business.

I totally understand that and my exposure to small segments of 2 different markets (from different states) shows a large amount of scumbags.

In the case of size misrepresentation its one thing but classification is another story.  If someone ends up buying this studio condo as a one bedroom and buyers side doesn't notice it there could be a lot of problems.  Lets say the owner decides to rent it out and lists it as a 1 bedroom when its legally a studio.  Tenant moves in for a few years, paying top dollar for large 1 bedroom apartment (1000+ sqf).  One day someone informs the tenant that legally this is a studio apartment and tenant would feel cheated and will complain to the officials.  The owner will have to go to previous owner & listing broker to remedy the situation.  Previous owner can play ignorance while listing broker was clearly involved in fraudulent transaction.  While owners, buyers and new agents might not know local regulations, a listing broker should know what makes a room a bedroom.

Jerks like this have a very short term outlook in their business. I am sure you will remember them..and choose never to deal with them. A better approach is to handle everything in an honest and ethical manner. That way you will gain new customer, keep old customers, and get referrals. The most effective advertising is word of mouth. It can work for you or against you.

@Chih Pih  for item 2 I don't think the seller should have had to do anything.  Maybe they did that as a matter of good will but if the the buyer sued the seller the seller should immediately in cases of misrepresentation of the property turn around and sue their own agent and broker.  The seller hires the agent and broker to professionally represent them.  

@Cory

I agree with you 100%.  This is the outcome of the games that I personally caught RE professionals in 2 different states and 2 small segments of the market engage in.

I think in the case of my neighbor (seller) he was pressured into the sale.  He told me later that he took 6-8% off asking price and then was hit with additional clauses in his contract near closing.

My original goal of this post is to find out if this sort of behavior was as common as I've experienced.  I am above average RE knowledgeable person who is able to analyze few listings for 2 of my markets and find so many inconsistencies.  

PS. One comp sale triggered my Spidey senses when it sold at bottom low prices cash offer, only to be resold short time later for $50k+ without ever being listed on MLS or any other web places. It closed one day and in less then 2 months it closed for another cash offer for more and both of the buyers involved were from the same background. Draw your own conclusions.

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