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Real Estate Round-Up: Integrity, take 2

Integrity. This word has been in the news a lot lately. Integrity is the opposite to fraudulent, another word that has been in the news. Truth or transparency and deceit or deception are more tangible definitions.

I wrote about integrity in the real estate transaction a few months ago, but after reading my own article under the lens of today’s integrity monocle, I believe right now is as good of a time as any to expand on integrity within a real estate transaction.

Previously, I defined the various areas in which either the buyer or the seller can grapple with integrity. For example, should the seller disclose everything they know about the property they are selling? Even if it could scare off potential buyers?

On the other hand, should the buyer disclose everything about their financial situation with their lender? The funny thing about both these questions is, the lack of disclosure will eventually come out, and then the result will be much more costly.

A lawsuit may result due to lack of seller disclosure. The inability to secure loan approval may result due to lack of buyer disclosure. One thing is certain, more than just the person’s reputation will be affected. Real tangible consequences will result when a person chooses to not operate with integrity.

A person with integrity probably doesn’t even need to pause to ask the question, because the simple answer is “yes”. Integrity isn’t something you decide to have, it is who you are.

Integrity in real estate begins with the agent or the lender. If you’re thinking of selling your home, you should interview various Realtors or hire a Realtor with a strong referral from someone you trust and who has also worked with the Realtor.

Just because someone is nice to you, or just because they are your neighbor, does not automatically qualify them as being a person with integrity. I am sad to say that a few times in my life someone that I genuinely liked turned out to be someone who wasn’t always truthful or fair. Integrity requires both of those traits, and much more.

Integrity requires full disclosure and transparency. Withholding part of the information or searching for the right words so as to not fully disclose, cannot exist in the world of integrity.

Realtors are held to a Code of Ethics. Article 2 of the Realtor Code of Ethics, states “Realtors shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” That speaks directly to the question of integrity. Realtors, as the fiduciary to their client, are required to exercise the utmost care, integrity, honesty, and loyalty in their dealings with their client.

With sellers, that fiduciary and integrity begins with the discussion of price. The eventual listing price of a property is a combination of the actual data that compares properties with similar characteristics and current market trends.

Suppose you have a 2200 square foot home on ¾ of an acre, built in 1990, with no major improvements or updates from when it was originally built. A Realtor is tasked with sharing data on similar homes in Fallbrook that share these characteristics. That data then is propped up or pushed down based on the overall marketplace.

Right now, with so few homes on the market, and those homes selling as quickly as they come on the market, most list prices are propped up by this fact.

In 2009, when a flood of bank owned properties (REO’s) and short sales were for sale, the data was conversely pushed down due to the high inventory and lower prices of those REO’s or short sale properties. Integrity comes into play when the price is propped up unrealistically just to secure the listing. In other words, telling the seller something much better than what the data plus the trends show. This generally has an underlying plan that includes asking for a price reduction once that inflated price is not effective and does not secure a buyer.

It’s not an easy conversation when the sellers expectation is much higher than what the data and trends reflect. But integrity requires that the conversation be had with the seller. That doesn’t mean that the seller in concert with the Realtor can’t agree to list the property higher than the data and trends show, with the united plan to reduce the price if a sale isn’t achieved within a certain period of time.

Integrity comes into question when a Realtor agrees to an unrealistic list price, in the absence of any conversation about data and trends, just to secure the listing.

How about from the buyer side? When does integrity come into play? Today’s market is particularly challenging for Realtors who represent buyers. At nearly every price point, buyers are competing with other buyers for the same property. The best offer “wins” the property, so purchase price, terms and contingencies all come into play.

Integrity is crucial during the conversation that a Realtor has with the buyer as they prepare the purchase agreement or the counteroffer. What price is the buyer really approved for? How quickly can the buyer really close escrow? Does the buyer have the funds to truly purchase a home “as is” so they can gain the advantage? Does the buyer have the funds to remove the appraisal contingency, which would require the buyer to provide the funds between the appraised value and the agreed purchase price?

It’s not about the integrity of any of these decisions. A well-qualified buyer can pay more for a home than it’s worth; they can close escrow whenever it is possible; they can purchase a home “as is” and waive all inspections, and they can waive the appraisal contingency.

Integrity is about the buyer understanding the result of any of these decisions and having the ability to proceed should any of these situations come to pass. The integrity meter sits squarely on the Realtor to educate the buyer on the choices, their options, and the potential cost of those choices.

So, what’s my message? There is no replacement for integrity. It means that your yes means yes and your no means no. It means, in the case of the Realtor/client relationship, that everything is out in the open and that the only agenda is for the client to be fully informed so they can make sound decisions and be successful.

It’s good to make decisions, based on all the information, so, win, place, or draw, you are satisfied with the process as well as the end result.

Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.

 

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