Ethical malpractices rife in real estate

Allan Olingo

The lack of ethics in the real estate industry is a matter of great concern. Thousands of consumers are unknowingly ripped-off in the process of buying or selling a house.

Rosemary Kanini is a victim of the unethical practices by errant estate agents. In 2008, she decided to sell her house in Kiserian to help meet an urgent financial need.

"My last born had been admitted at a local university affiliated to an international one," she says.

She approached an estate agent located along Ng’ong Road who convinced her that he could get her the best deal in the market. To her surprise, she later came to learn the valuer had grossly undervalued her property and was working in cahoots with the agent to rip her off.

"The real estate agent contacts a valuer with whom they are in cahoots, who in turn undervalues the property. This low figure is what is passed onto the house seller as the best market value," says Kanini.

Through such a crooked alliance between the agent and valuer, the consumer loses millions of shillings.

According to Frederick Oduor, Chairman of Professional Practice and Ethics Committee at the Institute of Surveyors of Kenya (ISK), real estate is a big money spinning business and cleaning it up is a tough call.

"This industry is controlled by agents and when the Government seeks ways to improve it, they often involve representatives of the agents but no one represents consumers," says Oduor.

At ISK, he adds, the committee is responsible for setting standards and enforcing discipline of members and addressing complaints on professional performance raised against any member.

According to John Rajwayi of Erdemann Properties, consumers are solely dependant on agents for guidance. This makes them susceptible to deceit.

"While consumer protection is the role of the Government through strict ethical standards, consumers also need to exercise due diligence when dealing with an agent," says Rajwayi.

Consumer Ignorance

A real estate agent, speaking on condition of anonymity, says that ignorance of the property market works against house sellers.

Houses in Nairobi’s leafy suburbs. Sellers should seek credible agents during transaction. [PHOTOS: ALLAN OLINGO AND COURTESY/ STANDARD]

"In such a scenario, we give a potential buyer a much higher price than quoted by the valuer. Once the transaction is complete, we share the difference with the valuer, in addition to the commission I earn from the sale," the agent explains.

While admitting it is unethical, the amount of money involved makes it irresistible.

Rose Thogo, a valuer at Ryden International, offers an insight on this noting that the law requires valuers to produce a stamped certificate of valuation to their clients. The certificate shows how the valuation was done and the price settled upon, making it difficult to manipulate a consumer.

"It is against valuation principles as all valuers abide by international standards of valuation and ISK’s code of ethics making it difficult for unethical practices as claimed by Kanini," she notes.

According to Rose, Kenyan laws dictate the commission based on a percentage of the value. As such, it would not make any sense to undervalue a property as the commission for the valuer would be less.

"We promote ethics in real estate because it is fulfilling to be part of something as important as protecting the assets of consumers. We believe making profit with ethics is preferable," says Rose

She, however, admits there might occur variation in valuation prices due to various factors within the process.

"Depending on the reason for valuation and given the lack of a centralised land transaction recording system at the ministry, there tends to be a discrepancy when two valuers handle the same plot," she says.

The purpose of valuation, say for insurance, bookkeeping, mortgage or even sale purposes, will vary in all these scenarios and this is legal and internationally acceptable. The Government should enact the Real Estate Settlement Procedure Act to ensure that buyers of residential properties are aware of the many costs associated with the sale?

These costs might include cost of property surveys, appraisals, title searches, broker’s and lawyer’s fees and administrative and processing charges.

"Rogue agents submit offers to sellers, which are lower than the offer actually made by the buyers and this is done to make the genuine offer look good when it is revealed later. This is a common deceit," says Oduor.

Thogo says there is a big difference between what is legal and what is ethical and many agents use ‘legal’ instead of ‘ethical’ standards.

Low offers

Hence, it is legal to quote one price to sellers and another price to buyers and then blame the market. Another unethical act is the use of bait prices. House sellers lose money when estate agents use bait prices to attract buyers. Agents indicate to buyers that homes may sell at lower prices when they know well that the house sellers will not accept such prices. This, they say, is designed to attract buyers who then are asked to up the price.

This ploy backfires on house sellers because it attracts many buyers who can only afford the low price. The agents then say to the sellers "this is the most the buyers will pay".

"The fact is wrong buyers are attracted. This method is common when a property on offer gives a price range or ‘price from’, a practice common ‘by-negotiation’ sales," Oduor notes.

While buyers do not generally suffer as much financial loss as sellers, the emotional distress caused by such unethical acts is devastating to buyers. Additionally, a slight change in interest rates is reason good enough to cause people to lose their homes because they cannot afford the increased re-payments.

Kickbacks

"Many agents have little or no regard for the future wellbeing of buyers, with some even arranging financing for buyers and receiving additional income by way of kickbacks or commissions from lenders," he notes.

Oduor notes that such acts thrive because the Government and consumer protection bodies are not aware of the rot in the industry.

"What qualifications should real estate agents have? Is there a minimum academic or professional requirement for those employed within this industry? Do these employees hold academic or professional real estate certification to warrant their practice?" he poses.

Professional and academic qualifications have been ignored with players choosing experience, which often turns counter productive. University of Nairobi is the only institution offering a diploma in Real Estate and Construction Management, and only offers a course on ethics in its master’s degree programme for Land Economics.

Although the Estate Agents Registration Board (EARB), a government body established by the Estate Agents Act (Cap 533) that offers registration for people who seek to practice as estate agents exists, it has generally failed in its mandate.

Toothless body

Therefore, it is ironical that EARB only registers individuals and not firms, making regulating the industry a challenge when it is the firms that are behaving unethically.

"EARB lacks the teeth to tame rogue estate agencies as the best it can do is to deregister individuals and not real estate firms," admits Thogo.

ISK is in the process of developing a training institute for real estate practitioners with the aim of injecting professionalism within the sector.

"Fighting errant real estate agents legally is difficult and the way forward is to instill professional discipline and change the real estate acts of parliament to tighten admission by the board," he concludes.

Although the real estate industry might be riddled with deceit and unethical malpractices from a few errant members, it is not as complicated as many people think.

It is only the tricks that are complicated. When one understands the tricks, they will be in control. They will be able to buy or sell with confidence and enjoy it in the process.