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Sample Essay on Ethical Dilemmas in Real Estate

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Sample Essay on Ethical Dilemmas in Real Estate

Introduction

Real estate industry ethics constitute moral values governing the behaviors of real estate listing agents, clients, and real estate brokers. Arguably, real estate ethical dilemmas refers to complicated situations that occasionally involves mental conflicts between an agent’s moral imperative, in which to obey amounts to transgressing the other (Agbim, Ayatse, & Oriarewo, 2009, p. 79). Most real estate professionals today often faces ethical dilemmas as they are obliged to choose between their clients’ needs and personal gratifications. Though common with most professions that involve sales, the professionals in the real estate industry regularly find themselves in ethically compromising instances unaware of the possible implications of deeds. Being a big money investment, the real estate businesses are controlled mostly by real estate agents, but most of their clients remains ill informed and are victims of fraudulent behaviors (Agbim, Ayatse, & Oriarewo, 2009, p. 83). In the case presented in this study, the real estate agent (Douglas) did not have any malice or ill intentions, but his actions still harmed Fletcher’s client, and this amounts to an ethical dilemma. Such ethically compromising instances are common in real estate industry and if not addressed promptly may lead to mistrusts and revenue loss. The case study portrays an event that is potentially disastrous to the victim due to a blurred line between rights and wrong.

Case study one

Fletcher was the real estate listing agent for a property (house) owned by the Jacksons’. The house was still in an exquisite state and was located in a serene surrounding that made it attract interested clients so fast that it was ultimately sold. As a result, the Jacksons’ signed a customer agency agreement with the listing agent (Fletcher) and started searching for that house that could match the specifications of the Jackson’s. Later that same day in the evening, Fletcher listed another property valued at around $ 100, 000 belonging to Liz and immediately contacted the Jackson family. Jackson liked the property and made a proposition of around $ 80, 000 under two conditions. The conditions were that an inspection of the property was to be carried out and repairs conducted where necessary.

Liz accepted the conditions but made a new offer (counteroffer) on the initial price (selling price) at around $ 95, 000 due to changes in the terms of the first proposal. Jackson took this counter offer after analyzing the amount he would receive from the sale of his property. He called Liz informing her of his acceptance of the new offer, and that he was to bring the new offer signed together with the listing agent, Fletcher the next day. However, due to some work commitments, Jackson could not make it on time to the bank the same day he was to pay the counter offer and called Fletcher to inform him about this new development. He promised to pay later, but late in the evening and Liz promised to be patient.

At around mid-day, another real estate listing agent Douglas came calling on Liz and together with his client, Faith, made an inquiry on the property. Having liked the house so much, Faith made a lucrative offer to Liz of around $ 140, 000 with no conditions attached. This was too tempting and eventually, Liz accepted this new offer. Douglas knew Fletcher very well and was well aware of the agreement Douglas’s client had with Liz. Therefore, before materializing the transaction, Douglas called Fletcher and informed him about the counter offer and Fletcher warned him about materializing the contract. However, Douglas went ahead with the deal and presented Liz with Faith’s offer of $ 140, 000.

Though initially pleased with Faith’s better offer, she was worried about the earlier deal she had with Jackson’s, though verbally. She told Douglas about it and after signing the contract, they both agreed that Faith could move in the next week but treated the contract as a backup plan, though not in writing. Later that same day in the evening, as he had promised, Jackson together with Fletcher came by with the initial offer only to be told about this new development. Fletcher even went ahead and called Douglas convincing him to reconsider the contract since Liz had verbally accepted a contract from the Jacksons’. Douglas refuted this, reminded Fletcher that Liz had already signed a contract binding her by law and had no option of walking away from it, and that the initial contract Liz made was not ratified adequately.

Potential Ethical issues and dilemmas from the case study 1 above
Acceptance by Douglas and Liz of an overpriced listing contract

Though she had a verbal contract agreement with Jackson’s initially, she went ahead and accepted Faith’s overpriced contract listing. Arguably, different situations dictate the terms stipulated in most listing contracts (Rhodes, & Apollo 2005, p. 124). Douglas being a real estate listing agent, it is unethical for him to accept a listing that is evidently significantly overpriced yet he still went ahead and accepted it. Similarly, by receiving a significantly inflated price, Liz contravenes the universally accepted ethical standards (Rhodes, & Apollo 2005, p. 129). However, Liz and Douglas are both facing an ethical dilemma. For instance, selling a property successfully at a higher price will attract higher commission to Douglas though this is not right. While in the case of Liz, it is a common knowledge that any individual will want to maximize profit and revenue acquisitions from a transaction.

Douglas’s acceptance of additional listing contract

Douglas Being a real estate listing agent and a partner with Fletcher is in an ethical dilemma whether to initiate the counteroffer or to respect the initial contract Fletcher’s client had with Liz. Notably, the counteroffer also has an inflated list price that is against the ethical standards that govern the real estate industry (Rhodes, & Apollo 2005, p. 124).

Fletcher’s suggestion of a low reservation price on Liz’s property

Fletcher is torn in between making his client Jackson satisfied by negotiating a relatively cheaper property price and maintaining the standard property market price. Being a broker, Fletcher’s aim is to sell his client’s property (Liz) and is tasked with suggesting a viable listing price. The listing property price signals to an interested buyer that the seller is willing to sell the property and, therefore, is motivated to make an offer (Reynolds, &James, 2001, p. 346). A reservation price that is relatively high may discourage potential customers while increasing marketing time for the property, whereas a lower listing price may result in an immediate offer due to the relatively low selling price. Fletcher was therefore in an ethical dilemma, as he had to choose between overpricing the property, hence a longer time to sell and quoting a relatively lower price to sell off the property as immediate as possible. However, it is against ethical norms for a listing agent to recommend a reservation price that is below the property’s market value as determined by the quality of the property among other features (Reynolds, &James, 2001, p. 352).

Showing interest in an already listed property

Fletcher already listed Liz’s property, and a verbal contract was already in place. Douglas knew this yet still focused on it and in the process impacted negatively on the selling price and duration of marketing. Douglas desired to build a reputable portfolio with his client, and when an opportunity surfaces, he grabs the chance to please a client, Faith (Delaney, & Sockell, 2004, p. 720).

The duration of the listing contract

Though not legal, most real estate listing agents would prefer an extended listing contract holding all other factors constant to acquire a commission from the deal before the contract expires. Notably, the listing durations in the above case is not stated explicitly giving a listing agent enough time to seek for other buyers with lucrative offers above the property’s reservation price (Delaney, & Sockell, 2004, p. 722). For example, the listing contract pitting Faith and Liz do not state the listing duration and was giving room for manipulation.

Procrastinating the buying process

Having secured the listing contract from Liz, Fletcher had the time and space to search and produce a ready, able and willing buyer of the property to earn a commission (Delaney, & Sockell, 2004, p. 724). As commonly known, the seller (Liz) expected the broker (Fletcher) to initiate the process of marketing and promoting the house immediately. Having successfully listed and sold their house, Fletcher offers to sell the property to the Jacksons’. Though willing and ready to make payment to Liz as per the initial agreement, Jackson is not able to do so promptly. As a result, Fletcher is facing an ethical dilemma on whether to accept Douglas’s counter offer or to challenge the offer given that the initial offer is not prompt(Delaney, & Sockell, 2004, p. 726).

Ethical theories explaining ethical dilemmas from the above case study
Utilitarianism theory

This approach stipulates what is right and wrong in the society or a particular setting and clearly outlines the result of contravention (Nekoranec, & Jane, 2012, p. 191). Depending on the person’s behavior, the consequence can both be satisfactory or detrimental to the parties associated with the transaction. From the above case, Douglas was expected to behave in the ‘right’ way, and when he approaches Fletchers client, he is assumed to have contravened the utilitarian theory.

Deontological theory

This theory emphasizes the inherent characteristic or character on an act in a particular setting (Nekoranec, & Jane, 2012, p. 194). For instance, the real estate industry has specified codes of conduct and behavior that governs the operations of all stakeholders in the business. Each player in the field is expected to adhere to this theoretical perspective, and any individual who voluntarily or involuntarily adheres to this theory is considered to have a sense of duty. Just like in the case above, by deliberately and knowingly approaching Fletcher’s client, Douglas is considered to lack this sense of duty (Nekoranec, & Jane, 2012, p. 196). Douglas violates the moral rule in the real estate industry, and his act is detrimental to the Jacksons.’

Ethical relativism

This theory is based on the assumptions that an ethical behavior is relative depending on the context. This implies that in any particular setting, differences in opinion, thoughts are bound to happen, and striking a compromise in such cases should be the priority (Nekoranec, & Jane, 2012, p. 201) .Every setting has its set of ethical norms and standard of conduct with explicitly stated consequences. From the case study, Douglas and Fletcher have a significant difference that should not be left hanging and can attract legal suits if not resolved promptly.

 

 

 

Recommendations

Since Jackson and Liz did not sign off and presented the counteroffer on time, Liz was right when she accepted another offer that was even better than the initial offer. Therefore, it is recommended that Jackson accept the new turn of events and search for a new property (Allmon, & Grant, 2000, p. 807). Similarly, it is recommended that incase Jackson’s need for the property was that urgent, then pleading with Faith to withdraw the contract could be a wise idea. In addition to these, Fletcher should file a contract and code violation case against Douglas for dealing directly with Liz (Fletcher’s client) and in the process compromising his relationship with Liz (Allmon, & Grant, 2000, p. 809).

Implications of the above recommendations

Even though Fletcher is right in filing a contract and code violation case against Douglas for dealing directly with Liz (Fletcher’s client), he should first comprehend the provisions of the law concerning the same (Allmon, & Grant, 2000, p. 811). In law, a contract is considered finally ratified once all parties to the contract have signed off. However, Fletcher and Jackson failed to submit the signed contract to Liz promptly, and Liz was free to accept another new offer. Liz is less likely to cancel such a lucrative deal considering Jackson’s initial offer was lower. Moreover, there is no sense of urgency in the case, and Faith is very much unlikely to listen to Jackson’s pleadings (Allmon, & Grant, 2000, p. 811).

Conclusion

Generally, though frustrating, the ethical dilemmas in real estate attracts legal suits since most laws offer due protection to buyers and sellers of a real property (Adams, Tashchian, & Shore, 2003, p. 203). The accepted codes governing the practice of the real estate agents are very explicit on all the characteristics a good real estate agent and broker should have. Honesty and accountability tops them all, initiating training programs for the real estate agents should be mandated (Adams, Tashchian, & Shore, 2003, p. 205) .With explicit, and precise ethical guidelines, all the stakeholders in the real estate industry are sure of smooth operations. However, this can only happen when all real estate listing agents and brokers are compelled to operate within the set ethical system to benefit all consumers in the industry (Adams, Tashchian, & Shore, 2003, p. 206). This will considerably raise public perception of the real estate industry and in turn appraising the industry’s corporate image. Lastly, all professionals in the commercial real estate business should be made aware of ethical issues that may arise in the course of their daily operations and the consequences associated with breaching the set ethical guidelines (Adams, Tashchian, & Shore, 2003, p. 209).

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Adams, J. S., Tashchian, A., & Shore, T. H. (2003). Codes of ethics in real estate as signals for ethical behavior. Journal of Business Ethics, 29(3), 199-211.

Agbim, K. C., Ayatse, F. A., & Oriarewo, G. O. (2009). Spirituality, Ethical Behaviour and Ethical Business: The Impact of Relatedness. Journal Of Business Management & Social Sciences Research, 2(9), 76-86.

Allmon, D. E., & Grant, J. (2000). Real estate sales agents and the code of ethics: a Voice Stress Analysis. Journal of Business Ethics, 9(10), 807-812.

Delaney, J. T., & Sockell, D. (2004). Do company ethics training programs make a difference? An empirical analysis. Journal of business Ethics, 11(9), 719-727.

Nekoranec, W. & Jane, W. (2012). Ethical leadership and OD practice. Handbook for Strategic HR: Best Practices in Organization Development from the OD Network, 191-203.

Reynolds, P. D., &James, K. (2001). Ethical dilemmas and social science research. Jossey-Bass.

Rhodes, M. L, & Apollo C. J., . (2005). Ethical dilemmas in social work practice. Taylor & Francis., 119-145

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