I was recently approached by a national firm that I should recommend their services to my clients. They were not suggesting anything untoward. They would do a specific inspection of a piece of equipment, and they would make a sales pitch later to the clients at the closing. I would benefit that certain perks would come my way. Nobody looses. I gain something for minimal effort, and my client has a free inspection of a specific item, and my client could say no to their offer.
I have already resisted requests to put ads on my website, and I cringe when I mention a name brand of a product in my writings. I am not above making money in this way, and I would enjoy a few extra dollars. Ah, the foreseen however;I question if I am serving my clients best interests in this way. The state of Texas requires me to disclose such relationships as the one in the first paragraph. Since the deal that I was offered was not based upon receiving remuneration on any single inspection, I could conceivably forgo this disclosure, but my standards would nag at me. I see my job as providing unbiased information, which my client can reject or accept. If I am pushing anything, even in a low key manner, have I not abused my standing? I guess that could be argued both ways. For now, my feelings lead me to caution when suggesting a specific brand. I will only do so when I think that it is appropriate. I think that I will not enter into any such deals at this time.
My musings come at a time when news of appraisers accused of inflating their estimates under pressure from a bank have been released. We will see how this comes out, but I chuckled at the bank’s response, and I was glad when I read on to find that the reporter had an explanation of events, which had inspired my mirth. The statement by the bank was along the lines that they would not do that, because it would not benefit them. Taken at face value, a higher appraisal for the bank means that they would have to loan more money to the borrower to purchase the home. This means that the extra funds cannot be used for another loan. Take a closer look at this scenario, and you will realize quickly that the bank benefits immediately from a higher loan amount. Some costs associated with the loan are determined by a percentage of the loan’s value, plus you have the interest the bank will charge on that extra money. But wait you say, would the buyer have to pay a higher fee for the house if the appraiser comes in with a greater value? The bank I am sure would argue no, since the price was already agreed upon, but in practice a seller could demand a higher price at that time. Where this scheme would really benefit the bank would be in refinance situations. The homeowner would say great I can take more equity out of my home, meaning he gets more money for his dreams. Lucky homeowner right? Well, let us consider this. What if the owner needs to sell his home? A new appraisal would be lower, giving the owner less money for the home. The owner is still responsible for paying back the difference that he borrowed at the higher appraisal. This would be a double whammy. The homeowner not only owes money for his loan; he does not gain that money back in the sale. Who wins? Well, the bank does. They still collect all their fees based on a larger amount, and they collect more interest. Is greed not grand? My analysis here is basically what was presented in the article.
The article went on to paint a picture of the poor appraisers forced to make these invalid estimations, at least that is how I read it. I was disappointed with this view. Certainly, I was not placed in exactly this situation, but in a way it harkens back to the concerns that I expressed at the beginning of this post. Any firm has to make decisions about how they will act in regards to their customers. This firm failed. Instead of being concerned for their clients, they were worried about obtaining jobs through the bank. This firms actions stain the real estate profession. How can we present ourselves with authority to our clients when they hear of such low behavior?
My advice to you is one that I regret giving. When buying or selling a home, you may not want to trust those who appear to be helping you. I regret this, because I know that there are mainly decent real estate professionals, who know that our goal should be the protection of our clients. Any firm or individual who plans ways of increasing profits through trickery, and any firm or individual who decides to collude with the prior, will ultimately fail in their endeavors. I imagine that since my industry is under the microscope at this time, we will hear of more low dealings soon.