For first-time homebuyers, it’s important to be aware of the ways real estate agents may manipulate the market. Manipulating multiple listing service (MLS) data is a problem affecting many buyers, as dishonest real estate agents look for ways to benefit their seller clients and themselves.
Here is a breakdown of real estate market manipulation and how real estate agents could engage in it.
What Exactly Is Market Manipulation?
Market manipulation often pertains to the stock market. Manipulation occurs when a person artificially impacts the supply or demand for securities. In the real estate market, this could entail spreading misleading or outright false information about real estate, rigging prices, or taking other steps to manipulate the market in the manipulator’s favor.
How Market Manipulation Is Affecting First-Time Homebuyers
One of the key ways some real estate agents are manipulating the real estate market is through the manipulation of MLS data. In these cases, the agent might decide to make changes as a benefit to the home seller, which may make the property look new to the market or previously unlisted.
How MLS Data Manipulation Works
While the majority of realtors don’t engage in this activity, it still affects people purchasing a home. Specifically, this type of market manipulation works to make properties appear more valuable than they are in actuality.
One specific case of MLS data manipulation involved luxury realtors Jill Hertzberg and Jill Eber, also known as “The Jills.” The case began when rival realtor Kevin Tomlinson discovered that “The Jills” had modified MLS data to reflect a better track record by concealing properties listed for more than six months. Upon making this discovery, Tomlinson extorted “The Jills” for $800,000 in exchange for keeping them unexposed.
Instead of paying Tomlinson the requested amount, the threatened realtors decided to request help from Miami Beach police and involve the courts. Although “The Jills” wanted Tomlinson to receive a long-term jail sentence, he received a sentence of 15 years of probation.
Tomlinson may have engaged in equally malicious behavior in this case, but many fellow realtors also want “The Jills” to see repercussions for their role. Industry professionals argue that the integrity of MLS data is vital to a healthy market. If realtors or other parties are manipulating the data for personal gains, this inaccuracy could lead both consumers and ethical agents to miscalculate property values.
Issues of Widespread Manipulation
If MLS data is often inaccurate because of manipulative parties, this could negatively affect automated property values on Zestimate and other platforms. While automated property values are frequently inaccurate, they could be even more so if MLS data manipulation was more commonplace.
Reverse House Staging: Another Potential Problem
In addition to MLS data manipulation, another way some agents are trying to take advantage of the real estate market is through an activity known as “reverse house staging.” In these instances, real estate agents do what’s known as a flop—the opposite of a flip—and make the property look worse than it is.
For example, agents may introduce fake cracks on walls or in floors, damage or remove furniture, or make the home appear to have water damage. The goal here is to convince lenders to sell homes at a loss. Once the lending bank agrees to this, both the buyer and broker can resell these homes at a significantly higher price.
Oftentimes, this process starts when a real estate agent sells the home at a lower price to a connection or friend, who serves as the straw buyer. At the same time, the real estate agent has a borrower ready to purchase the property for a much higher price. This activity is illegal and constitutes mortgage fraud, and while it’s not as frequent as it was during the housing boom, it does still take place. In fact, it may be more prevalent than present data suggests, but statistics have yet to reflect this.
Both MLS data manipulation and this malicious staging trend are simply a couple of the methods that unethical parties use to manipulate the market today.
Keeping a Lookout for Market Manipulation and Fraud
Whether searching for a family home or a home for one or two homeowners, first-time homebuyers need to practice caution when engaging with the real estate market. With the possibility of MLS data manipulation and reverse house staging taking place, among other shady trends, homebuyers will do well to research real estate agents and the markets to identify potential red flags.
However, buyers can take comfort in the fact that home loans are more secure today, and lenders often have “escalation departments,” which allow borrowers to file formal complaints and encourage banks to efficiently resolve cases.
By conducting thorough research and taking steps to locate the right realtors, homebuyers will have an easier time finding the right home at the right price.