Negotiation skills were often minimized or completely overlooked in the training programs of the real estate agents in the past. However, as the real estate business is taking a new twist and competition becomes stiff, negotiation skills have become a significant aspect of the business. According to Poon (2011), the volume of home sales has decreased slightly in the previous years despite the sales prices remaining constant. As the sales market for homes is adjusting slightly to the higher mortgage interest rates, any home buyer, seller or a real estate agent will rely on the negotiation skills to make the deal close. While the real estate business is shifting focus on the negotiation skills of the real estate agents, another issue of ethics is shaping the real estate industry ( Lewicki et al., 2011) . Even as they engage in negotiation with the buyer and the seller, the agents’ ability to remain ethical standards and uphold the ethics of the profession remains a significant factor. The traits of honesty, transparency, accountability, and accuracy remain important. Many of these real estate agents fail to apply ethics while they negotiate with customers. This paper will research on the negotiation skills of the real estate agents and determine whether ethics plays a significant role even as the agents use their negotiation skills to close the deal.
Many researchers have made their contribution to the importance of ethics in business in general. According to Smith and Malloy (2013), ethics is the basic principles of the standard code of conduct in a profession. He contributed to this field by further claiming that for a business to attract and retain more customers, code of ethics remains a significant concern. However, very few have been done concerning the application of an ethical code of conduct in negotiating for a real estate business. It is for this reason that this research will focus on what impacts ethics have in the negotiation between the real estate agents and customers.
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Competitive negotiation always requires the use of tactics that is viewed by many as being unethical in the sense that the tactics either violates the standards of honesty or goes against the perceived rules of negotiations ( Seagraves & Gallimore, 2013) . Lying and cheating seem to dominate most negotiations of the real estate businesses. Many agents fail to disclose certain relevant information to the buyers. Other real estate agents use tactics that are either illegal or does not represent the best interest of the buyer or the seller.
Negotiation and Negotiation Skills
While negotiating, the most skillful agent always don’t narrow down to just a single issue ( Mahoney, 2013 ). It is appropriate that the agent establishes the primary objectives and goals of both the buyer and the seller. While negotiating with the clients, the agents should include in the criteria the financial needs potential future relocation, closing date, home warranty needs as well as physical conditions required for the property. To create a win-win solution for the negotiation, there are four primary strategies that the agent has to employ. The first approach is nibbling. In this strategy, buyers obtain the majority of what they request for by making the seller look cheap in the deal. In this case, the agent should stand his grounds and never allow his mind to be swayed by the buyer to fall in for the new conditions. The second strategy is where the buyer shifts the difficulty they are undergoing that could limit them from buying the property in place. In essence, they shift the burden to the agent. An agent with proper negotiation skills can handle this by remaining firm and eliminating each challenge one by one.
While going for negotiations, the agent must know some relevant information that will be negotiated on by both the buyer and the seller. For instance, both the buyer and the seller will negotiate the best price. The buyer needs the least price whereas the seller needs the highest price. The agent has to use well his negotiation skills to reach a common ground that is acceptable to both the seller and the buyer. Whereas buyers are not willing to overpay, sellers are also want to make the best deal that will reflect their financial plan and value. The agent has to reach an average price where each will feel that the deal is fair. Another item that the agent will have to display the negotiation skills is the closing costs ( Ma, 2010) . This involves the negotiations on the prepaid closing cost which is usually paid by the buyer in advance. The two parties might not agree on the best amount of the closing cost to be paid, and the agent has to negotiate and find common ground acceptable to both.
Also, closing date for the transaction is another area where the buyer and the seller might not agree calling for the negotiation skills of the agent ( Lewicki & Hiam, 2011) . While the sellers will require a speedy process to get capital out of the home, buyers look at their monthly financial cash flows. The agent has to apply his negotiation skills to reach an acceptable closing date that will be fair to both parties. Also, the agent has to negotiate on home warranty as well as the leaseback of the property so that it is agreeable to both parties.
Negotiation and Ethics
As the agents carry out their negotiations, the ethical standards of the profession need to be maintained. In my research to determine what role ethics plays in negotiation by the real estate agents, I interviewed two real estate professionals in New York City. Mr. Henley is an expert in real estate as well as a business person in the industry. He has been in the real estate business for over ten years now, and he has enough experience in the sector. In an interview with him, I wanted to know his view on the role of real estate agents in the negotiation process as well as the effects of applying or not applying ethics by agents in real estate negotiations. In yet another second interview, I met with another real estate professional Mrs. Hein. She is a real estate professional situated in New York City with over five years in the field. In the interview with her, I asked her to explain her view on whether many real estate agents use ethics in the negotiation process. In the second question, I asked her to give her opinion from experience what impacts do ethics have on the negotiation outcome of real estate businesses?
Findings
From the interview with Mr. Henley, he recognized the important role played by the real estate agents in reaching a common neutral point between the buyer and the seller. Concerning ethics in the negotiation, he said the majority of the real estate agents choose not to apply ethics in their negotiation process and this according to him could lead to mistrust as well as legal battles. In her opinion, Mrs. Hein seconded the opinion of the first interviewee saying that from her experience in the sector, many real estate agents rarely consider being ethical as they carry out negotiations, an act she claims could lead to many major legal battles as well as loss of customers.
Discussions
Real estate agents employ various tactics while negotiating for buyers and sellers. In dealing with two parties, the various tactic employed by the agents may not be ethical, but targeted towards achieving set objectives. Negotiation has various parameters that the agent must deal with skillfully. The two parties involved are independent. There is also the conflict of interest where both parties are attempting to obtain the best out of the deal. Personal interest occurs in a situation where a person the objective to gain from the deal. The role of an agent is to act in good faith for both the buyer and the seller. The agent should not have any conflict of interest as this will automatically create ethical issues in the deal. However, from the findings, the majority of the agents have the conflict of interest while negotiating in the real estate businesses. An agent can have a conflict of interest direct or indirectly through family, friends or employee ( Weiss, 2014 ). In such a situation, the agent is more likely to be dishonest in doing the negotiations with the buyer or the seller.
In other circumstances, the agent can make a deal with the seller to hike the price so that they con the buyer. Failing to act in the interest of both parties amounts to unethical behavior in the profession. Also, the agent may fail to disclose certain relevant information at his knowledge to the buyer. The information concerning the state of the building or any other issue with the building that the buyer ought to have known before buying. The agent does this with the intention of gaining from the deal, amounting to a conflict of interest and unethical conduct.
Also, the agent can act unethically when they have a financial interest in the property in which they must negotiate. In such a case, they can make their negotiations with the aim of fulfilling their own financial objective. They fail to act in the interest of both parties, amounting to an unethical code of conduct. According to the code of ethics and agency laws, an agent should not have any financial interest in the property in which they represent the buyer and the seller ( Watkins, 2011). Participating in the negotiation while at the same time having a business interest in the property can also limit the ability of the agent to act in the interest of the parties represented and thus leading to unethical behavior.
According to Trevino and Nelson (2016), various tactics are used by the agents which are considered by many as being unethical. However, these tactics are found to vary depending on the gender, nationality, one’s perception as well as ethnic origin. The major tactic used that goes against the ethical and moral standards for the last decades is dishonesty. The agents fail to be honest with the buyers by giving them misleading information about the building with the intention of achieving some set objective. Lying and cheating remain some of the major unethical conducts that agents engage in to achieve their objectives. According to research by the Newsweek survey, it was reported that 66% of people would lie to achieve a business objective while 67% of the insured would exaggerate the insurance damage report ( Schulte, 2012).
Negotiation is an interesting area in which the study of ethical decisions regarding honesty can be observed. Negotiation being a pervasive activity, agents spend a significant time negotiating for their clients and are therefore expected to act in good faith. However, some researchers have argued that being unethical in the negotiation is an individual perception thus judged differently depending on the person. Others also argue that unethical behavior is determined by the magnitude of the consequences it has on the buyer. However, based on the agency laws, an agent must act at the best interest of the principal, must not knowingly induce a person to breach the contract, and must act fairly and honestly and must not intentionally mislead or deceive other parties into a transaction ( Bokhari & Geltner, 2011).
Recommendations
It is recommended that all the real estate agents stick to the ethics of their profession while dealing negotiating with the buyers. Ethical conducts add value to the reputation of the real estate firm and as a result, attract more customers. While negotiating for sale, the agents should be honest and disclose any relevant information required of them to the intended buyer. This will win the trust of the buyer and initiate the decision to buy. Real estate agents are also recommended to avoid any conflict of interest as this will force them into acting unethically and spoil the reputation of the business. The best way to attract, retain and make customers happy is to treat them with ethics required so that they can develop the trust in the real estate firm. The agents should be trained on what ethical code of conduct they should apply even as they deal with the buyers so that they build the reputation of the firm. When they have any conflicting interest in the property, the agents should disclose this information in advance to the principal so that another person without conflict of interest can be used to negotiate for the property. The real estate agents cannot, therefore, overlook the issue of ethics during sales because it will have a direct impact on whether the customer buys or not as well as on the future sales.
Proposed solutions to the issue of ethics in real estate negotiations
To ensure that real estate agents apply ethics in the course of their duty, they should be trained on the ethical code of conduct required of them by profession. Some agents engage in unethical behavior without the knowledge that what they are doing is unethical. Equipping them with this knowledge will thus help them differentiate what is ethical and what is unethical. Also, various bodies responsible for legislating the professional code of ethics should take action against any individual who is found to have breached the ethics of the profession. This will minimize the chances of the unethical behavior among the real estate agents. Also, the real estate agents can be advised to reveal in advance if they have any conflict of interest in the property to be sold. If an agent has any conflict of interest in a property, that agent should not be allowed to take part in the negotiation of sales of that property as it will automatically lead to unethical behavior. The agent with conflicting interest will use certain tactics that may involve dishonesty as long as that will meet her financial interest.
Effects of being unethical
If a real estate agent fails to apply ethical conduct in their line of duty, it will lead to loss of customers. Any buyer who realizes that he/she was conned or treated with dishonesty might never come back or refer colleagues to the business. Also, it can lead to lawsuits. If an agent willfully and intentionally coerces a buyer into buying a property that has issues can be sued for intentionally misleading a customer against what ought to be his/her duty.
Importance of the topic
Ethics is a fundamental aspect in the success of any business. The ability to attract and retain customers heavily relies on how they are treated on the first purchase. If a customer feels to have been conned or treated unethically, the chances of that customer making a repeat purchase are reduced. The same customer is also more likely to warn other customers against buying from the same business. This topic is of interest to me as it equips me with knowledge on how to remain ethical in the real estate business as well as the whole business. It enlightens on the effects of acting unethically while in dealing with customers and what it can cost a firm if they do not become honest by disclosing certain information to the buyer. The topic also teaches on the legal battles that an agent, a business or any other professional may face for failing to adhere to the professional code of ethics as required of them.
In conclusion, ethics plays a significant role in the success of any business. In businesses that such as real estate which involves negotiation by the agent, ethical conduct of the agent determines whether the customer buys or not. It is also a key determinant in attracting and maintaining more customers. Businesses that observe ethics while dealing with customers build their reputations and as a result, retain more customers. Ethics, therefore, remain a significant issue if a real estate business or any other business is to prosper. Customers like sellers who are honest and who can disclose to them certain information that they feel will be relevant as they use the commodity. Real estate agents must, therefore, apply ethical behavior in dealing with the buyer while firms that deal with real estate businesses must take measures to ensure that agents remain ethical in the line of their duty.
References
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