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05-12-2007 - INSIDER TRADING |
INSIDER TRADING
How real estate thieves [don't] get caught.
by Neil Jenman Reproduced with permission from www.jenman.com.au
The case of a Queensland salesman, who was recently banned from the real estate industry for life, has again focused attention on one of the most wicked and widespread crimes in real estate.
Insider trading – a term well known in the share market is defined as, "Trading in shares based on knowledge not available to the ordinary investor."
In the property market, the definition would be almost the same, except for the added element of stealing.
With the property market, the offence of insider trading is more serious than in the share market because, unlike the share market, insider trading in the property market almost always involves a real estate agent taking advantage of a seller's lack of knowledge about the true value of their home.
In short, the agent steals a large chunk of the seller's equity.
For example, the sellers (usually elderly folk with names like Alice, Olive or Ruth) are told by the agents that their homes are worth a certain amount.
In reality, the homes are worth a lot more than the agents tell the sellers. The agents then arrange for one of their mates (or family) to buy the sellers' homes (usually through a company or trust). The property is then re-sold for its real value and the agent (and his mates) split the loot.
Any decent and fair-minded Australian would agree that buying the homes of elderly folk (who do not know the true value of their homes) cheaply and re-selling them for a huge profit is disgracefully dishonest.
But guess what? It's perfectly legal if the agents do one thing.
In all states of Australia (except Victoria), agents are permitted to purchase their clients' properties provided the agents do – wait for it – tell the sellers that they, the agents, are the buyers.
That's right, agents can cheat 'em as long as they tell 'em.
There is no law about the price the agent must pay. All the agent has to do is tell the seller that the agent is the buyer.
This is akin to making armed robbery permissible provided the robbers yell, "This is a stick up," as they enter the banks. Seriously.
This is how so many real estate thieves get away with their crimes. They buy their clients' properties at a cheap price and then, if questioned, they use the defence of disclosure ("I told them I was going to rob them, so that makes it okay.")
Some of the smarter [of the thieving] agents don't re-sell the properties immediately. They hold on to them for a few months (or years) so that when they eventually re-sell them, they can blame the market for the huge increase in price.
The fastest appreciating properties in history are those which are bought and sold by agents. Some properties, which have barely appreciated in a decade, will double in price a few weeks after agents buy them.
The salesman who was banned for life recently was not banned for the crime of buying an elderly lady's home and re-selling it for a much higher price. His crime was that he did not disclose that he was the buyer.
Can you imagine if stock-brokers were allowed to buy the shares of elderly ladies at below value provided they told the ladies in advance what they were doing?
That's what happens in real estate. And, the agents who do it consider themselves savvy business people.
There is only one word to describe insider trading agents (whether their crimes are "legal" or not) – thieves.
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