Georges Jebran, a 57-year old hairdresser who owns a salon in Mar Mikhael, Beirut, considers haircuts for his customers his top priority. But for the last six years, he has also been working as a real estate broker. Jebran became involved in the brokerage business because real estate makes “good money.” He knows many foreigners and speaks several languages, both of which he considers to be requirements for the job.
Bassam Mitri, a full time broker for the last 20 years, said he also entered this business because he likes “fast profit.”
“People like to work as brokers, because you sell something and make money without spending a penny,” he said.
What Mitri and Jebran have in common is that they both work independently. They do not work at real estate companies and have acquired their skills from personal experience. Mitri added that because of the absence of a syndicate to regulate the market and give licenses, a broker has to earn credibility with hard work over an extended period of time.
Real estate brokerage is a profitable business that many have entered on a full or part-time basis, from bankers and lawyers to hairdressers and concierges. What differentiates the real estate market in Lebanon from the West is that the former is not subject to regulation — brokers are not required to be registered or have specific education or training, and therefore buyers sometimes trust people who claim to be credible brokers but have no market experience.
Consequently, buyers who fail to do their own due diligence before completing a sale can easily fall victim to an inexperienced, fraudulent or deceitful broker.
“Everyone in Lebanon is a broker,” said Karim Makarem, director at Ramco real estate advisory. “Even at the top end, be it in politics, banking, lawyers…they are all trying to play the game.”
Makarem warned of the dangers of taking advice from these seemingly more reputable, yet often inexperienced sources.
“If the concierge is advising you, then you are more likely to check what he is saying. But risk arises when someone from a well-established position is advising you,” said Makarem.
“The number of deals that I have done with bankers and lawyers earning commission is frightening,” he added.
The Khaleeji risk factor
Four out of five real estate cases that go to court in Lebanon involve citizens from Gulf Cooperation Council countries, said Tony Tebchrany, a lawyer who has handled many such cases.
He said Gulf residents were more susceptible to fraud for two reasons: first, they are usually wealthy and buy expensive real estate, which makes the fraud more worthwhile; second, their limited knowledge of the Lebanese market, prices and areas puts them at higher risk.
“There are a few major investors from the Arab world who I have come across that have had a very bad experience in Lebanon due to brokers who have misled them and made them overpay,” said Ramco’s Makarem.
While overcharging for land or property is underhanded, it is less malicious than cases where so-called brokers in Lebanon have swindled Gulf clients into thinking they were purchasing a certain expensive plot of land, when actually they were buying a low-value plot in another area.
As an example, Tebchrany outlines a case where a Lebanese “broker” told a Gulf Arab client of a beautiful plot of land in the Jbeil area of Mount Lebanon. The client was interested and so the broker showed him a 4,000 square meter hillside plot with a beautiful beach view and asked him for $400 per square meter.
The client liked the land and contacted his Lebanese lawyer, who had not personally seen the plot. The lawyer asked for a real estate certificate from the General Directorate of Land Registry and Cadastre, confirming that the plot mentioned in the sales contract was legally available. What the client didn’t know was that the plot in the contract was different from the one the broker showed him. After the sale was complete, the client discovered that the plot he’d actually purchased was only worth some $50 per square meter and located further up in the mountains.
A $1 million scam
Tebchrany talked about a case in which a person calling himself a broker approached a wealthy Lebanese client, telling him that there was a plot of land worth $1 million for sale. The broker told the client that a Gulf citizen wanted to purchase the plot for $2 million, and therefore suggested that the client buy the plot himself to sell on for a $1 million profit. The broker said he would have done this himself, but he didn’t have the money.
The client agreed and accompanied the broker to the Phoenicia InterContinental Hotel, where he met the wealthy Gulf buyer who confirmed his interest in the plot. After that meeting, the Lebanese client purchased the plot from the owners for $1 million. He went back to the hotel to seal the deal with the Gulf buyer, but found that no one under his name had been staying at the hotel, the broker he had been dealing with had disappeared, and the original landowners were nowhere to be found either.
“He went to check the plot he had bought and found out that it was only worth some $100,000,” said Tebchrany. The client declined Executive’s request to comment.
The evils of inexperience
Cases involving clients purchasing land unsuitable for construction, or shoddily constructed apartments, often arise from broker inexperience and a lack of market knowledge. In these cases it is not completely the broker’s fault, as clients must assume some responsibility for failing to perform their own due diligence and blindly trusting middlemen.
“There are some very respectable and honest people who work as brokers but make mistakes because they don’t have enough experience,” said Aline Maalouf, managing partner at Luna Real Estate, a franchise of Coldwell Banker. “This has contributed to [brokers] having a bad reputation.”
With or without a contract
Although the most regulated markets in the world are still prone to fraud, the lack of laws and regulations to protect both brokers and buyers make conflicts more probable.
“There is a small [section of] Lebanese law that talks about brokerage, but it is very minor,” said Georges Sioufi, chief executive officer of the real estate agency GRE Properties. The brokerage law, number 304, ‘General law for all kind of brokerage,’ dates back to 1942 and has not been amended since.
The law says that a broker is any person who acts as a middleman between two parties for a certain fee. Tebchrany said the law does not require parties to sign a written contract, and usually a verbal agreement is enough. If conflict arises and they go to court and a written contract is not available, the broker or the customer has to provide evidence to prove the broker was actually the middleman in the transaction.
Hairdresser-cum-broker Jebran, for example, said that he relies on a “word of honor” and does not sign contracts unless the deal involves a considerable sum of money. If a court case should arise, Jebran said he would rely on witnesses to testify that he was the middleman.
Mitri said he signs written contracts only in rare cases, adding that sometimes, when the market values are increasing, sellers refuse to sign as it obliges them to stick to a certain price.
Luna Real Estate’s Maalouf said her company always signs contracts with customers, but some of them refuse, as they are not used to the idea.
“When someone goes to a bank to get a loan, they make him sign on 50 pages and they [customers] do it blindly to receive a loan… but they are not convinced that they have to sign to receive a service,” she said.
Tebchrany added that sometimes even big real estate companies do not sign written contracts in order to save paying taxes on a deal.
A new association
In an attempt to regulate the market and differentiate between credible brokers and imposters, a group of real estate companies has formed an association.
Massaad Fares, founder of the asset management company Prime Consult, has been working with several brokers for nearly seven years to create this association, which finally appointed its board of directors in February.
Fares said the association would be a strong lobbying group to advocate for a new law to license brokers based on certain qualifications. The association will devise a code of ethics that its members will have to follow, and facilitate education and training programs to raise professional standards in the industry.
“We want regulation, not because we are assuming all brokers are thieves…[but] we need something to regulate [the market] so that peopple know who to trust,” said Ramco’s Makarem.
Who can enter this association and what the requirements are have not been specified yet, said Fares. GRE Properties’ Sioufi, who is a member of the board, said that the fees would be $667 per year.
Sioufi said that there were many agencies that at first refused to join. “As with everything else in Lebanon, there always happens to be some tension,” he said. “Now we are trying to approach everybody and put things together.”
All the market players Executive spoke to were in favor of the association, saying that it represented the first step toward a more professional and regulated market.
“I would like to think that one day, everyone would look out for the logo of the association and will expect any broker they deal with to be a member of this association,” said Makarem.
However, until the association becomes a syndicate — which requires the issuance of a new law — it will not be able to oblige brokers to abide by its code of ethics, explained Tebchrany.
“The association can work for its own interest but it cannot forbid any person from working if they do not join…but a syndicate could.”
There are no hard rules to follow regarding who to trust, since a concierge or hairdresser could turn out to be more trustworthy, or have more experience than a lawyer or a banker. For that reason, experts advise buyers to perform their own due diligence before buying a property, such as asking for a real estate certificate, and consulting with lawyers, architects and any party that could help precent cheating or a bad deal.
“Some people do not consult their lawyers until they are deep in the hole,” said Tebchrany. “I advise all those who want to buy land or apartments to consult a lawyer, and an architect if necessary.”