10.1 State, Federal, & Regulatory Agencies #
The basis for ethical conduct and practice in the real estate industry often has its roots in laws passed at the federal and state levels or rules created by regulatory agencies based on legislation. The Code of Ethics and the state laws governing the practice of real estate may often overlap. Most conduct that is prohibited by law is also unethical. Most conduct that is not prohibited by law is probably ethical. However, there may be some “gray area” in which conduct may not be explicitly prohibited by law, but may still be considered unethical. The Company is regulated by state, federal and self-governing regulatory agencies. Company policy is to cooperate and adhere to the rules, laws, and regulations of these agencies.
10.2 Department of Real Estate Commissions & State Regulators #
The Company is regulated by various State Real Estate Commissions and State regulators. The primary mission of the State Real Estate Commissions and State Regulators is to protect the public in real estate transactions. Therefore, the DRE’s major concerns relate to the following issues:
- Misrepresentation
- Failure to Disclose Material Facts
- Trust Funds
- Conflict of Interest
Company policy is to follow all of the real estate laws set forth by the State Real Estate Commissions and State Regulators. Associates are responsible for staying up-to-date on the ever changing real estate laws. From time to time the Broker will hold “red flag” meetings to address changes in real estate law. The local board of REALTORS® also holds classes regularly that Associates are advised to attend in order to stay up-to-date.
10.3 Professional Organizations – NAR, State Board, and Local Board #
Company policy is that every active licensed associate becomes a member of the National Association of REALTORS® and several State and local Associations of REALTORS® throughout the nation. The Company is affiliated with many local boards of REALTORS® in each State it conducts business in and is consistently joining new boards that its Associates prefer. Referral agents do not need to join any local Association of REALTORS® or the National Association of REALTORS® if they only work on a referral basis and do not actively carry out sales.
Professional organizations such as the National Association of REALTORS® and its local affiliates are also concerned about many of the same issues as the State Regulators. However, the focus of these organizations is often on the more practical issues of how its members present themselves to the public and how its members deal with each other. Therefore, these professional organizations also focus on ethical issues relating to:
- Advertising.
- Multiple listing service internal rule violations.
- Conflicts of interest between its members.
- Ethical conduct with respect to clients and customers.
- Ethical conduct with respect to the general public.
- Ethical conduct with respect to other REALTORS®.
10.4 Code of Ethics #
Ethics are governing moral values. Ethics comes down to what is considered as being fair and right. Most ethics systems are based upon the principle that one should treat others fairly and be treated fairly by others. Ethical considerations are of extreme importance in the real estate industry and to the Company. The Company adheres to a strict code of ethics and behavior outlined by the National Association of REALTORS®, State Business and Professions Codes, State Real Estate Commissioner’s Regulations, and the Company’s internal code of ethics.
The real estate industry is largely self-governed through the National Association of REALTORS® and its adopted Code of Ethics and Standards of Practice (the “Code”). The Code is a written system of standards for ethical conduct. It also contains statements designed to advise, guide, and regulate job behavior. The local affiliates of the National Association of REALTORS® have been given the authority to enforce the Code through education and training, and by addressing complaints arising from the public or its members regarding alleged violations of the Code by a member. All Associates of the Company are required to read and adhere to the NAR Code of Ethics. This can be reviewed at this website.
Professional Conduct: All Company licensees, while acting in their capacity as real estate licensees, shall not engage in any conduct which would subject the licensee to disciplinary action under applicable State licensing and administrative laws, business and professions codes, statutes or chapters.
State Real Estate Commissioner’s Regulations: The Commissioner of each State’s Real Estate department is empowered to adopt regulations for the administration and enforcement of the Real Estate Law. These regulations have the authority and force of the law itself. All Associates of the Company are required to read and adhere to the State Real Estate Commissioner’s Regulations. (See your State Real Estate Commissioner’s Regulations website.
10.5 Standards of Ethical Conduct & Behavior #
Ethical conduct is good business. Ethical conduct is also legal conduct. Conversely, unethical conduct is bad business and unethical conduct is usually illegal. State and federal laws, along with the National Association of REALTORS® and its local affiliates, have passed legislation, created rules and regulations, and established standards of conduct over the years which seek to protect the public from conduct by licensees which causes harm. Although certain conduct may not be illegal per se, it still may be unethical. Ethical behavior is about doing the right and fair thing at all times. If all licensees understand and practice this simple, basic principle, the individual agents, the brokerages, the public, and the industry as a whole would greatly benefit. Company policy is that every Associate conducts themselves in an ethical manner at all times.
10.6 Protecting the Interest of the Client #
A licensee must protect and promote the interests of the client. The REALTOR® Code of Ethics Standard of Practice 1-1 states that the duties imposed by the Code of Ethics are to encompass all real estate activities whether conducted in person, electronically, or through any other means. This obligation is based upon the law of agency and the fiduciary duties that arise out of the principal and agent relationship.
The common law fiduciary duties each agent owes his principal are care, loyalty, obedience, accounting, and disclosure. The ethical responsibilities of an agency relationship are the basis for the conduct of a licensee with respect to his/her dealings with clients and customers. The high standard of conduct required by agency fiduciary duties elevate the level of expected conduct beyond the basic requirements of Real Estate law. In addition to the fiduciary duties owed to a client, a licensee also has an obligation to treat all parties involved in the transaction honestly.
The acronym to remember for what you owe your clients is C LOAD. (Care, Loyalty, Obedience, Accounting and Disclosure)
10.7 Client vs. Customer #
Client
The REALTOR® Code of Ethics Standard of Practice 1-2 defines a client as the person or entity with whom the licensee has a legally recognized agency relationship. The agency relationship may be created in any one of the following ways: by express or implied agreement. This means that written documents or implied agreements as evidenced by the parties’ words and conduct.
Customer
A customer is someone who receives information or services from a licensee, but who has no contractual relationship with the licensee. No fiduciary duties are owed to a customer. However, the licensee still has the obligations to a customer of fair and honest dealings and disclosure of material facts.
The fiduciary duties of the buyer’s agent are owed exclusively to the buyer and not to the seller. The fiduciary duties of the listing agent are owed exclusively to the seller and not to the buyer. Fiduciary duties are not owed to a customer.
Company policy is to disclose to third parties (i.e. other agents, homeowners) if you have a client or customer relationship with any person you state you “are working with.” This is especially important when contacting sellers about selling their home to a potential buyer.
10.8 Duties Owed To A Third Party #
Honest and fair dealing and good faith requires honesty and good faith to form the foundation for all dealings with the third party. No attempt should be made by the agent to conceal information, defraud, or in any way do something or refrain from doing something that has the effect of exhibiting conduct that is intended as bad faith. Good faith means that each party cannot withhold information from the other that might affect the agency relationship.
Financial accountability requires the agent to care for the money of others, as well as deliver all signed documents to the appropriate parties in the real estate transaction.
10.9 Compensation and the Creation of Agency Relationships #
The sole act of compensating a real estate licensee does not create an agency relationship. For example, with the buyer’s consent, the selling agent can agree to act as an agent for only the buyer. In this situation, the agent is not the seller’s agent, even if by agreement the agent can receive compensation for services rendered either in full or in part from the seller.
10.10 Agency Disclosure Law #
The listing and selling brokers must orally inform the buyer and seller and in writing using the Agency Disclosure form whether they are acting exclusively as agents of the buyer, exclusively as agents of the seller, or representing both seller and buyer as a dual agent. The purpose of this oral disclosure is to inform either the buyer or seller who the agent intends to represent.
10.11 Refusal of Seller or Buyer to sign the Acknowledgement of Receipt #
In the event of a refusal to sign the Agency Disclosure Form Acknowledgment, the Associate shall set forth, sign, and date a written declaration of the facts of the refusal. Some sellers or buyers may not even want to read the form, document this as well.
10.12 Undisclosed Dual Agency #
Undisclosed dual agency is always illegal. The dual agent must always disclose and obtain the consent of both parties.
10.13 Dual Agency Considerations (if permitted in your State) #
Company policy recommends that any Associates proceed very carefully in any dual agency situation.
If the Associate does not have significant experience representing clients in a dual agency, the Company recommends allowing the Broker or Manager to appoint a senior or more experienced affiliated licensee to help you with the transaction. The Broker or Manager may ask you to represent a buyer or seller without committing the other affiliated licensees in the Company to the same agency relationship. This method allows two licensees within the Company to fully represent all parties in a given transaction without being limited by dual agency.
Here are additional practices that must take place in the event of dual agency:
- The Broker or Manager must inform in writing both the seller and buyer of the appointment of the designated Associate for the buyer and the seller. Both the seller and the buyer must consent to the appointment.
- No licensee may act as a designated Associate who has received any confidential information concerning the other party to the transaction.
The Broker or Manager must take certain measures to guarantee the protection of each client’s confidential information. Such measures may include, but not be limited to the following:
- All discussions concerning confidential information between agents and clients must be in an environment that allows for privacy. Conversation over speaker telephones or with conference room or office doors open would not be permitted.
- All documents containing confidential information should be kept in a secure place and inaccessible to other licensees.
- A system must be in place to protect the confidentiality of fax transmissions and telephone messages.
- The same office personnel or assistants may not assist agents who represent different clients in the same transaction. Different personnel should be assigned to work with the different agents in the transaction.
- If the Broker or Manager becomes aware of any compromise in the designated agency relationship, then such intentional or inadvertent disclosure of confidential information should be immediately disclosed to the client.
For additional information, reference the “Handling Clients” section of this manual for more policies and procedures regarding dual agency.
10.14 Terminating an Agency Relationship #
Company policy is to discuss the termination of any agency relationships with the Broker or Manager before doing so orally or in writing.
Agency relationships are terminated in a variety of ways. Here are some examples:
- Performance – The agency relationship terminates when the purpose for which it was created is fulfilled.
- Mutual Agreement – The principal and agent can agree to terminate the agency relationship prior to the terms stipulated or implied in the agreement.
- Death or Incapacity – If either the principal or agent should die or become incapacitated, the agency relationship automatically terminates. This includes termination with the brokerage.
- Expiration – The agency agreement terminates on the expiration date, regardless of whether the purpose that the agency agreement was created has been fulfilled.
- Resignation of Agent – The agent can resign at any time. Since the services contracted for in the agreement are usually personal in nature, the principal cannot sue for specific performance. However, the agent can be liable for breach of contract. As an example, if an agent were to breach a provision of their Independent Contractor Agreement such as revealing trade secrets that were agreed to remain confidential, the agent could be liable.
- Unilateral Discharge – The agency relationship terminates if the principal discharges (fires) the agent prior to the expiration of the agreement. The principal can sometimes be held liable for damages sustained by the agent for expenses incurred to date.
- Change in the Law – If the subject matter of the agency agreement becomes illegal after the agency agreement is created, the agency terminates when the subject matter becomes illegal.
- Material Change in Circumstances – If there is a material change in circumstances affecting the subject matter of the agency agreement that makes the agreement impossible or impractical to perform.
- Bankruptcy – In the case of a bankruptcy, title to property passes by operation of law to a court appointed receiver.
When a principal files bankruptcy, the agency terminates. In some cases, the bankruptcy of the agent can also terminate the agency relationship.
10.15 Breach of Duties #
Common law fiduciary duties and statutory duties become the affirmative obligations of the agent at the very moment the agency relationship is created. If the agent fails to perform these duties, a legal breach occurs. This is the case regardless of whether the breach arises out of innocent, negligent, or intentional conduct.
The principal can also be held responsible for a breach of the agency relationship. If this occurs, the principal can be liable for damages. Most lawsuits against licensees arise out of conduct that either lead to a breach of a fiduciary duty owed to the principal or the expanding legal duties owed to a third party. Any breach of duties owed to a principal or third party can subject the licensee to civil damages or criminal prosecution. In addition, the State Real Estate Commission can impose a wide range of disciplinary actions on the licensee who breaches fiduciary duties.
10.16 Misrepresentation #
Company policy is to never misrepresent any facts to anyone at any time.
The courts have traditionally defined misrepresentation as knowingly making a false statement upon which another may rely to their detriment. However, the courts have expanded this basic standard to include what a licensee should know. Therefore, in addition to knowingly making a false representation to either a client or customer, a representation made with a reasonable basis for believing its truth may also be misrepresentation. The REALTOR® Code of Ethics, States’ licensing and administrative laws, business and professions code, statute or chapters, and the Real Estate’s Commissioner’s Regulations address many common areas of misrepresentation.
The basic Real Estate Law dealing with misrepresentation is found in the States’ licensing and administrative laws, business and professions codes, statutes or chapters. The rules prohibit the following:
- Making any substantial misrepresentation.
- Making any false promises of a character likely to influence, persuade, or induce.
- A continued and flagrant course of misrepresentation or making false promises through real estate agents or salesmen.
- Conduct which constitutes fraud or dishonest dealing, whether of the same or a different character than specified in this section.
Although most State code sections do not identify or list specific acts of conduct that are prohibited, the broad language of the law clearly is intent on prohibiting all attempts to misrepresent.
Misrepresentation can also rise to the level of fraud. Lawsuits against sellers and real estate agents based on fraud are based upon the premise that liability should result from either an affirmative or intentional misrepresentation or from a negative or nondisclosure of a fact.
State rules typically define actual fraud as:
Actual fraud, within the meaning of this Chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract:
- The suggestion, as a fact, of that which is not true, by one who does not believe it to be true;
- The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
- The suppression of that which is true, by one having knowledge or belief of the fact;
- A promise made without any intention of performing it; or,
- Any other act fitted to deceive.
State rules typically define constructive fraud as:
- Any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or,
- Any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud.
Unethical conduct may also arise out of the negligent acts of a licensee. Unethical conduct based upon a negligence theory is the concept that a licensee can be held liable for not exercising ordinary care and skill in the conduct of their real estate practice. This in turn leads to their client being damaged economically. The fiduciary duties required by an agency relationship demands the exercise of a high standard of care. Licensee conduct that falls below the high standard of care requirement is often based upon conduct that is considered negligence.
State rules typically defines negligence as:
Everyone is responsible, not only for the result of his or her willful acts, but also for an injury occasioned to another by his or her want of ordinary care or skill in the management of his or her property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury upon himself or herself.
10.17 Non-Disclosure #
Related to misrepresentation is the concept of disclosure or non-disclosure of a material fact. As a rule, the real estate licensee has a duty to disclose facts that are material to the prospective purchaser. Material facts are those that would be likely to affect the conduct of a reasonable person. While some material facts are a matter of law, others will vary with the facts of each transaction. A fact is material if the offering party would not have entered the contract or would have contracted for less had the fact been known. Company policy is to disclose all material facts at all times to any type of client represented.
10.18 Conflict of Interest #
Company policy prohibits any conduct in which a conflict of interest exists or could arise. Examples of these situations are as follows:
- Information relating to confidential matters gained from the principal cannot be disclosed. Thus, a seller’s agent cannot disclose the financial condition of the seller, the seller’s willingness to take a lesser price, the seller’s desperation to sell, etc., unless specifically authorized to do so by the seller.
- The duty of loyalty requires an agent to disclose his/her interest in a property that is for sale, or to disclose that he/she is making an offer on a property for his/her own account.
- The duty of loyalty prohibits a divided agency, also known as an undisclosed dual agency, where an agent acts on the account of an adverse party without the principal’s knowledge or consent. The issues regarding an undisclosed dual agency are discussed later in detail.
- The duty of loyalty prohibits competing with the principal on the agent’s own account, or for another, in matters relating to the subject of the agency. A common example of this prohibited conduct would be a licensee taking an underpriced listing and then personally purchasing that property with full knowledge that the property is underpriced and the intent of making a gain.
10.19 Prohibited Conduct With Respect to Clients and Customers #
The following policies are prohibited activities for any Company Associates at any time.
10.20 Misrepresenting Market Value #
Company policy is to never misrepresent market value to anyone. (REALTOR® Code Standard of Practice 1-3)
A licensee is not permitted to knowingly make a false representation as to the value of a seller’s property in an attempt to secure a listing. Unfortunately, licensees frequently violate this ethical standard. Agents face fierce competition to obtain listings. Consequently, many licensees knowingly represent to a seller that the listing price of their property should be higher than reasonable facts can justify. This practice is referred to as “buying the listing”. The seller, not understanding that a willing buyer will have to pay an inflated listing price, is led to believe that the listing agent suggesting the highest price can actually “get me more for my property” than those agents who may have been fair and honest about the price of the property. The licensee that listed the property at the inflated price knows that the property will not sell at that price. The licensee then beats the seller down in price during the term of the listing in order to bring the price in line with reality – the reality originally presented to the seller by competing listing agents. This method of buying listings is a serious ethical violation and should not be practiced by any licensee.
Another example of prohibited activity would be a licensee listing a property having the fair market value of $150,000 for only $125,000. The licensee (either directly or indirectly through a friend, spouse or other person) makes an offer to purchase the property at the listed price and then immediately resells the property at full market value. Sometimes, this situation is accomplished using a “double escrow” in which the seller transfers the property to the “straw buyer” who then immediately transfers the property to the final buyer. Clearly, any licensee participating in this scheme is participating in unethical and illegal conduct.
Likewise, a licensee representing a buyer cannot misrepresent the value of the property as an attempt to induce that buyer to make an offer to purchase. An example would be a licensee only selecting comparables for a buyer’s potential property in order to justify a higher price than could be justified by a complete market statistics analysis. This attempt to misrepresent facts relating to value would result in a buyer paying more for a property than it is worth.
In short, undervaluing a property prevents the seller from realizing the full economic potential of that property. Overvaluing the property deprives the seller of the opportunity to have buyers consider the property for purchase. Manipulating market data in any way, whether for seller or buyer, constitutes misrepresentation.
A licensee is not permitted to knowingly make a false representation of the value of a property in an attempt to secure a listing or entice a buyer to pay more for a property than is justified by market data.
10.21 Misrepresentation of Savings or Benefits that might be realized through the use of a REALTOR® #
A licensee is not permitted to knowingly make a false representation that savings or benefits might be realized through the use of a REALTOR®.
10.22 Misrepresentation vs. Puffing #
The Company recognizes that sales-speak (puffing) is a common practice within the real estate industry. When using sales-speak (puffing), Associates should never misrepresent the facts. In many ways the distinction between a misrepresentation and puffing is a very fine one. Puffing should be considered “sales-speak” that is intended to induce interest, but is not necessarily a fact that a reasonable person would rely upon.
Examples of “puffing” would be as follows:
- Our real estate company is the best in town.
- This house is the best buy in the city.
- This house is simply beautiful.
However, there is a point at which the line is crossed from “puffing” to outright misrepresentation. An outright misrepresentation is a false representation by a licensee made with knowledge of its falsity or by making a representation without a reasonable basis for believing the truth of the statement. The usual standard a court applies to make the distinction is whether a reasonable person would have relied upon the statement to make a decision. The closer the statement made by the licensee moves from “opinion” to “statement of fact”, the more likely a reasonable person will have relied upon the statement of the licensee to make a decision.
A classic example of puffing occurs in listing situations where a licensee tells a potential seller that he or she has a “buyer for the property”. When a licensee merely has a buyer whom he believes would be willing to look at the property, but leads the seller to believe that he has a buyer who is ready, willing, and able to buy the seller’s property at the suggested listed price, that licensee has engaged in misrepresentation. The specific intent of inducing the seller into a listing contract by dangling an alleged quick sale is unethical. If the licensee would have said “our company works with many buyers (or we have a few buyer customers/clients) who would appreciate this property and possibly purchase it”, this would be puffing, as it does not misrepresent the actual status and interest of those potential buyers. Once a licensee moves beyond “puffing” to leading the seller to believe that an actual buyer exists who will make an offer on the property as soon as it is listed, that statement becomes a misrepresentation.
10.23 Misrepresenting Presentation of Offers #
Company policy is to never represent the existence of offers when in fact there are none. It is an ethical violation to represent that there are offers to purchase a property when in fact the licensee does not have in his possession a bona fide written offer to purchase the property at the time the representation is made.
10.24 Disclosure of Terms or Price on Existing Offers #
Company policy is to never discuss the exact price or terms of any existing offer with any third party without written consent of the parties involved. It is an ethical and confidentiality violation to disclose the exact terms or price of any existing offer to any third party on a listing or buyer that you are currently servicing.
10.25 Disclosure of Company Policies Relating to Commissions #
Company policy is to always disclose the terms of how a commission will be offered to other agents and the possibility of dual agency (if dual agency is allowed in your State). Under State real estate law the listing broker has an affirmative obligation to disclose the existence of dual or variable rate commission arrangements to cooperating brokers. These dual or variable rate commission arrangements typically provide that one amount of commission is payable if the listing agent is the procuring cause of the sale and a different amount of commission is payable if the sale results through the efforts of the seller or a cooperating agent. Once this information is disclosed to the cooperating agent, that agent has an obligation to disclose this information to their buyer before making an offer to purchase.
For example, the listing agent takes the listing at 6% and offers 3% to the selling agent but has agreed to reduce the total commission to 4% if they represent both parties. This would be considered a “dual variable rate” and must be disclosed.For example, the listing agent may not take a listing at 6% and then offer to pay the selling broker a 2% commission without disclosing to the seller that the listing agent is keeping 4%. Standard of Practice 1-13 also requires that the listing agent advise the seller of the potential for the selling agent to act as a disclosed dual agent. This situation would arise in cases where under state law the selling agent would be a dual agent if the selling agent is licensed with the same company as the listing agent.
10.26 Misrepresenting that Commissions Are Not Negotiable #
Company policy is to always disclose that commissions are negotiable. While the Company may have specific fee requirements, brokerages cannot agree among each other to a specific fee schedule. The area of fixed fees is of such great concern that most State laws forbid the printing of the commission rate in the preprinted listing agreement form which a brokerage may use, as that could lead a seller to believe that the fee is not negotiable. Most states require that the following language (varies by State) be included in all listing agreements in bold type: “NOTICE: Law does not fix the amount or rate of real estate commissions. They are set by each broker individually and may be negotiable between the seller and broker.” Only use approved State documents for any listing which includes this text.
10.27 Misrepresenting Relationships with Individual Broker #
Company policy is that Associates may not represent to a seller, a buyer, or to the public that he/she is associated with another broker when that association does not exist. While seemingly obvious, many licensees are caught in misrepresentations with respect to their broker or brokerage affiliation. Some examples include:
- A licensee currently licensed with Broker A is at a listing appointment. The licensee is planning to move his/her license to Broker B. During the listing presentation, the licensee makes the presentation and leads the seller to believe that the licensee has already transferred the license to Broker B. This is a misrepresentation.
- A licensee is affiliated with a broker who is a member of a national franchise. Many sellers and buyers associate “bigness” with performance and security. Because of the implied power of the national franchise, the licensee leads a seller or buyer to believe that they are protected by the franchisor organization. This representation is untrue and therefore unethical and a violation of law.
A licensee may not represent to a seller, buyer, or the public that he/she is associated with a broker when that association does not exist.
10.28 Misrepresentation of Closing Costs #
Company policy is to never misrepresent or avoid the discussion of closing costs. A licensee cannot underestimate or understate the probable closing costs for either a buyer or seller with the intent to induce the buyer to make an offer or to induce the seller to accept an offer. This conduct is fraudulent. As obvious as this would seem, an agent may be tempted to intentionally ignore or minimize closing costs under the assumption that everyone knows there are closing costs involved. Avoiding a discussion with a client regarding closing costs or misrepresenting total costs by intentionally underestimating them constitute conduct that is designed to mislead and is prohibited. Careless guesses as to the amount of closing costs is regarded as negligent and designed to misrepresent.
10.29 Misrepresentation of Buyer Qualification #
Company policy is to never misrepresent the qualification of a buyer. This situation would be where a licensee represents to a seller that the buyer is a pre-qualified buyer and is going to obtain new financing when the buyer is actually not pre-qualified and the agent does not know if his buyer can or cannot obtain a loan. If the seller accepts an offer relying upon these false representations and takes the property off the market and then later is confronted with the buyer’s lack of ability to obtain a loan, the seller would have a justifiable suit for damages based upon the misrepresentation of the licensee. Licensees should always confirm the pre-qualification by a lender prior to making any representations about the financial ability of the buyer to perform.
10.30 Altering a Document by Adding Unauthorized Changes #
Company policy is to NEVER ALTER a document by making additions or modifications to a previously signed or initialed document without the consent of the party that the licensee represents (NEVER SIGN OR INITIAL FOR A CLIENT). Any alteration of a document is a form of misrepresentation. A licensee may be tempted to justify an unauthorized modification because it is minor or is in the best interest of the party he/she represents, such as a forgotten initial by a client. Alteration can occur in one of two ways: either addition or deletion of information or terminology, or changing existing information or terminology. It is important to understand that any modification of a document without the consent of the party to the document is unlawful and outside the scope of authority of a licensee.
10.31 Misrepresenting the Form, Amount, or Treatment of Deposits #
Company policy is to never misrepresent the amount or form of any deposit. This situation would be where a licensee represents to a seller that the buyer has the ability to pay a 20% down payment when indeed the buyer only has a 5% down payment, or has the ability to put 20% as a down payment but intends to only put 5% as a down payment. This is a form of misrepresentation.
10.32 Misrepresenting the Size of the Property #
Company policy is to never misrepresent the size of any property. A licensee should not make any representations about property size (parcel or structure) or a boundary without a reasonable basis for believing the truth of the representations. A proper response is that a survey is the only way to determine size and boundaries of a parcel and an interior measurement is the only way to determine the size of a structure.
A licensee may not knowingly make a false or misleading representation regarding the use of a property to a prospective buyer with the intent of inducing that buyer to purchase.
10.33 Failure to Disclose Dual Agency #
Company policy is to always disclose dual agency. Failure to disclose dual agency is unethical and illegal. The dual agent must always make disclosure and obtain the consent of both parties.
10.34 Failure to Submit Offers In A Timely Manner #
Company policy is to always submit offers in a timely manner. A licensee must present all written offers to the owner of a property prior to the closing of a sale on the property. Two possible exceptions to this rule exist:
- If the seller has an accepted offer on the property and specifically states that he does not want to see any future offers.
- If the written offer is clearly frivolous, it does not have to be presented.
The best practice is to present all offers and let the seller decide what is to be considered or not. If the seller only wishes to see offers above a certain price, the Associate must obtain this in writing.
As a general rule, Associates must present all written offers to the owner of a property prior to the closing of a sale on the property.
10.35 Presentation of Competing Offers #
Company policy is to always submit offers in the order they are received by the actual date and time. When practicing real estate, a licensee is often faced with how to handle multiple offers for the same property. A common example would be a listing licensee acting as a dual agent and writing an offer for a buyer on the property he has listed. The licensee makes an appointment with the seller to present the offer, then gets a message that another licensee has written an offer and would like to present it to the seller. The licensee knows that if the second offer is accepted he will only receive the listing side of the commission and decides to ignore the message and proceed. If the seller accepts his buyer’s offer, he plans to phone the competing licensee and suggest that offer be presented as a backup offer because there is already an accepted offer on the property. This is an ethical violation as well as a violation of the fiduciary duty of loyalty whereby the listing licensee put his interest ahead of that of his seller.
If any method to present offers in a specific order is to be used, the actual date and time of the offer preparation should be used. Presenting competing offers in an order designed to induce the seller to accept one offer over the other is unethical. It also may be grounds for revocation of one’s license and termination from the Company.
10.36 Failure to Submit Additional Offers after Seller Has Accepted an Offer #
Company policy is to continue to submit ALL offers even after the seller has accepted an offer until the home is sold or unless the seller instructs the Associate in writing to stop submitting offers. Failure to submit all offers to the seller is considered to be a violation of the fiduciary duties of care and disclosure.
10.37 Disclosure of Existence of Other Offers #
Company policy is to disclose the existence of offers on a property and any unresolved contingencies. Under this standard a licensee is required to disclose the existence of offers on a property in response to inquiries from a buyer or a cooperating licensee (with the seller’s approval). Where such disclosure is authorized, the licensee must also disclose whether the offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating licensee. Standard of Practice 3-6 REALTOR® Code of Ethics also requires that, upon inquiry, a licensee must disclose whether accepted offers have unresolved contingencies. A licensee is required to disclose the existence of offers on a property and any unresolved contingencies in response to inquiries from a potential buyer or cooperating licensee.
10.38 Preserving Confidential Information #
Company policy is to preserve confidential information about our clients. As a part of the agency relationship, every licensee has an obligation to respect the confidential information entrusted to them during the course of the agency relationship. The obligation of confidentiality arises out of the agent’s fiduciary duties of care and loyalty.
10.39 Material Facts Must Be Disclosed #
Material facts or information about a property must be disclosed. If the seller knows the roof leaks, informs the agent of this fact, and asks the agent to keep the information confidential, then the agent must inform the seller that the information is material and must be disclosed to all prospective buyers.
Examples of confidential information that cannot be revealed are the following:
- Seller’s reasons for selling the property.
- Seller’s minimum acceptable sales price.
- Seller’s current financial condition.
- Fact that the seller is about to face foreclosure of the property offered for sale.
10.40 Non Disclosure of Material Facts #
A major ethical obligation of the licensee is to make full disclosure of any material facts regarding a property. An agent must obey the instructions of his principal. However, the laws on disclosure override the orders of an agent’s principal if the agent will be violating his/her disclosure obligations. The agent in this situation cannot obey his principal because in doing so he/she would violate the law.
10.41 Failure to Explain Offer Contingencies #
Licensees are required to explain offer contingencies to clients. A licensee must explain to the client the meaning and probable significance or implications of contingencies that can affect the closing date or other terms of the real estate sale agreement.
10.42 Explaining Agreements Generated by Electronic Transmission #
Today, many contractual agreements are created through the use of electronic transmissions (email, Internet, fax, etc.). These agreements include listing agreements, purchase and sale agreements, leases, buyer representation agreements, and other contracts. Due to the fact that in most electronic contractual situations personal contact between the parties is limited, the terms of the contracts are often not explained in the same way as they would be in a face-to-face situation. The point of this policy is simple:
A licensee has an obligation to explain and disclose the specific terms of the contract generated by electronic transmission prior to its execution just as would be done in a face-to-face situation.
REALTOR®Code of Ethics: Standard of Practice 9-2 also covers this in detail.
10.43 Conflicts of Interest #
Company policy is to avoid any situation where conflicts of interest could arise.
Examples of conflicts of interest:
- A licensee shows only those properties to buyer-clients that have a cooperating fee split that is acceptable to the licensee.
- A licensee fails to disclose to a buyer (in a transaction in which the licensee is an agent for that buyer) the nature and extent of the licensee’s direct or indirect ownership interest in the property. Indirect interests in a property may include relationships to the seller by blood or marriage or any other relationship with another person with whom the licensee has a special relationship (such as interest in a corporation, partnership, trust, etc.).
NOTE: State licensing laws require the licensee to disclose his/her license status when selling his/her own property, unless he/she has listed the property with another licensee. However, the REALTOR® Code of Ethics, Article 4, does consider this situation a conflict of interest that must be disclosed in writing.
10.44 Referral Fees or Kickbacks Are Prohibited #
Company policy is to never accept or request any referral fee or kickback from lenders, escrow, title, or termite companies.
Referral fees or kickbacks from lenders, escrow companies, insurance companies, pest control companies, home inspection companies, etc., may give the appearance of a conflict of interest. The Real Estate Settlement Procedures Act prohibits the payment of referral fees or finder’s fees by federally related lenders. State licensing laws prohibit receiving a referral fee from an escrow, title, or termite company.
10.45 Duty to the Public #
Company policy is to never deny equal professional services or discriminate against a person on the basis of race, color, religion, sex, handicap, familial status, national origin, or sexual orientation.
An agent must obey the instructions of his or her principal. However, all of the federal and state antidiscrimination laws limit the obligation of the agent to obey his or her principal, if in doing so, the agent will be violating the Federal or State Fair Housing laws.
Amendments to the Standard of Practice in 2006 REALTOR® Code of Ethics specifically addressed the following discrimination issues:
- A licensee may not volunteer information regarding the racial, religious, or ethnic composition of any neighborhood. However, this does not prevent a licensee from providing to a client other types of demographic information relating to a neighborhood. The types of demographic information that may be volunteered relates to such factors as age, income distribution, school children profiles, and so forth.
- A licensee may give to a client, at the request of the client, demographic information relating to racial, religious, or ethnic composition of a neighborhood, but only if the licensee deems such demographic information necessary to assist with the completion of a transaction. The licensee may provide this information only if its presentation is consistent with a non-discriminatory presentation of the data and the information is obtained or derived from a recognized, reliable, independent, and impartial source such as government census websites. The licensee may also not alter, modify, add to, or delete from the independent information so as to change the interpretation of such demographic data.
- A licensee may not engage in any activity that would result in panic selling.
- A licensee may not print, display, or circulate any statement or advertisement with respect to selling or renting of a property that indicates any discrimination, limitation, or preference based upon race, color, religion, sex, handicap, familial status, or national origin.
10.46 Providing Competent Services #
Company policy is to only claim to be competent in services the Associate has experience with (in almost all cases Associates should claim only Residential Brokerage). Unless otherwise authorized by the Broker in writing, Associates should never claim to be competent in all areas of real estate practice or areas in which they have no experience.
The REALTOR® Code of Ethics recognizes these separate areas of real estate practice:
- Residential Brokerage
- Commercial and Industrial Brokerage
- Real Property Management
- Real Estate Appraisal
- Real Estate Counseling
- Real Estate Syndication
- Real Estate Auction
- International Real Estate
For example, if a licensee who only deals in residential real estate has a client who wants to list a major apartment complex and asks the licensee to list the property, the licensee should engage the services of a licensee who specializes in commercial real estate. The commercial licensee, along with the residential licensee and the seller, should enter an agreement as to how the property can be marketed in the best interest of the seller.
10.47 Ethical Advertising #
Company policy is to only practice ethical advertising.
Any advertising that misleads is unethical. A few examples of practices that are considered unethical are:
- Any ad which relies upon a “bait and switch” scheme. Ads in this category include advertising property that has already been sold, property that is not for sale, or advertising something that sounds too good to be true.
- Use of misleading words, maps, or images that imply that the property is something other than it actually is. For example, showing a property located on a map near the ocean when, in fact, the property is located a number of blocks from the ocean.
- “Blind” ads where the ad appears to be that of a property owner when, in fact, the ad is that of a licensee.
- Making any statement in an ad that is clarified only in small print or with asterisks. For example, an ad states 5.5% interest but the small print states that this offer only applies to buyers with a credit score over 730.
- Only licensees who participated in a transaction as the listing or cooperating selling agent may claim to have “sold” a property. This rule prevents a licensee claiming that he/she “sold” a property when in fact another licensee in his/her office may have “sold” the property.
- A recent “white paper” that arose out of a National Association of REALTORS® conference addressed the issue of relisting “for sale” homes by temporarily pulling them off the market and then reintroducing them to the market as a “new” listing. The white paper concluded that while to a broker, a listing contract is technically “new” each time the property is relisted, to the consumer a “new” listing is a property that is offered “for sale” for the first time. As a result, this practice can result in confusion and misunderstanding and can mean trouble. Since the NAR Code of Ethics requires honest, truthful advertising, and requires that all communications present a true picture in their advertising and representations, the relisting a property as “new” practice should be viewed as deceptive. Licensees should refer to relisted properties as “back on market” or, “price reduced”. The white paper also encourages MLS services to implement additional listing input categories such as “reintroduced” or “recently relisted”.
10.48 Sharing Information and iI-Framing on the Internet #
Company policy is to only practice ethical advertising.
Licensees are prohibited from selling or sharing consumer information gathered over the Internet without first disclosing the possibility that such information may be sold or shared. Any disclosures relating to possible shared or sold information must be readily apparent.
A licensee is prohibited from engaging in deceptive or unauthorized framing of real estate brokerage websites. IFraming means extracting the contents of someone else’s web site and placing that information within a “frame” on the licensee’s web site. The result makes it appear that the information originates on the licensee’s web site when in fact it does not.
10.49 Offering Prizes, Inducements, and Free Services (if permitted by your State) #
Company policy is to offer prizes, inducement, and services in an ethical and honest way. Each State has different laws and requirements for offering prizes, inducements and free services. Several States nationwide prohibit this practice. Check with the Broker or Manager to ensure compliance with your State laws.
The REALTOR® Code of Ethics permits offering premiums, prizes, merchandise discounts, or other inducements to list, sell, purchase, or lease real property. This is the case even if the receipt of the benefit is contingent upon the listing, selling, purchasing, or leasing of the real property through the REALTOR® making the offer. The code of ethics does not consider these activities unethical. They are viewed as normal sales and marketing tools common in most areas of American commerce. Caution should be taken, however, to be accurate and thoroughly explain the terms of the offer to the public.
For example, a licensee, desiring to represent buyers exclusively, advertises in a real estate publication:
“Why not use a buyer’s agent? As a buyer, it costs you nothing.” Obviously, the licensee does not intend to work for free. Rather, the seller will be paying the fee. The licensee must disclose to the buyer how the fee arrangement works.
Licensees may use the term “free” only if all of the terms and conditions relating to the availability of the “free” product or service offered are clearly disclosed. For example, a licensee places an ad that states “Call for a free market analysis on your home.” The ad must also state under what conditions the licensee will provide the “free” market analysis.
The offering of prizes or inducements is not illegal as long as the licensee clearly discloses the terms and conditions of the offer. Offering prizes or inducements are always subject to the limitations or restriction of state law.
10.50 Offering Property for Sale without Authority #
Company policy is that Associates may not offer for sale or lease or advertise a property without the authority of the property owner.
Also prohibited under this standard is the practice of leaving a “For Sale” sign on a property after a listing has expired or been withdrawn. In addition, the licensee cannot quote a different price for a property than the listed price.
10.51 Name of Firm Must Be Disclosed in Advertising #
Company policy is that all property advertised for sale must disclose the name of the Company and its State license number. Certain States require the firm’s location or phone number to also be advertised. Check with your Manager or Broker to ensure your advertising meets all requirements of your particular State.
This means that an agent cannot advertise a property and simply put his or her name on the advertisement. The name of the firm with which he/she is affiliated must be stated and be readily apparent in all advertising relating to a listed property as well as the Firm’s license number, whether the advertising is in the form of print, radio, television, or electronic medium.
If you have a DBA, or “team” name, or anything else besides your legal name that you advertise, you must register the DBA name with the county and the State Real Estate Commision.
10.52 Disclosure of License Status #
Company policy is to always disclose license status.
For example, a licensee owns rental property or is a partner in rental property. The property is offered “for sale” in the newspaper. This REALTOR® Code of Ethics Standard of Practice requires that the licensee disclose his/her licensee status in all advertising.
10.53 Unauthorized Practice of Law #
Company policy is that Associates do not practice law. A common example is the drafting of non-standard or common conditions or contingencies. Agents should refer the client to an expert in that field. Here are some examples of conduct that should be viewed as the practice of law:
- Advising a seller on how to complete a seller’s property disclosure statement where issues of disclosure or non-disclosure have legal liability or implications.
- Advising clients on real estate related tax issues connected to the purchase or sale of property, or the ownership of property.
- Advising clients on the terms and conditions of loan documents and their legal implications.
- Advising clients on how to take title to property.
- Advising clients on foreclosure issues and procedures.
- Giving a legal opinion on the validity and technical points of an IRC 1031 Tax Deferred Exchange.
10.54 Cooperation in REALTOR® Professional Standards Hearings #
Company policy is to cooperate in any REALTOR® Professional Standards hearings. As a member of a REALTOR® organization (either national, state, or local) a REALTOR® is obligated to cooperate in any ethical or standards of practice proceeding or investigation if charged with unethical conduct. This obligation extends to providing evidence or cooperating in any way so that the alleged violation will be resolved. In addition, the Board’s investigative process or proceedings cannot be obstructed by instituting or threatening to institute actions for libel, slander, or defamation against any party to a professional standards proceeding.
10.55 Duties to All REALTORS® #
Company policy is to treat all REALTORS® fairly and ethically.
10.56 Making False or Misleading Statements about Competitors #
Company policy is not to slander or make false or misleading statements about competitors to anyone. By making false, derogatory or misleading statements about competitors agents open up the agent and the Company to potential liability such as a slander lawsuit. Due to the highly competitive nature of the real estate business, a standard of practice was added prohibiting licensees from making or repeating false or misleading statements about their competitors in order to obtain an advantage. REALTOR® Code of Ethics Standard of Practice 15-2 states:
- “The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means.”
10.57 Interfering with Agency Relationships #
Company policy is not to interfere with existing agency relationships. For example, a licensee cannot use the multiple listing service information of those sellers listed in a certain geographic area as the specific target of a solicitation or communication.
The general rule is that an agent may not solicit a listing that is currently listed exclusively with another agent. However, if the listing agent refuses to provide the expiration date of the listing when asked by a competing licensee, the licensee can contact the listing agent’s client for the purpose of securing the listing expiration date. They can also discuss the terms under which a future listing might be taken or can even take a listing effective upon the expiration of the exclusive listing of the current listing agent. This same principle applies to buyers or tenants that are currently under contract with a licensee.
If the client of a REALTOR® contacts a competing REALTOR® during the term of an existing exclusive agency relationship to discuss the same type of service currently being provided by a REALTOR®, the competing REALTOR® may discuss the terms under which they would enter into a future agreement or can enter into an agreement which becomes effective upon the expiration of the existing exclusive agreement. The competing REALTOR® can take these actions only if that REALTOR® did not directly or indirectly initiate the discussions. Document this scenario well if it occurs.
Clients who have worked with a REALTOR® on prior engagements can be contacted by a competing REALTOR® for future business.
Prior to entering into an agency relationship with a client, a REALTOR® must take affirmative steps to be assured that the client is not currently subject to a valid exclusive agreement to provide the same type of real estate services with another agent. This rule is often ignored. For example, a licensee holds an open house and an individual visits the open house. The licensee under this rule has an obligation to inquire if the individual is engaged in an agency relationship with another licensee prior to drawing the individual into a conversation relating to the property or other properties that might fit the desired parameters of that individual.
Similarly, on unlisted properties, an agent must disclose his/her status as a buyer’s agent to the seller at first contact and again disclose that relationship in writing no later than the execution of any purchase and sale agreement. If the buyer’s agent desires to be compensated by the seller for any potential sale, the agent must make the request for such compensation at the first contact.
An agent acting as the agent of a seller must disclose that relationship to the buyer as soon as practical and provide written confirmation of such disclosure to the buyer no later than the execution of any purchase agreement.
Once a client, whether a seller or a buyer, is in an agency relationship with a licensee, all dealings with that individual must be conducted through their agent. There are two exceptions to this rule;
- The client’s agent consents to direct contact with the client.
- The client initiates direct dealings.
No compensation shall be offered, either directly or indirectly, to any affiliated licensee of the managing broker without the prior knowledge and consent of the managing broker.
A subagent of a seller, who is working with a buyer or a buyer’s broker, cannot use the terms of the offer to purchase to attempt to modify the listing broker’s offer of compensation to the subagent or buyer’s broker or make an offer to purchase contingent on the listing broker’s agreement to modify the offer of compensation.
Example: In order to secure the balance of the commission, Brian has his buyer make his offer subject to Brian receiving a 2.5% fee. This practice is prohibited by the REALTOR® Code of Ethics Standards of Practice as it would in essence be an attempt to force a modification of the listing agent’s offer of compensation to the cooperating agent.
An agent may not place any sign or notice on a property for sale or lease without the consent of the seller/landlord.
An agent contemplating terminating the relationship with his/her managing broker may not induce clients to cancel exclusive contractual agreements between the client and the firm and rewrite them after the move. However, the managing broker can establish agreements with affiliated licensees that address when the managing broker will consent to a departing affiliated licensee asking a client to follow that licensee in the event they terminate their relationship with the managing broker and either go out on their own or join another brokerage.
A licensee may not interfere with any existing agency relationship established between another licensee and their client.
10.58 Real Estate Commission Complaints #
Associates agree to discuss with their Broker any previous or current complaints on record with any State, MLS, local Board, State regulation or any other governing authority before conducting real estate activities with the Company.
10.59 Restricted or Temporary Licenses (term varies by State) #
Any Associate with a “restricted” or “temporary” license requires extra supervision per the State Real Estate Commission. Associates are required to disclose any restricted license status to the Broker and provide documentation and written explanation of the facts involved.
10.60 Pending, Closed or Potential Lawsuits #
Any Associate that has been involved in any pending, closed or potential lawsuit must disclose the details of that lawsuit and provide a written explanation of the facts before conducting any services for the Company.
10.61 Signing Agreements with Third Parties #
Associates will not sign any agreement with any third party that involves the practice of any real estate, or any duties or activities that may affect the Company, without the Broker reviewing the agreement and approving the agreement first.
10.62 Continuing Education #
Associates agree to attend continuing education on a regular basis and share with the other Associates anything that may affect, benefit, or harm the Company.
10.63 Written and Oral Exams #
From time to time the Company may publish a written and oral exam to help Associates stay in touch with changing laws or rules that affect the real estate business. Associate agrees to participate in those exams and complete any exam presented.