Lessons in Professionalism

 Debbi Conrad  |    December 08, 2016

Some licensees may tend to think that the National Association of REALTORS¬ģ‚Äô Code of Ethics is a set of highbrow, aspirational rules that don‚Äôt really come into play in the real world, but you know differently. The articles and standards in the REALTOR¬ģ Code of Ethics have a significant impact on daily brokerage practice.

Arbitration for commission: Articles 16 and 17

In divorce there may be hesitation, and another agent slides into the fray!

The property was listed with a 5 percent commission. The listing agent showed the buyer the property, and they negotiated. Alas, although the buyer was interested, he was reluctant to proceed immediately because of his impending divorce. The listing agent stayed in touch with the buyer ‚ÄĒ but the next thing the agent knew, a buyer‚Äôs agent showed the property and wrote the offer for that very same buyer. The offer says the seller agrees to pay the buyer‚Äôs broker‚Äôs fee of 3 percent on behalf of the buyer at closing. The listing agent modified the listing contract to have the seller pay a 6 percent commission to be split 3 percent to the listing agent and 3 percent to the buyer‚Äôs agent.¬†

The buyer’s agent believes that there can be no arbitration because the seller is paying the 3 percent per the offer, not pursuant to MLS compensation, and that it wouldn’t matter any way because she is procuring cause because she is a buyer’s agent.

  • The fact that the offer is written with the buyer asking the seller to pay the buyer‚Äôs broker‚Äôs fee is acceptable. Article 16 of the Code of Ethics and NAR Case Interpretation #16-17 indicate that a buyer‚Äôs broker may ethically suggest or recommend that the buyer ask the seller to pay some or all of the buyer‚Äôs broker‚Äôs fee. In other words, a buyer may condition an offer upon the seller paying the buyer‚Äôs broker‚Äôs fee on behalf of the buyer as a seller‚Äôs expense.
  • The buyer‚Äôs request for the seller to pay the buyer agency fee does not necessarily prevent REALTOR¬ģ arbitration. Article 17 of the Code of Ethics sets forth criteria for REALTOR¬ģ arbitration that may apply. Specifically, Standard of Practice 17-4(5) provides that (a) if a buyer‚Äôs broker is compensated by the seller and not by the listing firm, (b) the listing firm consequently reduces the commission owed by the seller, and (c) the listing firm ends up claiming to be the procuring cause, then that is arbitrable. In such cases, arbitration would be between the listing firm and the buyer‚Äôs broker, and the amount in dispute is limited to the amount by which the listing commission was reduced.¬†

If the listing firm whose agent had originally showed the property to the divorcing buyer reduced the commission owed by the seller, presumably because the seller accepted an offer to pay the buyer 3 percent to pay the buyer’s broker, then the issue will be arbitrable. On the other hand, if the listing broker did not reduce the listing commission, then the seller will pay the full commission per the listing contract and in addition pay the amount agreed to in the accepted offer. In such a situation, there would be no arbitrable issue.

Lessons learned:

  1. An offer may be written wherein the buyer asks the seller to pay the buyer’s broker’s fee.
  2. Functioning as a buyer’s broker does not guarantee procuring cause or the commission.
  3. If the seller pays the buyer’s broker’s fee, the key to arbitrability is whether the listing firm reduced the amount of commission the seller has to pay.

Advertising property sales: Article 12

But I really did sell all of those properties! 

The broker worked for many years with firm XYZ and had all gotten along famously, but the broker decided it was time for a change. The broker left firm XYZ and associated with firm ABC. The broker had her own website where she proudly proclaimed, ‚ÄúSold by REALTOR¬ģ F!‚ÄĚ and listed the addresses of her listings that were sold by her or by a cooperating broker. The website at first stated the name of firm XYZ, but then she appropriately changed it to firm ABC after she shifted companies. She thought she had parted ways with firm XYZ on amicable terms, so she was surprised to hear the principal broker from firm XYZ filed an ethics complaint against her, alleging Article 12 violations. Firm XYZ alleged her website enumerating sold listings was not a true picture because most of the listings were by firm XYZ but were now on the website of a broker associated with firm ABC, falsely suggesting that firm ABC was involved with those properties.

Standard of Practice 12-7 provides, ‚ÄúOnly REALTORS¬ģ who participated in the transaction as a listing broker or cooperating broker (selling broker) may claim to have ‚Äėsold‚Äô the property.‚ÄĚ The advertising under firm ABC was confusing and misleading, even though the broker had listed all of those properties. The key to sorting out the situation is a disclaimer. If the broker had included language on her website indicating that the properties included listings from when she was affiliated with another firm, she would have been spared from the ethics violation.¬†

Lessons learned:

  1. Tell the truth, the whole truth, and nothing but the truth in advertising.
  2. Use disclaimers to eliminate possibly confusing or misleading representations.

See Case Interpretation #12-26, ‚ÄúAdvertising Role in Sales after Changing Firm Affiliation,‚ÄĚ from the Code of Ethics and Arbitration Manual at www.realtor.org/code-of-ethics-and-arbitration-manual and Case Interpretation #12-25, ‚ÄúAdvertising Role in Sales After Changing Firm AfÔ¨Āliation,‚ÄĚ at www.realtor.org/2013-code-of-ethics-and-arbitration-manual/case-interpretations/related-to-article-12.¬†

Protecting the client’s property: Articles 1 and 3 

Freely giving out the lockbox combination defeats the purpose!

A prospective buyer and an agent set up a showing. Something came up and the agent was unable to make it. Rather than sending another agent from the firm to show the property, the agent gave the buyer the lockbox combination and told the buyer to go ahead and look around. 

Such conduct is a serious security breach because the agent allowed the prospect to freely visit the property. Thus the prospect could visit as many times as he might like as well as bring friends and neighbors and hoodlums and criminals along. All of these ‚Äúguests‚ÄĚ could pass the combination along.

Should the seller find out about all the assorted people traipsing about his property, he could file an ethics complaint against the agent. If the agent is from the listing firm, this conduct violates Article 1, which requires REALTORS¬ģ to act as a professional to protect and promote the interests of their clients. If the agent is from a cooperating firm, then the violation is likely under Article 3. Standard of Practice 3-9 provides: ‚ÄúREALTORS¬ģ shall not provide access to listed property on terms other than those established by the owner or the listing broker.‚ÄĚ This assumes the owner did not intend that the lockbox combination be distributed to anyone other than serious buyers.

Lesson learned:

  1. Take the obligation to safeguard the client’s property seriously.
  2. Don‚Äôt sacrifice security for personal convenience ‚ÄĒ go that extra mile!

For NAR Case Interpretation #1-7, ‚ÄúObligation to Protect Client‚Äôs Interests,‚ÄĚ visit www.realtor.org/code-of-ethics-and-arbitration-manual/case-interpretations/case-interpretations-related-to-article-1.¬†

Equal services for all: Article 10 

‚ÄúChoose your neighbor‚ÄĚ tactic is discriminatory

The broker listed a home in an exclusive area of town. The seller explicitly directed that there would be no MLS listing, media ads and ‚ÄúFor Sale‚ÄĚ signs. The seller emphasized that the new purchasers must ‚ÄúÔ¨Āt into the neighborhood ‚ÄĒ people with the same background‚ÄĚ as the other residents of the subdivision. The only marketing was to be a letter to other property owners in the area: ‚ÄúPlay a part in the decision of who your next neighbor will be. If you know of someone who you would like to live in the neighborhood, please let them know of the availability of this home, or call me and I will be happy to contact them and arrange a private showing.‚Ä̬†

The letter came to the attention of a real estate broker whose family lived in the area. He filed an ethics complaint for violation of Article 10, alleging that the broker deliberately discriminated against home seekers from other areas, or those with different backgrounds, who would never have the opportunity to learn about the house‚Äôs availability. The exclusive use of ‚ÄúChoose Your Neighbor‚ÄĚ letters to market the property was apparently designed to circumvent Article 10 and was clearly a violation.

Lesson learned:
No instruction from a client absolves a REALTOR¬ģ from the obligation to market properties without regard to race, color, religion, sex, handicap, familial status, country of national origin, sexual orientation or gender identity.

See Case Interpretation #10-4, ‚ÄúUse of ‚ÄėChoose Your Neighbor‚Äô Marketing Letters,‚ÄĚ at www.realtor.org/code-of-ethics-and-arbitration-manual/case-interpretations/case-interpretations-related-to-article-10.

Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.

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