REALTOR® Code of Ethics Begins Its 2nd Century

 Kevin King  |    March 07, 2013

In 1908, a group of 120 men from across the United States and Canada gathered in Chicago to organize the National Association of Real Estate Exchanges, later to become the National Association of Real Estate Boards in 1916 and finally the National Association of REALTORS® in 1974. This was not the first attempt at a national association, but the one that ultimately survived the test of time. The initial membership numbered 1646. The membership fee was $50 and annual dues set at $1 per year.

It may be helpful to understand the real estate environment at the turn of the 20th century. Land had become a valuable commodity as a growing middle class began to desire homeownership. Although many trustworthy, respectable men wanted to help the public — keep in mind that women at this time had yet to make their mark in this area — there were others willing to take advantage of the fact that real estate brokerage was essentially unregulated, as this era preceded the adoption of regulatory licensing systems. Early 20th century real estate was an environment marked by the fraudulent subdivision, multiple first mortgages, and other get-rich-quick schemes.

One egregious example is Peter van Vissingen, himself from Chicago. In the very year that the National Association of Real Estate Exchanges (NAREE) was formed, van Vissingen was charged with forging mortgage documents and title deeds. He subsequently confessed to swindling 25 people out of $700,000 over 18 years; later, he was found to have defrauded more than 100 people totally more than $2 million. An interesting sidenote to this case: apparently fearing for his safety once charges became public, van Vissingen requested a speedy trial. And in what has to be some sort of record, he was arrested at 1:30 p.m., brought before the court and in jail by 5:15 p.m. that very afternoon.

NAREE’s objective was to adopt a uniform method of doing business. As Edward A. Halsey, chairman of the national organization committee stated, “We propose, if we can, to wipe out the riffraff that brings this business into disrepute.” To that end, the new association created standing committees on financing and auditing, taxation, state and municipal legislation, organization of new local boards and a code of ethics.

Five years later, the anxiously anticipated report of the Committee on the Code of Ethics was brought before the board of directors during NAREE’s sixth annual convention in Winnipeg. Edward S. Judd, 1912 NAREE president, put forward the following motion: “The motion is for the adoption of the Rules of Conduct and that a recommendation be sent to the local boards that they be adopted as much as possible and they be taken as the Code of Ethics of the national association, and their adoption [is] recommended everywhere as far as possible.” The motion was carried by voice vote. 

Adoption of the Code

By adopting the Rules of Conduct, the association became the first business — with the exception of a now-defunct association of printers — outside of medicine, engineering and law to adopt a code of ethics. Local boards initially were asked to voluntarily adopt the rules; however mandatory adoption was made a condition of membership in 1924. 

In 1978, William D. North, former executive vice president and general counsel of the National Association of REALTORS® (NAR), called the Code an “unusual Gift of Vision: the vision of those who dreamed that the business of real estate could become a profession, the vision of those who believed that the search for the highest and best use of the land required the highest and best measures of professional responsibility, and the vision of those who recognized private ownership of the land as indispensable to political democracy and a free and prosperous citizenry.” He also noted that the unifying rationale, which continues in today’s version, is the concept of “Service to the Public.”

It is interesting to look at the language of the first Rules of Conduct, which consisted of 23 statements divided into Duties to Clients and Duties to Other Brokers. For example, under Duties to Clients, we find the following:

  • Be absolutely honest, truthful, faithful and efficient … and [your client] is entitled to the best service the real estate man can give — his information, talent, time, services, loyalty, confidence and fidelity. (Well said.)
  • Be conservative in giving advice and, where not well posted, refrain from giving opinion of value. (Some may wish this was still part of the Code.)
  • Do not depreciate the price of property unless the price is too high; ask that the price be reasonable, and tell the owner that it must be so if he expects his agent to make an attempt to sell it. (Wouldn’t it be fun to be able to say this to the seller with the inflated price?)
  • Obtain sole agency, in writing, if it is property worthy of a special effort to sell. (Even in 1913, the concept of exclusive agency as being in the best interests of the parties was understood.)
  • Do not give special information to inquiries over the telephone, or otherwise, unless they are willing to give their names and addresses. Let them understand that the broker deals in the open and expects them to do likewise. (I’m not sure how many telephones existed then, but I love the statement “the broker deals in the open and expects them to do likewise”.)
  • An agent should always exact the regular real estate commission of the association of which he is a member, and always give his client to understand at the beginning that he is entitled to such and expects it. (Associations are no longer allowed legally to establish commissions, but the second part of this statement is still certainly true today.)

Under the section Duties of Other Brokers, brokers agree among other things:

  • An agent should respect the listings of his brother agent, and cooperate with him to sell, provided the other agent has the most suitable place. (100 years ago, brokers believed in the value of cooperating with each other in the best interests of the public they serve.)
  • Always be loyal, square, frank and earnest in the matters that require cooperation of brokers, and always speak kindly of competitors, refusing to pass judgment on others from hearsay evidence. (While we use different words today, I’m not certain that we state it any better.)
  • Advertise nothing but facts … (Perfect — enough said.)
  • If an agent cannot efficiently handle a proposition, he should refer the matter to some competitor instead. (The concept of competence was recognized in 1913.)
  • Invoke friendly arbitrations by the Real Estate Association rather than through the court of law, in settling differences with other agents. (The commitment to peer review as being advantageous over submission to the courts was supported even then.)

Amendments over the years

The Code of Ethics is described as a “living document” — a document that preserves its significance, relevance and usefulness despite the passage of time. It was meant to evolve, and as such has been amended over the years. Early amendments took place in 1914, 1915, 1924 and 1928; an amendment prohibiting “horseback appraisals” — known as “drive-by appraisals” today — was added. One of the significant changes in 1924 was the addition of the Preamble to the Code. This original language has stood the test of time, with the exception of one brief period from 1955 to 1961. Subsequent amendments moved the former aspirational Articles 1-6 of the Code into the Preamble and added, among others, obligations to share professional knowledge and maintain the spirit of cooperation among real estate professionals.

After the 1928 amendments, the Code was declared “complete” and was not amended again until 1950. A survey of members in 1948 found that the Code was dated and no longer a source of pride. Therefore, the Professional Standards Committee, created in 1946, began its efforts to update the Code. However, proposed revisions were delayed as an antitrust action by the federal government required the Association’s immediate attention.

The antitrust action centered on the then Article 9, which required REALTORS® to follow local board’s published real estate commissions and fees. The U.S. Justice Department alleged such rate setting was anticompetitive. NAR argued that this provision protected consumers from paying unfair and arbitrary fees. In 1950, the U.S. Supreme Court agreed with the Justice Department and declared Article 9 illegal, and the article was subsequently removed from the Code. 

Today’s REALTOR® Code of Ethics

The Code was then amended on 10 different occasions between 1952 and 1987. The Code has received amendments every year between 1989 and 2012. The goal of each revision is to refine the principles obligating REALTORS® to the highest and best standards of personal and professional conduct.

To keep pace with new business practices today, notable changes in recent years include:

  • The original Code followed the convention of using male pronouns and other gender-specific language. In 1989, the Code underwent revision to gender-neutral language.
  • Under Duties to Clients and Customers, amendments were made to recognize the growth in buyer agency as well as the legally recognized non-agency relationships practiced in several states.
  • The importance of presenting a “true picture” exists not only in advertising but in marketing and representations to the public as well. This requires that your company name is readily apparent in your real estate advertising, which includes the Internet, as well as in social media, blogging and tweeting. An exception is made to permit a link to a display that includes the required disclosures where the disclosure may not be practical in an electronic display of limited information, such as thumbnails, text messages or tweets.
  • Without question, it is unethical to use domain names that present less than a true picture. In addition, it is unethical to even register a domain name that, if used, would present less than a true picture.
  • It is unethical for you to present content developed by others in your advertising, marketing or other representations — whether in print, electronic or other media — without either appropriate attribution or permission.
  • The obligation to not knowingly or recklessly make false or misleading statements about other real estate professionals includes the duty to monitor your blogs, Facebook walls/pages and other electronic media for comments made by others. Further, you have an obligation to immediately remove such statements or to publish a clarification once you know the information is false or misleading.

REALTORS® in Wisconsin can be particularly proud of a change that went into effect on January 1, 2011. In 1974, Article 10 was created to bring the Code in line with the federal fair housing and employment laws. A revision in 1989 incorporated the federal amendments to the Fair Housing Act dealing with handicap and familial status. In 2010, at the request of many but initiated in large part by the WRA and its Cultural Diversity in Housing Committee, the NAR board of directors approved a recommendation from its Professional Standards Committee to go beyond federal law and include in Article 10 a requirement for equal professional service and employment opportunity regardless of sexual orientation.

Today, the Code consists of 17 Articles divided into three categories: (1) Duties to Clients and Customers, (2) Duties to the Public and (3) Duties to REALTORS®. In addition, there are 71 supporting Standards of Practice and 131 explanatory Case Interpretations. In the end, the Code is much more than a bunch of rules. It embodies the standards of conduct by which REALTORS® can model their behavior. It is our philosophical values as REALTORS®.
As Mr. North concluded in his article The REALTOR® Code of Ethics — A Gift of Vision, “To REALTORS®, the Code of Ethics offers the lessons of hindsight, the guidance of foresight, and the understanding of insight — A Rare Gift of Vision.”

Note: I would like to acknowledge and thank NAR for its wonderful resources under the Code of Ethics Centennial on used in preparation of this article.

Kevin King is the Executive Vice President of the REALTORS® Association of South Central Wisconsin and the South Central Wisconsin MLS. He is a member of the NAR Professional Standards Committee and formerly held the position of General Counsel for the WRA.

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