Ethics – FAQs
The buyer’s agent submitted a purchase offer in which he increased his commission. Is that ethical?
No, this action is specifically prohibited by Article 16 of the Code of Ethics:
Standard of Practice 16-16:
REALTORS®, acting as subagents or buyer/tenant representatives or brokers, shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker’s offer of compensation to subagents or buyer/tenant representatives or brokers nor make the submission of an executed offer to purchase/lease contingent on the listing broker’s agreement to modify the offer of compensation. (Amended 1/04)
In summary, never use the terms of an offer or the threat of withholding an executed offer to increase your commission.
I am the listing agent and have had terrible experiences with another firm in my area. In fact, this firm has caused previous deals to fail due to incompetence and unethical behavior. Do I have to cooperate with it?
You should discuss your concerns with your client and if they consent you do not have to cooperate. Article 3 of the Code of Ethics clearly addresses this issue:
REALTORS® shall cooperate with other brokers except when cooperation is not in the client’s best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. (Amended 1/95)
I represent the seller and he is furious because he discovered that a buyer’s agent had filmed the inside of his house. I called the buyer agent, who confirmed that he recorded the interior of the dwelling but only for use by his client. Did the buyer agent go too far?
Sellers and listing agents provide access to properties so that prospective purchasers can view the interior and determine interest. This grant of access may not extend to recording or photographing the inside of the dwelling any more than it grants the purchaser the right to go through the jewelry drawer of the seller. Furthermore, the seller may have safety concerns about a stranger having a video recording or photos of the inside of his house.
Unless specific permission is given to film the interior of the house in the MLS listing or in writing from the seller or listing agent, it should not be filmed. This is in line with Code of Ethics Article 3; Standard of Practice 3-9: “REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.””(Adopted 1/10)
An experienced property manager wants to join my firm and head a new property management division. I am the broker and do not have any experience with property management. Is it safe to allow this new practice?
Be very cautious in moving forward. The supervising broker is responsible for ensuring that brokerage services are carried out competently and in accordance with the law. If the broker is unfamiliar with the area of practice, it will be very difficult for them to ensure compliance with the law.
It’s recommended that the broker educate themself about property management through training and closely monitor all activities of the property manager.
Also, please remember Code of Ethics Article 11: “The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, land brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.
REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.” (Amended 1/10)
Must a local association turn in to the Real Estate Board a member found in violation of the Code of Ethics?
Yes, if the violation involves a breach of the public trust. NAR has defined this as (i) the demonstrated misappropriation of client or customer funds or property, (ii) willful discrimination, or (iii) fraud resulting in substantial economic harm.
Does the Code of Ethics address written agreements?
Yes, Article 9 speaks to getting agreements in writing whenever possible. It should also be pointed out that Article 9 is one of the most common ethics violations.
REALTORS®, for the protection of all parties, shall assure whenever possible that all agreements related to real estate transactions including, but not limited to, listing and representation agreements, purchase contracts, and leases are in writing in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties. A copy of each agreement shall be furnished to each party to such agreements upon their signing or initialing. (Amended 1/04)
Listing agents must disclose material adverse facts pertaining to the physical condition of the property of which they have actual knowledge to the buyer. Do I, as the listing agent, have a duty to discover these facts? For example, am I required to investigate whether a house has defective piping?
No, you have a duty to disclose material adverse facts of which you have actual knowledge. If the seller doesn’t tell you about the problem, or it’s not obvious, you have no way of knowing about the condition and do not have a disclosure obligation.
This is not to suggest you should ever discourage your client from telling you of adverse facts. Oftentimes, problems may be corrected up front instead of days before closing. Article 2 of the REALTOR® Code of Ethics provides further guidance on your discovery obligations:
REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of agency or non-agency relationships as defined by state law. (Amended 1/00)
Standard of Practice 2-1
REALTORS® shall only be obligated to discover and disclose adverse factors reasonably apparent to someone with expertise in those areas required by their real estate licensing authority. Article 2 does not impose upon the REALTOR® the obligation of expertise in other professional or technical disciplines. (Amended 1/96)
My seller is a convicted sex offender and is listed on the sex offender registry website. After we sell his current home we will begin the search for a replacement home. Am I, as the buyer agent, required to inform anyone of the fact that my buyer is on the list? Can I decline to represent him as a buyer?
No law requires such disclosure. In fact, you should not disclose this to anyone without his consent, as to do so may jeopardize his ability to purchase a home, which is, after all, why he hired you. Suffice it to say that if you decide to take a job, you should do it professionally and competently, preserving your client’s confidences. If for any reason you cannot do this, you should decline the representation.
Declining representation in this case is not necessarily a fair housing violation as sex offenders are not a protected class. However, be aware that if you terminate representation after a listing agreement has been signed, you may be liable for damages under the contract. Always read your contract language closely, and vet your clients fully before agreeing to representation.
An agent has decided to leave Firm A for Company B. In advance of announcing his decision, he contacted his many clients and solicited their business for the Company to which he plans to go. He even went so far as to secure their signatures on releases. Is this behavior acceptable? What options does the principal broker/owner of the firm have?
While an agent at Firm A, he owes a fiduciary duty to that firm to act in its best interest. It is obviously not in Firm A’s best interest to have its clients leave and go to Company B, a competitor, for representation. The agent must wait until he has left or he must get the consent of the owner of the firm to approach the firm’s clients. This behavior is also a breach of the Code of Ethics (Article 16, Standard of Practice 16-4) which provides that REALTORS® shall not solicit a listing which is currently listed exclusively with another broker. For him to solicit clients who are exclusively represented by his current Firm A and attempt to get them to leave and seek representation with Company B is likely a violation of the Code of Ethics.
The agent’s actions might also subject him to a claim for tortious interference with business relationship or contract, which may result from inducing parties (here the clients) to breach their contracts with Firm A. The clients probably don’t realize that their contracts are with the firm and not the agent. This claim subjects the agent to potential punitive damages as well as actual damages for loss of commissions. Finally, by inducing his clients to terminate their agreements, he may have simultaneously induced them to sign listings with the new firm. If so, he may have subjected them to having to pay two commissions. They will not appreciate this, and neither does NAR, which makes such behavior a violation of Code of Ethics Standard of Practice 16-14.
A listing firm makes an offer of X percent compensation in the MLS, and receives a response from a cooperating broker to the effect that an offer of more compensation will get the listing agent more showings, but that the responder, personally, doesn’t show X percent listings. Is the cooperating agent acting ethically in taking this position?
The Code of Ethics makes clear that REALTORS® must make their policies regarding cooperation known to their clients. If the buyer agent wants to confirm and protect the amount he is paid for his representation, he can address that in his buyer brokerage agreement by clearly stating his fee and therefore letting the buyer know that when the compensation offered in the MLS is below his fee amount, the buyer will be responsible for making up the difference. Once the terms and conditions of the buyer representation are agreed on, the agent should bring all potentially suitable properties to his buyer’s attention and leave his opinion on the fairness of the coop compensation amounts to himself.
An agent has visited the seller client of a listing broker and told the seller the listing broker does not cooperate with or compensate other firms. This agent then offered to list the property. The property is currently in the MLS, and unrestricted cooperation is offered, together with a market-level co-broker fee. How should the listing broker proceed?
This agent’s actions have likely violated multiple articles in the Code of Ethics. Article 15 states:
REALTORS® shall not knowingly or recklessly make false or misleading statements about other real estate professionals, their businesses, or their business practices. (Amended 1/12)
So if this agent knew, or should have known that his statement about the listing broker’s cooperation with other firms was false, he likely violated the COE. What if the agent was referring back to a past experience when the listing broker did, in fact, refuse to cooperate? At the very least the agent’s statements were misleading in that they generalized his personal experience with the listing broker to the broker’s overall business practices. The agent’s statements were definitely reckless in that he did not confirm with the listing broker or the MLS as to the broker’s intention to cooperate.
The agent’s conduct likely also violated Article 16 of the Code of Ethics:
REALTORS® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients. (Amended 1/04)
If the agent knew the seller client was exclusively represented by the listing broker (and if he didn’t, why approach the seller in the first place) then by approaching the seller and trying to get the listing, the agent likely violated this article of the COE as well.