Let’s say you’re at a listing appointment and the seller wants to price the home higher than you think the market will bear. You don’t fight it because you want the listing and think you can talk the seller down later after the home fails to sell. No big deal, right?
Not so fast — you may have just violated the Realtor Code of Ethics. That’s according to Barbara Betts, broker-owner of the Betts Realty Group and a director of the National Association of Realtors, the California Association of Realtors and the Pacific West Association of Realtors. Betts is also a hearing officer at her local Realtor association, which means she is one of the people who determine whether a Realtor did or did not violate the code of ethics and what discipline to impose if they did.
Betts spoke at the the Realtors Conference and Expo last week in a session called “How to Stay Out of Trouble: Risk Management and Code of Ethics.” She covered Articles 1, 3, 9, 12 and 16 of the code and some ways that agents violate them every day, sometimes inadvertently.
On dealing honestly
Article 1 of the code reads, in part: “When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors of their obligation to treat all parties honestly. ”
Article 1 boils down to owing a fiduciary duty to clients and dealing honestly with all parties, according to Betts. Here are some of the examples she gave for ways agents commonly violate this article:
- Misleading a seller on market value. “When attempting to secure a listing, something that Realtors don’t understand is if you deliberately mislead the owner as to market value, you’re violating the code of ethics,” she said. “It’s going in and taking a listing that could be grossly overpriced and you didn’t use your professional knowledge to share with the homeowner that they’re going to be overpricing the listing and all the pitfalls that come with that.”
- Not presenting all offers. “You have to present all offers until closing. I hope I’m beating a dead horse with that statement,” she said.
- Divulging confidential information. “Be very careful that you are not divulging confidential information about your clients like their motivation for selling, that they’re getting ready to file bankruptcy, that they’re really in financial trouble,” she said. Disclosures regarding the property or the neighborhood are not confidential, she added.
- Not disclosing the existence of other offers. Offers are not necessarily confidential, and therefore agents should check with their state and their broker to find out, Betts advised. In California, agents have to disclose the existence of other offers, she said. “If you are asked if you’re representing one of the offers, you cannot refuse to tell your fellow Realtor,” she said. “So if I call you and say, ‘How many offers do you have?’ and you say, ‘I have four’ and I say, ‘Are you or your firm representing one of those offers?’ in dual agency states like mine of California, you have to answer yes or no,” Betts said.
- Violating the showing instructions in the private remarks. “Coming without an appointment, accessing the property at a time that you were not told you have permission to, not following an explicit instruction like making sure the front door is locked — those are all violations of Article 1,” Betts said.
Article 3 of the code reads, “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.”
A few common violations include:
- Making your compensation part of the purchase contract. “If you’re going to alter your compensation, you need to do it in another form that probably is dictated by your state,” Betts said. “You cannot use your purchase agreements to change your compensation or change another Realtor’s compensation. It cannot be part of our contracts.” Sending a counteroffer out to a buyer’s agent and saying, “You can have it at this price if you reduce your commission,” would be a violation, Betts said.
- Not disclosing the existence of dual or variable commission agreements. That means if there is a dual agency situation or a variable commission situation in which the agent has agreed that if X happens, then their commission is reduced with the seller, then that must be disclosed, typically through the multiple listing service, she said.
- Not disclosing to another broker if there’s an accepted offer and if there are any unresolved contingencies. “If another agent calls you and says, ‘Hey, where are you at with contingencies? You have to tell them,” she said. “I have so many Realtors think ‘I don’t have to tell them anything that’s going on in my transaction.’ Well, you do because if your contingencies aren’t resolved, maybe they want to submit a backup offer.”
- Misrepresenting the availability of access to show or inspect a listed property. “This would be something like you putting in the MLS that there are absolutely no showings until a certain date, but you go show the home yourself,” she said. Realtors have an obligation to share information on listed property and to make the property available to other brokers under the code, according to Betts.
- Providing access to listed property on terms other than those established by the owner or listing broker. “I hope that you as a Realtor do not give out codes or keys to a property before you are given permission to,” she said. “But we absolutely cannot under any circumstance give access to a property that we don’t have permission to give. If there’s a combo on that property, you absolutely cannot give out that code to your client to make it more convenient.”
- Refusing to cooperate with another broker based on their color, religion, sex, familial status, handicap, national origin, sexual orientation or gender identity. “I hope that that is not new news to any Realtor tuning in with us today,” she said.
On clear agreements
Article 9 of the code reads, in part: “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.”
Here’s how agents commonly violate that article:
- Not getting extensions in writing. Article 9 specifies that Realtors should “use reasonable care to ensure that documents pertaining to the purchase, sale, or lease of real estate are kept current through the use of written extensions or amendments.” In California, escrow doesn’t always close on time, so it’s important to get an extension in writing once that becomes clear, according to Betts. “If you don’t, and the transaction gets derailed, or a client loses their deposit, or the seller ends up having damages because you didn’t close on time, but you didn’t make the effort to get the extension in writing that you knew about, you are absolutely in violation of the code of ethics.”
- Not making reasonable efforts to explain the nature and disclose the specific terms of a contractual relationship that’s being established prior to it being agreed to. This applies to listing and representation agreements, purchase agreements and leases sent electronically, according to the code. “It is so easy to send over a document to your clients and never pick up the phone and call them and explain to them what they’re actually signing,” Betts said. “Explain your documents … and contracts to your client before they sign it and document your file. You have to do this as a fiduciary to your clients, to stay out of legal trouble and to not violate the code of ethics. Not to mention it’s just a good professional thing to do.”
- Not getting verbal agreements in writing. If you talk to the listing broker and the seller wants more time in the house and you just say, “Sure, they can have one more day” without getting the agreement in writing, what if the buyer comes back and says no? Make the effort to get an agreement in writing, Betts said. And don’t abdicate your job to a transaction coordinator, even if they’re licensed, because they typically are not a party to your transaction, she added. “You are the one that’s liable for those documents and those conversations,” she said.
On presenting a true picture
Article 12 of the code reads, in part: “Realtors shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.” Violations of Article 12 are one of the top issues that come up in ethics and grievance hearings, according to Betts.
You can violate this article by:
- Not representing oneself or one’s brokerage in a reasonable and readily apparent manner. “You have to make sure that the consumer knows you are not the broker if you’re not,” she said. “You have to display who you are as a Realtor and who the brokerage is, readily apparent. It shouldn’t be something that the consumer has to search for on your flyer, or sign, your websites or your social media posts.”
- Violating copyright. “Don’t copy other Realtors’ information. Don’t copy anyone’s information. Don’t use Google Images. You do not have permission from Google. They may say you can use it for personal use, but they absolutely say you cannot use it for commercial use,” Betts said.
- Giving out inaccurate information about a property or community. “This definitely expands to social media. Be very careful what’s out there through Facebook, Instagram, LinkedIn, Pinterest, all of the different sites,” she said.
On interfering with exclusive representation agreements
Article 16 of the code reads: “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.”
A few ways agents commonly violate that article include:
- Targeting listed property. “If you are just mailing something specifically to a listed property because you’re upset you didn’t get the listing and the listing agent can prove that you targeted that property, you’re going to have a problem,” Betts said. “Now if you mailed 500 postcards to a neighborhood and it happened to land on a listed property, well then you probably are going to be okay if you’re using the language that typically your MLS has that says ‘If this property is listed or under contract with another firm, this is not a solicitation for your listing.'”
- Asking for business before a contract has expired. “If you refer me to someone because they’re unhappy with their Realtor, I cannot reach out and contact that client. If they make incoming contact to me, I absolutely can have a conversation about what I will do for them after their contract has expired. You cannot talk about right now. You cannot tell them their Realtor isn’t doing their job,” Betts said. “All you can do is say, ‘If I list the home on November 1 after your contract expires on October 31, then this is what I will do for you.'”
- Imposing the erroneous belief that past transactions create relationships for future transactions. “Just because you sold someone a house or frankly just because you listed their home does not mean, unless you put it in writing, they’re obligated to use you on their purchase,” Betts said. “A lot of Realtors think that their clients are obligated to use them for a purchase when they have a listing contract — not unless you have a buyer-broker agreement or a buyer representation agreement.”
- Not making reasonable efforts to determine whether a prospect is subject to a current, valid exclusive agreement. Listing agents should ask buyers calling directly about a home if they have entered into an agreement with another Realtor and if they have seen the home with that Realtor because if the buyer answers “yes” to either of those questions, even if they say they don’t want to work with that Realtor, there could be a procuring cause issue, according to Betts. “You probably need to call that other Realtor and see what their version of the story is.”
- Inducing clients to cancel their contract when you are switching to another brokerage. “If you are leaving a brokerage, you need to have that conversation with your broker and your new broker. You cannot call a client and say, ‘Hey, I’m going to go to XYZ Real Estate on December 1, we’re going to cancel your contract today and December 3, I’m going to rewrite the contract under XYZ Real Estate,'” Betts said.