Code of Ethics

This course is designed to fulfill three hours of continuing education credit in Ethics and Professional Standards of Practice. The objective of this course is to provide students with an overview of the Code of Ethics and Standards of Practice of the National Association of REALTORS® as it applies to the profession of . Additionally, this course seeks to increase understanding of ethical behavior by providing sample scenarios and common illegal practices to guide the practical decision making of licensees.

Chapters: • Chapter One: What is Ethics? • Chapter Two: The Code of Ethics and Standards of Practice of the National Association of REALTORS® • Chapter Three: The Dirty Stuff • Chapter Four: Common Illegal and Unethical Practices

Learning Objectives: • Define “ethics” and differentiate among “principles” and “values” • Define “laws”, “regulations” and “standards” and differentiate from “ethics” • Distinguish business ethics from personal ethics and give examples of each • Summarize the history and function of the National Association of REALTORS® • Identify the main idea of the Preamble • Distinguish the sections of the Code • Describe key concepts of each article in the Code • Assess possible violations of the Code with supporting scenarios • Discuss enforcement procedures of the Code • Differentiate between arbitration and mediation • Identify key parts of Pathways to Professionalism • Summarize the effect of Fair Housing laws on ethical practice • Classify illegal practices in relation to Fair Housing laws • Describe common violations of the Code of Ethics in real estate

Code of Ethics Page 69 Chapter One: presented corresponds to the continuum of concrete to abstract thought. Defining ethics is clearly more What is Ethics? complex than defining laws, therefore we can deduce that adhering to ethical conduct is more complex than Chapter Overview adhering to laws. After all, can everyone agree on what In our opening chapter we will look at ethics from is right and what is wrong? Absolutely not! However, multiple viewpoints. The term “ethics” will be everyone can agree on whether a law has been broken reviewed in three sets including the relation to values or not – the lines separating legal and illegal behavior and principles, the relation to standards, regulations are very bold. and laws, and the subgroups of business and personal. Chapter one will also discuss the history of the National Business Ethics vs. Personal Ethics Association of REALTORS® and introduce the Code The final distinction to be made on this topic is between of Ethics through a brief summary of its structure and business and personal ethics. Though the ethical function. framework exercised in private decisions certainly influences professional behavior, there is again a clear Principles, Values and Ethics difference which needs attention. Personal ethics reflect Before we get into the bulk of this course, it is first general expectations of any person in any society while necessary to understand what the term “ethics” actually business ethics reflect required behavior within the implies. Many associate the term with “principle” or context of a professional practice. The following are “value,” however there are important differences sample criteria for each set: among the three. Personal Ethics Merriam Webster defines the terms as the following: • concern for the well-being of others • Principle: a comprehensive and fundamental law, • respect for the autonomy of others doctrine or assumption • trustworthiness and honesty • Value: something (as a principle or quality) • willing compliance with the law intrinsically valuable or desirable • being fair • Ethic: dealing with what is good and bad and with • refusing to take unfair advantage moral duty and obligation • doing good In other words, principles are intellectual and • preventing harm immutable, values are emotional and can change, and ethics are behaviors and actions. See the difference? Business Ethics Now we can move on. • impartiality and objectivity • openness and full disclosure Laws, Regulations, Standards and Ethics • confidentiality The next series we need to examine is where ethics • due diligence and duty of care stand in regards to standards, regulations and laws. • fidelity to professional responsibilities Let’s take a quick glance at the definitions of each. • avoiding potential or apparent conflict of interest • Laws: legal documents setting forth rules governing a particular kind of activity The National Association of • Regulations: the principles or conditions that REALTORS® customarily govern; authoritative rules The National Association of REALTORS®, commonly • Standards: the ideal in terms of which something referred to as NAR, was founded in 1908 in Chicago, can be judged; a basis for comparison; a reference IL. Under the name of The National Association of point against which other things can be evaluated Real Estate Exchanges, the 120 founding members’ • Ethics: the principles of right and wrong that are objective was “to unite the real estate men of America accepted by an individual or social group; a system for the purpose of effectively exerting a combined of principles governing morality and acceptable influence upon matters affecting real estate interests.” conduct As you can see, the order in which these terms are Before changing the group’s name to The National Association of Real Estate Boards in 1916, the Code of Code of Ethics Page 70 Ethics was adopted in 1913 with the Golden Rule at its Chapter Two: The Code foundation. In 1949, REALTOR® was approved by the Patent and Trademark Office. of Ethics and Standards of Practice of the National The formal name of the organization was changed ® one final time in 1974 to its current title and has since Association of REALTORS become a substantial trade association with over 850,000 members, 54 State Associations and more than Chapter Overview 1,500 local Associations. Our second chapter will examine the NAR Code of Ethics in detail. Each article will be given and we will The National Association of REALTORS® offers provide some situations describing unethical conduct valuable member services including access to in order to provide students with real-life examples of Information Central, a one-stop shop for membership how the Code should be applied. In addition, we will records, a 15,000+ volume library and customer point out the articles that are most commonly cited in service, and discounts on several products and services ethics complaints. for business and home. Further, since its inception, the organization has held a vital role in keeping and Introduction conducting value statistics and research. In REALTOR®: a person who works in the real-estate 1968, the monthly Existing Home Sales report was business and is a member of the National Association started, serving as a valued indicator of the United of Real Estate Boards, or one of its constituent boards, States’ economic health. and abides by its Code of Ethics.

NAR has made its mark in international circles as Realtor/: a person who is authorized well, as it helped form the International Real Estate to act as an agent for the sale of land. Federation (FIABCI) in the early 1950s. Since then,

the group has been actively involved in housing and Disclaimer: This course is designed and intended for property rights forums the world over. the general population of realtors/real estate agents and not solely for REALTORS®. The information within this (2010, National Association of REALTORS®, http:// chapter is taken directly from The Code of Ethics and www.REALTOR.org/REALTORorg.nsf/pages/ Standards of Practice of the National Association of NAROverview?OpenDocument ) REALTORS® and should not be interpreted as original Structure of the Code work of McKissock, LP unless otherwise footnoted. The Code of Ethics provides a comprehensive view of Where the word REALTORS® is used in this Code and unethical situations and is structured according to three Preamble, it shall be deemed to include REALTOR- sections with articles and standards of practice. The ASSOCIATE®s. articles are general statements supported by standards which outline specific behaviors. Overall, the NAR While the Code of Ethics establishes obligations that Code of Ethics: may be higher than those mandated by law, in any • Protects the buying and selling public instance where the Code of Ethics and the law conflict, • Promotes a competitive real estate marketplace the obligations of the law must take precedence. • Enhances the integrity of the industry • Is your promise of performance *denotes articles commonly the subject of ethics • Is your promise of professionalism complaints To view the full text of the Code of Ethics, see http:// www.realtor.org/mempolweb.nsf/pages/code. The Preamble The Preamble to the Code of Ethics is its inspirational foundation because its principles are ideals toward which REALTORS® should strive: • Honesty

Code of Ethics Page 71 • Integrity • “client” means the person(s) or entity(ies) with • Fairness whom a REALTOR® or a REALTOR®’s firm • Moral Conduct in Business Relations has an agency or legally recognized non-agency The Preamble begins with the inspiring words of relationship; “Under all is the land….” These words represent • “customer” means a party to a real estate the all-encompassing nature of the field, as land is transaction who receives information, services, or the foundation of many aspects of society. As one of benefits but has no contractual relationship with the society’s most important commodities, the foundation REALTOR® or the REALTOR®’s firm; of land accounts for simple necessities such as food • “prospect” means a purchaser, seller, tenant, or and shelter, as well as more complex aspects such as who is not subject to a representation economy and prosperity. Overall, the profession of real relationship with the REALTOR® or REALTOR®’s estate is very important from the ground up, literally! firm; • “agent” means a real estate licensee (including The Golden Rule brokers and sales associates) acting in an agency When reading the full text of the NAR Code of Ethics relationship as defined by state law or regulation; and Standards of Practice, one can readily determine and that the Golden Rule is a core element of its foundation. • “broker” means a real estate licensee (including As stated in the final paragraph of the Preamble, the brokers and sales associates) acting as an agent or entire code refers to the simple premise of “whatsoever in a legally recognized non-agency capacity. ye would that others should do to you, do ye even so to them.” In other words, treat others like you would like REALTORS®, in attempting to secure a listing, shall to be treated. not deliberately mislead the owner as to market value.

Duties to Clients and Customers REALTORS®, when seeking to become a buyer/tenant Article 1* representative, shall not mislead buyers or tenants as to When representing a buyer, seller, landlord, tenant, savings or other benefits that might be realized through or other client as an agent, REALTORS® pledge use of the REALTOR®’s services. themselves to protect and promote the interests of their client. This obligation to the client is primary, but it REALTORS® may represent the seller/landlord and does not relieve REALTORS® of their obligation buyer/tenant in the same transaction only after full to treat all parties honestly. When serving a buyer, disclosure to and with informed consent of both parties. seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all REALTORS® shall submit offers and counter-offers parties honestly. objectively and as quickly as possible.

REALTORS®, when acting as principals in a real estate When acting as listing brokers, REALTORS® shall transaction, remain obligated by the duties imposed by continue to submit to the seller/landlord all offers and the Code of Ethics. counter-offers until or execution of a unless the seller/landlord has waived this obligation The duties imposed by the Code of Ethics encompass in writing. REALTORS® shall not be obligated to all real estate-related activities and transactions continue to market the property after an offer has been whether conducted in person, electronically, or through accepted by the seller/landlord. REALTORS® shall any other means. recommend that sellers/ obtain the advice The duties the Code of Ethics imposes are applicable of legal counsel prior to acceptance of a subsequent whether REALTORS® are acting as agents or in offer except where the acceptance is contingent on the legally recognized non-agency capacities except that termination of the pre-existing purchase contract or any duty imposed exclusively on agents by law or lease. regulation shall not be imposed by this Code of Ethics on REALTORS® acting in non-agency capacities. REALTORS®, acting as agents or brokers of buyers/ tenants, shall submit to buyers/tenants all offers and As used in this Code of Ethics: counter-offers until acceptance but have no obligation

Code of Ethics Page 72 to continue to show to their clients after an agents, and/or brokers acting in legally recognized offer has been accepted unless otherwise agreed in non-agency capacities; writing. REALTORS®, acting as agents or brokers of • the fact that buyer/tenant agents or brokers, even buyers/tenants, shall recommend that buyers/tenants if compensated by listing brokers, or by sellers/ obtain the advice of legal counsel if there is a question as landlords may represent the interests of buyers/ to whether a pre-existing contract has been terminated. tenants; and • any potential for listing brokers to act as disclosed The obligation of REALTORS® to preserve confidential dual agents, e.g. buyer/tenant agents. information (as defined by state law) provided by their clients in the course of any agency relationship or non- When entering into buyer/tenant agreements, agency relationship recognized by law continues after REALTORS® must advise potential clients of: termination of agency relationships or any non-agency • the REALTOR®’s company policies regarding relationships recognized by law. REALTORS® shall cooperation; not knowingly, during or following the termination of • the amount of compensation to be paid by the client; professional relationships with their clients: • the potential for additional or offsetting • reveal confidential information of clients; or compensation from other brokers, from the seller • use confidential information of clients to the or landlord, or from other parties; disadvantage of clients; or • any potential for the buyer/tenant representative • use confidential information of clients for the to act as a disclosed dual agent, e.g. listing broker, REALTOR®’s advantage or the advantage of third subagent, landlord’s agent, etc., and parties unless: • the possibility that sellers or sellers’ representatives • clients consent after full disclosure; or may not treat the existence, terms, or conditions • REALTORS® are required by court order; or of offers as confidential unless confidentiality is • it is the intention of a client to commit a crime required by law, regulation, or by any confidentiality and the information is necessary to prevent the agreement between the parties. crime; or • it is necessary to defend a REALTOR® or the Fees for preparing appraisals or other valuations shall REALTOR®’s employees or associates against not be contingent upon the amount of the appraisal or an accusation of wrongful conduct. valuation.

Information concerning latent material defects is not REALTORS®, in response to inquiries from buyers or considered confidential information under this Code of cooperating brokers shall, with the sellers’ approval, Ethics. disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also REALTORS® shall, consistent with the terms and disclose, if asked, whether offers were obtained by the conditions of their real estate licensure and their listing licensee, another licensee in the listing firm, or agreement, competently manage by a cooperating broker. the property of clients with due regard for the rights, safety and health of tenants and others lawfully on the Article 2* premises. • Avoid exaggeration, misrepresentation, or concealment of pertinent facts about property or REALTORS® who are employed to maintain or transactions manage a client’s property shall exercise due diligence • More than simply the disclosure of property defects and make reasonable efforts to protect it against is required reasonably foreseeable contingencies and losses. • REALTORS® are not expected to be experts in all areas or fields and are not obligated to: When entering into listing contracts, REALTORS® • Discover latent (hidden) defects must advise sellers/landlords of: • Advise on matters outside the scope of their • the REALTOR®’s company policies regarding real estate license cooperation and the amount(s) of any compensation • Disclose facts which are confidential under that will be offered to subagents, buyer/tenant agency or non-agency relationships

Code of Ethics Page 73 • Obligation to discover and disclose adverse factors • Acquire an interest in or buy or present offers but only within areas required by the real estate from themselves, any member of their immediate licensing authority families, their firms or any member thereof, or any • Do not recite as false consideration in documents entities in which they have any ownership interest, (except where obviously nominal) any without making their true position • If state law defines a matter as “non-material” or not known to the owner or the owner’s agent or broker. subject to disclosure, the matter is not “pertinent” REALTORS® in selling property they own reveal under this article their ownership in writing to the purchaser For the protection of all parties disclosures appear in Article 3 writing and provided prior to the signing of any contract • Cooperate with other brokers except when it is not in the client’s best interest Article 5 • Obligation does not include sharing commissions, REALTORS® shall not undertake to provide fees or other compensation professional services concerning a property or its value where they have a present or contemplated interest Realtors acting as exclusive agents or brokers of sellers unless such interest is specifically disclosed to all or landlord must: affected parties. • Establish the terms and conditions of offers to cooperate including compensation Article 6 • REALTORS® timely communicate any change of Realtors shall not: compensation prior to an offer to purchase/lease the • Accept any commission, rebate or profit on client property expenditures without client’s knowledge and • Listing brokers and cooperating brokers may consent enter into an agreement to change cooperative When recommending real estate products or services compensation (e.g., homeowner’s insurance, warranty programs, • REALTORS® acting as listing brokers have an mortgage financing, title insurance, etc.), REALTORS® affirmative obligation to disclose the existence of shall disclose to the client or customer to whom the dual or variable rate commission arrangements recommendation is made any financial benefits or fees, • Subagents promptly disclose all pertinent facts to other than real estate referral fees, the REALTOR® the principal’s agent before and after purchase/ or REALTOR®’s firm may receive as a direct result lease agreements are executed of such recommendation Do not recommend services • REALTORS® disclose the existence of accepted of another business entity of direct interest without offers including unresolved contingencies to any disclosure at time of recommendation broker seeking cooperation • REALTORS® when seeking information about Example of Violation a property disclose their status and whether their Chloe’s company offers a homeowners warranty at interest is personal or their representational status the time of listing. Because her company gives a cash with a client rebate if she sells the policy, Chloe works hard to get • REALTORS® do not misrepresent the availability her sellers to purchase the $400 plan. of access to show or inspect a listed property • Not provide access to listed property on terms other Article 7 than those established by the owner or listing broker In a transaction, REALTORS® shall not accept compensation from more than one party, even if The duty to cooperate established in this Article relates permitted by law, without disclosure to all parties and to the obligation to share information on listed property, the informed consent of the REALTOR®’s client or and to make property available to other brokers for clients. showing to prospective buyers/tenants when it is in the best interests of the sellers/landlords. Article 8 REALTORS® shall keep in a special account in an Article 4 appropriate financial institution, separated from their Realtors shall not: own funds, monies coming into their possession in

Code of Ethics Page 74 trust for other persons, such as escrows, trust funds, When involved in the sale or lease of a residence, clients’ monies, and other like items. REALTORS® shall not volunteer information regarding the racial, religious or ethnic composition Article 9* of any neighborhood nor shall they engage in any REALTORS®, for the protection of all parties, activity which may result in panic selling, however, shall assure whenever possible that all agreements REALTORS® may provide other demographic related to real estate transactions including, but not information. limited to, listing and representation agreements, purchase contracts, and are in writing in clear When not involved in the sale or lease of a residence, and understandable language expressing the specific REALTORS® may provide demographic information terms, conditions, obligations and commitments of the related to a property, transaction or professional parties. A copy of each agreement shall be furnished assignment to a party if such demographic information to each party to such agreements upon their signing or is (a) deemed by the REALTOR® to be needed to assist initialing. with or complete, in a manner consistent with Article 10, a or professional assignment For the protection of all parties, REALTORS® shall use and (b) is obtained or derived from a recognized, reasonable care to ensure that documents pertaining to reliable, independent, and impartial source. The source the purchase, sale, or lease of real estate are kept current of such information and any additions, deletions, through the use of written extensions or amendments. modifications, interpretations, or other changes shall be disclosed in reasonable detail. When assisting or enabling a client or customer in establishing a contractual relationship (e.g., listing REALTORS® shall not print, display or circulate any and representation agreements, purchase agreements, statement or advertisement with respect to selling or leases, etc.) electronically, REALTORS® shall make renting of a property that indicates any preference, reasonable efforts to explain the nature and disclose limitations or discrimination based on race, color, the specific terms of the contractual relationship being religion, sex, handicap, familial status, national origin established prior to it being agreed to by a contracting or sexual orientation. party. As used in Article 10 “real estate employment Duties to the Public practices” relates to employees and independent Article 10 contractors providing real estate relate services and REALTORS® shall not deny: the administrative and clerical staff directly supporting • Equal professional services to any person for those individuals. reasons of: • Race Article 11 • Color The services which REALTORS® provide to their • Religion clients and customers shall conform to the standards • Sex of practice and competence which are reasonably • Handicap expected in the specific real estate disciplines in which • familial status they engage; specifically: • national origin • Residential real estate brokerage • sexual orientation • Real property management REALTORS®, in their real estate employment • Commercial and industrial real estate brokerage practices, shall not discriminate against any person on • the basis of race, color, religion, sex, handicap, familial • Real estate counseling status, national origin or sexual orientation. • Real estate syndication • Real estate auction NOTE: NAR added “sexual orientation” as a protected • International real estate class to its Code of Ethics at the Annual Convention in 2010. REALTORS® undertake no specialized professional services unless competent assistance is sought and

Code of Ethics Page 75 contribution disclosed services contracted for between REALTORS® and • Opinions of real property include property their clients or customers; the duties expressly imposed identification, date prepared, defined value or price, by the Code of Ethics; and the duties imposed by law limiting conditions, any present or contemplated or regulation interest, basis for opinion including applicable market data, and if not appraisal, a statement to that Example of Violation effect Broker Jeff manages a large office. He gets a call from • Advice rendered in objective manner and fee not an out-of-town executor handling the real estate of be contingent on the substance of the advice or a former resident of Jeff’s area. The executor wants counsel given advice in pricing and marketing two pieces of vacant land owned by the deceased. Jeff doesn’t sell much When REALTORS® prepare opinions of real property anymore, but gives a quick guess of $18,000 per lot value or price, other than in pursuit of a listing or to over the phone. He knows the area is a rapidly growing assist a potential purchaser in formulating a purchase one. He gets the listings, puts them in the MLS, and offer, such opinions shall include the following unless sells both lots within 10 hours of the MLS appearance. the party requesting the opinion requires a specific type Article 12* of report or different data set: REALTORS® shall be honest and truthful in their real 1. identification of the subject property estate communications and shall present a true picture in 2. date prepared their advertising, marketing, and other representations. 3. defined value or price 4. limiting conditions, including statements of REALTORS® shall ensure that their status as real estate purpose(s) and intended user(s) professionals is readily apparent in their advertising, 5. any present or contemplated interest, including the marketing, and other representations, and that the possibility of representing the seller/landlord or recipients of all real estate communications are, or buyers/tenants have been, notified that those communications are from 6. basis for the opinion, including applicable market a real estate professional. data 7. if the opinion is not an appraisal, a statement to that REALTORS® may represent their services as “free” or effect without cost even if they expect to receive compensation from a source other than their client provided that the The obligations of the Code of Ethics in respect potential for the REALTOR® to obtain a benefit from a of real estate disciplines other than appraisal shall third party is clearly disclosed at the same time. be interpreted and applied in accordance with the standards of competence and practice which clients and The offering of premiums, prizes, merchandise the public reasonably require to protect their rights and discounts or other inducements to list, sell, purchase, interests considering the complexity of the transaction, or lease is not, in itself, unethical even if receipt of the the availability of expert assistance, and, where the benefit is contingent on listing, selling, purchasing, REALTOR® is an agent or subagent, the obligations or leasing through the REALTOR® making the offer. of a fiduciary. However, REALTORS® must exercise care and candor in any such advertising or other public or private When REALTORS® provide consultive services to representations so that any party interested in receiving clients which involve advice or counsel for a fee (not or otherwise benefiting from the REALTOR®’s offer a commission), such advice shall be rendered in an will have clear, thorough, advance understanding of objective manner and the fee shall not be contingent all the terms and conditions of the offer. The offering on the substance of the advice or counsel given. If of any inducements to do business is subject to the brokerage or transaction services are to be provided in limitations and restrictions of state law and the ethical addition to consultive services, a separate compensation obligations established by any applicable Standard of may be paid with prior agreement between the client Practice. and REALTOR®. REALTORS® shall not offer for sale/lease or advertise The competency required by Article 11 relates to property without authority. When acting as listing

Code of Ethics Page 76 brokers or as subagents, REALTORS® shall not quote includes the URLs and domain names they use, and a price different from that agreed upon with the seller/ prohibits REALTORS® from: landlord. REALTORS® use reasonable efforts to 1. engaging in deceptive or unauthorized framing of ensure that information on their websites is current. real estate brokerage websites; 2. manipulating (e.g., presenting content developed REALTORS® shall not advertise nor permit any person by others) listing content in any way that produces employed by or affiliated with them to advertise real a deceptive or misleading result; or estate services or listed property in any medium (e.g., 3. deceptively using metatags, keywords or other electronically, print, radio, television, etc.) without devices/methods to direct, drive, or divert Internet disclosing the name of that REALTOR®’s firm in a traffic, or to otherwise mislead consumers. reasonable and readily apparent manner. This Standard of Practice acknowledges that disclosing the name of REALTORS® intending to share or sell consumer the firm may not be practical in electronic displays of information gathered via the Internet shall disclose that limited information (e.g., “thumbnails”, text messages, possibility in a reasonable and readily apparent manner. “tweets”, etc.). Such displays are exempt from the disclosure requirement established in this Standard of Practice, but only when linked to a display that includes REALTORS® shall not: all required disclosures. 1. use URLs or domain names that present less than a true picture, or REALTORS®, when advertising unlisted real property 2. register URLs or domain names which, if used, for sale/lease in which they have an ownership interest, would present less than a true picture. shall disclose their status as both owners/landlords and as REALTORS® or real estate licensees. The obligation to present a true picture in advertising, marketing, and representations allows REALTORS® Only REALTORS® who participated in the transaction to use and display only professional designations, as the listing broker or cooperating broker (selling certifications, and other credentials to which they are broker) may claim to have “sold” the property. Prior legitimately entitled. to closing, a cooperating broker may post a “sold” sign Example of Violation only with the consent of the listing broker. Percy just got his broker’s license and is out on his own. He is having trouble getting listings. After talking The obligation to present a true picture in representations to a FSBO who told Percy that if he brought a buyer to the public includes information presented, the owner would pay him, Percy went right back to the provided, or displayed on REALTORS®’ websites. office and used the FSBO property in his advertising in REALTORS® shall use reasonable efforts to ensure the hopes that the phone would ring. that information on their websites is current. When it becomes apparent that information on a REALTOR®’s Article 13 website is no longer current or accurate, REALTORS® REALTORS® shall not engage in activities that shall promptly take corrective action. constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the REALTOR® firm websites shall disclose the firm’s interest of any party to the transaction requires it. name and state(s) of licensure in a reasonable and readily apparent manner. Article 14 If charged with unethical practice or asked to present Websites of REALTORS® and non-member licensees evidence or to cooperate in any other way, in any affiliated with a REALTOR® firm shall disclose the professional standards proceeding or investigation, firm’s name and that REALTOR®’s or non-member REALTORS® shall place all pertinent facts before licensee’s state(s) of licensure in a reasonable and the proper tribunals of the Member Board or affiliated readily apparent manner. institute, society, or council in which membership is held and shall take no action to disrupt or obstruct such REALTORS®’ obligation to present a true picture processes. in their advertising and representations to the public

Code of Ethics Page 77 REALTORS® shall not be subject to disciplinary false or misleading. proceedings in more than one Board of REALTORS® Article 16* or affiliated institute, society or council in which they REALTORS® shall not engage in any practice or take hold membership with respect to alleged violations of any action inconsistent with exclusive representation the Code of Ethics relating to the same transaction or or exclusive brokerage relationship agreements that event. other REALTORS® have with clients.

REALTORS® shall not make any unauthorized Article 16 is not intended to prohibit aggressive or disclosure or dissemination of the allegations, findings, innovative business practices which are otherwise or decision developed in connection with an ethics ethical and does not prohibit disagreements with hearing or appeal or in connection with an arbitration other REALTORS® involving commission, fees, hearing or procedural review. compensation or other forms of payment or expenses.

REALTORS® shall not obstruct the Board’s Article 16 does not preclude REALTORS® from investigative or professional standards proceedings making general announcements to prospects describing by instituting or threatening to institute actions for their services and the terms of their availability even libel, slander or defamation against any party to a though some recipients may have entered into agency professional standards proceeding or their witnesses agreements or other exclusive relationships with another based on the filing of an arbitration request, an ethics REALTOR®. A general telephone canvass, general complaint, or testimony given before any tribunal. mailing or distribution addressed to all prospects in a given geographical area or in a given profession, REALTORS® shall not intentionally impede the business, club, or organization, or other classification Board’s investigative or disciplinary proceedings by or group is deemed “general” for purposes of this filing multiple ethics complaints based on the same standard. event or transaction. Article 16 is intended to recognize as unethical two Duties to REALTORS® basic types of solicitations: Article 15 • First, telephone or personal solicitations of REALTORS® shall not knowingly or recklessly make property owners who have been identified by a real false or misleading statements about competitors, their estate sign, multiple listing compilation, or other businesses, or their business practices. information service as having exclusively listed their property with another REALTOR®; and REALTORS® shall not knowingly or recklessly file • Second, mail or other forms of written solicitations false or unfounded ethics complaints. of prospects whose properties are exclusively listed with another REALTOR® when such solicitations The obligation to refrain from making false or are not part of a general mailing but are directed misleading statements about competitors, competitors’ specifically to property owners identified through businesses and competitors’ business practices includes compilations of current listings, “for sale” or “for the duty to not knowingly or recklessly publish, repeat, rent” signs, or other sources of information required retransmit, or republish false or misleading statements by Article 3 and rules to made by others. This duty applies whether false or be made available to other REALTORS® under misleading statements are repeated in person, in offers of subagency or cooperation. writing, by technological means (e.g., the Internet), or by any other means. Article 16 does not preclude REALTORS® from contacting the client of another broker for the purpose The obligation to refrain from making false or misleading of offering to provide, or entering into a contract to statements about competitors, competitors’ businesses, provide, a different type of real estate service unrelated and competitors’ business practices includes the duty to the type of service currently being provided (e.g., to publish a clarification about or to remove statements property management as opposed to brokerage) or made by others on electronic media the REALTOR® from offering the same type of service for property controls once the REALTOR® knows the statement is not subject to other brokers’ exclusive agreements.

Code of Ethics Page 78 However, information received through a Multiple agreement, have an affirmative obligation to make Listing Service or any other offer of cooperation may reasonable efforts to determine whether the prospect not be used to target clients of other REALTORS® to is subject to a current, valid exclusive agreement to whom such offers to provide services may be made. provide the same type of real estate service.

REALTORS® shall not solicit a listing which is REALTORS®, acting as buyer or tenant representatives currently listed exclusively with another broker. or brokers, shall disclose that relationship to the seller/ However, if the listing broker, when asked by the landlord’s representative or broker at first contact and REALTOR®, refuses to disclose the expiration date shall provide written confirmation of that disclosure to and nature of such listing; i.e., an exclusive right to the seller/landlord’s representative or broker not later sell, an exclusive agency, open listing, or other form than execution of a purchase agreement or lease. of contractual agreement between the listing broker and the client, the REALTOR® may contact the owner On unlisted property, REALTORS® acting as buyer/ to secure such information and may discuss the terms tenant representatives or brokers shall disclose that upon which the REALTOR® might take a future listing relationship to the seller/landlord at first contact for that or, alternatively, may take a listing to become effective buyer/tenant and shall provide written confirmation upon expiration of any existing exclusive listing. of such disclosure to the seller/landlord not later than execution of any purchase or lease agreement. REALTORS® shall not solicit buyer/tenant agreements from buyers/ tenants who are subject to exclusive buyer/ REALTORS® shall make any request for anticipated tenant agreements. However, if asked by a REALTOR®, compensation from the seller/ landlord at first contact. the broker refuses to disclose the expiration date of the exclusive buyer/tenant agreement, the REALTOR® REALTORS®, acting as representatives or brokers may contact the buyer/tenant to secure such information of sellers/landlords or as subagents of listing brokers, and may discuss the terms upon which the REALTOR® shall disclose that relationship to buyers/tenants as soon might enter into a future buyer/tenant agreement or, as practicable and shall provide written confirmation alternatively, may enter into a buyer/tenant agreement of such disclosure to buyers/tenants not later than to become effective upon the expiration of any existing execution of any purchase or lease agreement. exclusive buyer/tenant agreement. When REALTORS® are contacted by the client All dealings concerning property exclusively listed, of another REALTOR® regarding the creation of or with buyer/tenants who are subject to an exclusive an exclusive relationship to provide the same type agreement shall be carried on with the client’s of service, and REALTORS® have not directly representative or broker, and not with the client, except or indirectly initiated such discussions, they may with the consent of the client’s representative or broker discuss the terms upon which they might enter into a or except where such dealings are initiated by the client. future agreement or, alternatively, may enter into an agreement which becomes effective upon expiration of Before providing substantive services (such as writing any existing exclusive agreement. a purchase offer or presenting a CMA) to prospects, REALTORS® shall ask prospects whether they are The fact that a prospect has retained a REALTOR® a party to any exclusive representation agreement. as an exclusive representative or exclusive broker in REALTORS® shall not knowingly provide substantive one or more past transactions does not preclude other services concerning a prospective transaction to REALTORS® from seeking such prospect’s future prospects who are parties to exclusive representation business. agreements, except with the consent of the prospects’ exclusive representatives or at the direction of prospects. The fact that an exclusive agreement has been entered into with a REALTOR® shall not preclude or inhibit REALTORS® are free to enter into contractual any other REALTOR® from entering into a similar relationships or to negotiate with sellers/ landlords, agreement after the expiration of the prior agreement. buyers/tenants or others who are not subject to an exclusive agreement but shall not knowingly obligate REALTORS®, prior to entering into a representation them to pay more than one commission except with

Code of Ethics Page 79 their informed consent. Article 17 In cooperative transactions REALTORS® shall In the event of contractual disputes or specific non- compensate cooperating REALTORS® (principal contractual disputes as defined in Standard of Practice brokers) and shall not compensate nor offer to 17-4 between REALTORS® (principals) associated compensate, directly or indirectly, any of the sales with different firms, arising out of their relationship licensees employed by or affiliated with other as REALTORS®, the REALTORS® shall submit the REALTORS® without the prior express knowledge dispute to arbitration in accordance with the regulations and consent of the cooperating broker. of their Board or Boards rather than litigate the matter.

REALTORS®, acting as subagents or buyer/tenant In the event clients of REALTORS® wish to representatives or brokers, shall not use the terms of arbitrate contractual disputes arising out of real estate an offer to purchase/lease to attempt to modify the transactions, REALTORS® shall arbitrate those listing broker’s offer of compensation to subagents disputes in accordance with the regulations of their or buyer/tenant representatives or brokers nor make Board, provided the clients agree to be bound by the the submission of an executed offer to purchase/lease decision. contingent on the listing broker’s agreement to modify the offer of compensation. The obligation to participate in arbitration contemplated by this Article includes the obligation of REALTORS® REALTORS®, acting as subagents or as buyer/ (principals) to cause their firms to arbitrate and be tenant representatives or brokers, shall not attempt to bound by any award. extend a listing broker’s offer of cooperation and/or compensation to other brokers without the consent of The filing of litigation and refusal to withdraw from it the listing broker. by REALTORS® in an arbitrable matter constitutes a refusal to arbitrate. REALTORS® shall not use information obtained from listing brokers through offers to cooperate made Article 17 does not require REALTORS® to arbitrate through multiple listing services or through other offers in those circumstances when all parties to the dispute of cooperation to refer listing brokers’ clients to other advise the Board in writing that they choose not to brokers or to create buyer/tenant relationships with arbitrate before the Board. listing brokers’ clients, unless such use is authorized by listing brokers. REALTORS®, when acting solely as principals in a Signs giving notice of property for sale, rent, lease, real estate transaction, are not obligated to arbitrate or exchange shall not be placed on property without disputes with other REALTORS® absent a specific consent of the seller/landlord. written agreement to the contrary.

REALTORS®, prior to or after their relationship with Specific non-contractual disputes that are subject to their current firm is terminated, shall not induce clients arbitration pursuant to Article 17 are: of their current firm to cancel exclusive contractual • Where a listing broker has compensated a agreements between the client and that firm. This cooperating broker and another cooperating broker does not preclude REALTORS® (principals) from subsequently claims to be the procuring cause of establishing agreements with their associated licensees the sale or lease. In such cases the complainant may governing assignability of exclusive agreements. name the first cooperating broker as respondent and arbitration may proceed without the listing broker Example of Violation being named as a respondent. When arbitration Alice was so excited about writing her first offer for her occurs between two (or more) cooperating brokers buyer to purchase another company’s listing that she and where the listing broker is not a party, the hopped into her new Lexus and drove immediately to amount in dispute and the amount of any potential the seller’s home to present the offer herself before her resulting award is limited to the amount paid to the buyer changed his mind. respondent by the listing broker and any amount credited or paid to a party to the transaction at the direction of the respondent. Alternatively, if the

Code of Ethics Page 80 complaint is brought against the listing broker, to compensation pursuant to open listings with the listing broker may name the first cooperating a seller or landlord who agrees to participate in broker as a third-party respondent. In either arbitration (or who requests arbitration) and who instance the decision of the hearing panel as to agrees to be bound by the decision. In cases where procuring cause shall be conclusive with respect one of the listing brokers has been compensated by to all current or subsequent claims of the parties the seller or landlord, the other listing broker, as for compensation arising out of the underlying complainant, may name the first listing broker as cooperative transaction. respondent and arbitration may proceed between • Where a buyer or tenant representative is the brokers. compensated by the seller or landlord, and not by • Where a buyer or tenant representative is the listing broker, and the listing broker, as a result, compensated by the seller or landlord, and not by reduces the commission owed by the seller or the listing broker, and the listing broker, as a result, landlord and, subsequent to such actions, another reduces the commission owed by the seller or cooperating broker claims to be the procuring cause landlord and, subsequent to such actions, claims to of sale or lease. In such cases the complainant may be the procuring cause of sale or lease. In such cases name the first cooperating broker as respondent and arbitration shall be between the listing broker and arbitration may proceed without the listing broker the buyer or tenant representative and the amount being named as a respondent. When arbitration in dispute is limited to the amount of the reduction occurs between two (or more) cooperating brokers of commission to which the listing broker agreed. and where the listing broker is not a party, the amount in dispute and the amount of any potential The obligation to arbitrate established in Article 17 resulting award is limited to the amount paid to includes disputes between REALTORS® (principals) the respondent by the seller or landlord and any in different states in instances where, absent an amount credited or paid to a party to the transaction established inter–association arbitration agreement, at the direction of the respondent. Alternatively, if the REALTOR® (principal) requesting arbitration the complaint is brought against the listing broker, agrees to submit to the jurisdiction of, travel to, the listing broker may name the first cooperating participate in, and be bound by any resulting award broker as a third-party respondent. In either rendered in arbitration conducted by the respondent(s) instance the decision of the hearing panel as to REALTOR®’s association, in instances where the procuring cause shall be conclusive with respect respondent(s) REALTOR®’s association determines to all current or subsequent claims of the parties that an arbitrable issue exists. for compensation arising out of the underlying cooperative transaction. EXPLANATORY NOTES: • Where a buyer or tenant representative is In filing a charge of an alleged violation of the Code compensated by the buyer or tenant and, as a result, of Ethics by a REALTOR, the charge must read as an the listing broker reduces the commission owed alleged violation of one or more Articles of the Code. by the seller or landlord and, subsequent to such Standards of Practice may be cited in support of the actions, another cooperating broker claims to be the charge. procuring cause of sale or lease. In such cases the The Standards of Practice serve to clarify the ethical complainant may name the first cooperating broker obligations imposed by the various Articles and as respondent and arbitration may proceed without supplement, and do not substitute for, the Case the listing broker being named as a respondent. interpretations in Interpretations of the Code of Ethics. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first Modifications to existing Standards of Practice and cooperating broker as a third-party respondent. In additional new Standards of Practice are approved either instance the decision of the hearing panel as from time to time. Readers are cautioned to ensure that to procuring cause shall be conclusive with respect the most recent publications are utilized. to all current or subsequent claims of the parties for compensation arising out of the underlying (Copyright 2011, National Association of REALTORS®) cooperative transaction. • Where two or more listing brokers claim entitlement

Code of Ethics Page 81 Chapter Three: • Hearing panels provide respondents with a “due process” hearing The Dirty Stuff • Must find that there is “clear, strong and convincing” proof that a violation has occurred to Chapter Overview find a REALTOR in violation of the Code In this chapter we will review why the Code of Ethics • Must recommend discipline* that will be imposed should actually be followed, aka the enforcement of the Code. The differences in types of complaints and * “Discipline” means discipline of the REALTOR®’s the resulting procedures will be summarized, as well as membership only, not action against the individual’s the difference between arbitration and mediation. The real estate license - Authorized discipline includes chapter will conclude with Pathways to Professionalism, letter of warning, letter of reprimand, education, fine a handy guide to behaving in a courteous manner in not to exceed $5000, probation for one year or less, real estate transactions. suspension for not less than 30 days or more than one year, expulsion from membership for a period of one Enforcement of the Code of Ethics to three years, or suspension or termination of MLS The Articles of the Code are objective standards by privileges. which REALTORS® conduct is measured. Though the Professional Standards Committee and Board of Arbitration Directors of the NAR adopt and modify the Code, • “Money” complaint enforcement is primarily done by local Associations. • Can only be filed by certain members in certain Some state associations of REALTORS® process circumstances complaints on behalf of local groups by agreement, • Must be filed within 180 days of transaction closing however, for purposes of this course, we will assume or 180 days from when the facts of the request could that the local Board or Association of REALTORS® have been known by the complainant process ethics complaints and conducts all of the • Three conditions define disputes which can be enforcement activities. arbitrated • Must be contractual or non-contractual between Two Types of Complaints cooperating brokers with a commission dispute • Must be between REALTORS® (principals) Ethics associated with different firms or between • Whether one or more of the Articles have been REALTORS® in the same firm if all parties violated agree (voluntary) • “Conduct” complaint • Must arise out of the parties’ relationship as • Can be filed by anyone, general public or REALTORS® REALTOR® • Must be filed within 180 days of when the facts Grievance Committee of the complaint could have been known by the • Addresses procedural issues (membership, timely complainant basis of filing) Grievance Committee • Determines if there is a basis for arbitration • Initial screening or review • If no basis, request dismissed • Whether respondent is member of local association • If basis, request passed on to Professional Standards and whether complaint filed in established time Committee limits • Determines whether there was a possible violation Personal Standards Committee of the Code • Uses hearing panels to decide which party is • If no possible violation, complaint is dismissed entitled to the disputed funds by conducting a full • If possible violation, complaint passed on to “due process” hearing Professional Standards Committee • Prevailing party must prove they are entitled to Professional Standards Committee the disputed funds by a “preponderance” of the • Holds ethics hearings on complaints forwarded by evidence aka “greater weight of the evidence” the Grievance Committee • Arbitration award can be enforced by the courts

Code of Ethics Page 82 Before You File an Ethics Complaint REALTORS® to pay money to parties filing ethics Background complaints; cannot award “punitive damages” for Boards and associations of REALTORS® are violations of the Code of Ethics; and cannot suspend responsible for enforcing the REALTORS® Code of or revoke a real estate professional’s license. Ethics. The Code of Ethics imposes duties above and in • The primary emphasis of discipline for ethical lapses addition to those imposed by law or regulation which is educational, to create a heightened awareness of apply only to real estate professionals who choose to and appreciation for the duties the Code imposes. become REALTORS®. At the same time, more severe forms of discipline, including fines and suspension and termination Many difficulties between real estate professionals of membership may be imposed for serious or (whether REALTORS® or not) result from repeated violations. misunderstanding, miscommunication, or lack of adequate communication. If you have a problem with Filing an Ethics Complaint a real estate professional, you may want to speak with The local board or association of REALTORS® can them or with a principal broker in the firm. Open, provide you with information on the procedures for constructive discussion often resolves questions or filing an ethics complaint. Here are some general differences, eliminating the need for further action. principles to keep in mind. • Ethics complaints must be filed with the local board If, after discussing matters with your real estate or association of REALTORS® within one hundred professional or a principal broker in that firm, you are eighty (180) days from the time a complainant knew still not satisfied, you may want to contact the local (or reasonably should have known) that potentially board or association of REALTORS®. Many boards unethical conduct took place (unless the Board’s and associations have informal dispute resolving informal dispute resolution processes are invoked processes available to consumers (e.g. ombudsmen, in which case the filing deadline will momentarily mediation, etc.). be suspended). • The REALTORS® Code of Ethics consists of If, after taking these steps, you still feel you have a seventeen (17) Articles. The duties imposed by grievance, you many want to consider filing an ethics many of the Articles are explained and illustrated complaint. You will want to keep in mind that . . . through accompanying Standards of Practice or • Only REALTORS® and REALTOR- case interpretations. ASSOCIATE®s are subject to the Code of Ethics • Your complaint should include a narrative of the National Association of REALTORS®. description of the circumstances that lead you to • If the real estate professional (or their broker) you believe the Code of Ethics may have been violated. are dealing with is not a REALTOR®, your only • Your complaint must cite one or more of the recourse may be the state real estate licensing Articles of the Code of Ethics which may have authority or the courts. been violated. Hearing panels decide whether • Boards and associations of REALTORS® determine the Articles expressly cited in complaints were whether the Code of Ethics has been violated, not violated - not whether Standards of Practice or case whether the law or real estate regulations have been interpretations were violated. broken. Those decisions can only be made by the • The local board or association of REALTORS®’ licensing authorities or the courts. Grievance Committee may provide technical • Boards of REALTORS® can discipline assistance in preparing a complaint in proper form REALTORS® for violating the Code of Ethics. and with proper content. Typical forms of discipline include attendance at courses and seminars designed to increase Before the Hearing REALTORS®’ understanding of the ethical duties • Your complaint will be reviewed by the local board or other responsibilities of real estate professionals. or association’s Grievance Committee. Their job is REALTORS® may also be reprimanded, fined, or to review complaints to determine if the allegations their membership can be suspended or terminated made, if taken as true, might support a violation of for serious or repeated violations. Boards and the Article(s) cited in the complaint. associations of REALTORS® cannot require • If the Grievance Committee dismisses your

Code of Ethics Page 83 complaint, it does not mean they don’t believe occurred; and then to determine whether the facts as you. Rather, it means that they do not feel that they find them support a finding that the Article(s) your allegations would support a hearing panel’s charged have been violated. conclusion that the Article(s) cited in your complaint • Hearing panels cannot conclude that an Article of had been violated. You may want to review your the Code has been violated unless that Article(s) is complaint to see if you cited an Article appropriate specifically cited in the complaint. to your allegations. • Keep your presentation concise, factual, and to the • If the Grievance Committee forwards your point. Your task is to demonstrate what happened complaint for hearing, that does not mean they (or what should have happened but didn’t), and have decided the Code of Ethics has been violated. how the facts support a violation of the Article(s) Rather, it means they feel that if what you allege charged in the complaint. in your complaint is found to have occurred by the • Hearing panels base their decisions on the evidence hearing panel, that panel may have reason to find and testimony presented during the hearing. If you that a violation of the Code of Ethics occurred. have information relevant to the issue(s) under • If your complaint is dismissed as not requiring a consideration, be sure to bring it up during your hearing, you can appeal that dismissal to the board presentation. of directors of the local board or association of • Recognize that different people can witness the REALTORS®. same event and have differing recollections about what they saw. The fact that a respondent or their Preparing for the Hearing witness recalls things differently doesn’t mean they • Familiarize yourself with the hearing procedures aren’t telling the truth as they recall events. It is up that will be followed. In particular you will want to to the hearing panel, in the findings of fact that will know about challenging potential panel members, be part of their decision, to determine what actually your right to counsel, calling witnesses, and the happened. burdens and standards of proof that apply. • The hearing panel will pay careful attention to what • Complainants have the ultimate responsibility you say and how you say it. An implausible account (“burden”) of proving that the Code of Ethics has doesn’t become more believable through repetition been violated. The standard of proof that must or, through volume. be met is “clear, strong and convincing,” defined • You are involved in an adversarial process that as, “. . . that measure or degree of proof which is, to some degree, unavoidably confrontational. will produce a firm belief or conviction as to the Many violations of the Code of Ethics result from allegations sought to be established.” Consistent misunderstanding or lack of awareness of ethical with American jurisprudence, respondents are duties by otherwise well-meaning, responsible considered innocent unless proven to have violated real estate professionals. An ethics complaint has the Code of Ethics. potential to be viewed as an attack on a respondent’s • Be sure that your witnesses and counsel will be integrity and professionalism. For the enforcement available on the day of the hearing. Continuances process to function properly, it is imperative for all are a privilege - not a right. parties, witnesses, and panel members to maintain • Be sure you have all the documents and other appropriate decorum. evidence you need to present your case. • Organize your presentation in advance. Know what After the Hearing you are going to say and be prepared to demonstrate • When you receive the hearing panel’s decision, what happened and how you believe the Code of review it carefully. Ethics was violated. • Findings of fact are the conclusions of impartial panel members based on their reasoned assessment At the Hearing of all of the evidence and testimony presented during • Appreciate that panel members are unpaid the hearing. Findings of fact are not appealable. volunteers giving their time as an act of public • If you believe the hearing process was seriously service. Their objective is to be fair, unbiased, flawed to the extent you were denied a full and fair and impartial; to determine, based on the evidence hearing, there are appellate procedures that can be and testimony presented to them, what actually involved. The fact that a hearing panel found no

Code of Ethics Page 84 violation is not appealable. of NAR establishes objective, enforceable ethical • Refer to the procedures used by the local board standards governing the professional conduct of or association of REALTORS® for detailed REALTORS®, it does not address issues of courtesy information on the bases and time limits for or etiquette. Based on input from many sources, appealing decisions or requesting a rehearing. the Professional Conduct Working Group of the Rehearings are generally granted only when newly Professional Standards Committee developed the discovered evidence comes to light (a) which could following list of professional courtesies for use by not reasonably have been discovered and produced REALTORS® on a voluntary basis. This list is not all- at the original hearing and (b) which might have had inclusive, and may be supplemented by local custom a bearing on the hearing panel’s decision. Appeals and practice. brought by ethics respondents must be based on (a) a perceived misapplication or misinterpretation of Respect for the Public one or more Articles of the Code of Ethics, (b) a • Always follow the “Golden Rule” procedural deficiency or failure of due process, or • Always respond promptly to inquiries and requests (c) the nature or gravity of the discipline proposed for information by the hearing panel. Appeals brought by ethics • Schedule appointments as far in advance as complainants are limited to procedural deficiencies possible; call if you are delayed or must cancel an or failures of due process that may have prevented appointment a full and fair hearing. • Always schedule property showings in advance • If a prospective buyer decides not to view an Conclusion occupied home, promptly explain the situation to • Many ethics complaints result from the listing broker or the owner misunderstanding or a failure in communication. • Communicate with all parties in a timely fashion Before filing an ethics complaint, make reasonable • Enter listed property first to ensure that unexpected efforts to communicate with your real estate situations, such as pets, are handled appropriately professional or a principal broker in the firm. If • Leave your business card if not prohibited by local these efforts are not fruitful, the local board or rules association of REALTORS® can give you the • Never criticize property in the presence of the procedures and forms necessary to file an ethics owner complaint. • Inform sellers that you are leaving after a showing • When showing an occupied home, always ring the Mediation doorbell or knock before entering. Knock before Mediation is when both parties agree to meet with a entering any closed room neutral third-party, called a mediator, to help them • Present a professional appearance at all times; dress resolve their dispute. The goal of mediation is to appropriately and have a clean car resolve a dispute without having to go through the legal • If the seller is home during a showing, ask their process of arbitration. REALTORS® are increasingly permission before using the telephone or bathroom relying on mediation to resolve disputes that in the past • Advise the clients of other brokers to direct would have been arbitrated. questions to their agent or representative • Communicate clearly; don’t use jargon not readily When a dispute is successfully resolved through understood by the general public mediation, no arbitration hearing is necessary. A • Be aware of and respect cultural differences successful result would be one in which both parties sign • Show courtesy and respect to the general public an agreement spelling out the terms of their settlement. • Be aware of and meet all deadlines Depending on the policy of your Association, mediation • Promise only what you can deliver and keep your may be offered before or after the Grievance Committee promises has reviewed an arbitration request. Mediation can also be offered without a request for arbitration being filed. Respect for Property • Be responsible for visitors to listed property; never Pathways to Professionalism allow buyers to enter property unaccompanied While the Code of Ethics and Standards of Practice • When the seller is absent, be sure to turn off lights,

Code of Ethics Page 85 shut windows, and lock doors after a showing partial truths. Dishonesty takes many forms and can be • Tell buyers not to smoke in listed property cleverly masked to the untrained eye. The final portion • Use sidewalks; if weather is bad, take off shoes and of this course seeks to increase your understanding of boots inside property common deceitful practices in the real estate industry. • When a property is vacant, check that heating and As you will learn, some practices are not only unethical, cooling controls are set correctly and check the but illegal as well. outside of the property for damage and vandalism Fair Housing Laws *Note: The information contained in this section is Respect for Peers extracted from our course, Fair Housing, authored by • Call the listing broker to report the results of any Mr. Alan Simmons* showing • Notify the listing broker immediately if anything The Fair Housing Act of 1968 was the first major appears wrong with the property legislation that applied to residential housing. The • Notify the listing broker if there appears to be Fair Housing Amendments Act of 1988 broadened the inaccurate information on the listing coverage, increased the enforcement policies of the Act • Share important information about a property, and stiffened the penalties invoked for violation of the including the presence of pets; security systems; Act. and whether sellers will be present during the showing Title VIII of the Civil Rights Act of 1968 • Show courtesy, trust and respect to other real estate Also known as the Fair Housing Act, Title VIII professionals prohibited discrimination in most types of housing on the basis of: • Race Chapter Four: Common • Color Illegal and Unethical • Religion • National Origin Practices In 1974, Congress passed the Housing and Community Development Act, which added “sex” as another Chapter Overview prohibited basis for discrimination. This prohibited In this chapter we will review common unethical or sexual harassment, but not discrimination for sexual illegal practices in the real estate industry. Chances orientation. Though federal laws do not cover are, you have been an observer of these acts, but we discrimination based on sexual orientation, the included them here for your reference. It is important following states have passed laws that provide some to remember, your reputation as a professional always form of civil rights protection for gay, lesbian, bisexual precedes you, so it is best to display high integrity in all or transgender individuals: business transactions. • California • Connecticut Introduction • District of Columbia • Florida The Code of Ethics provides real estate professionals • Illinois with guidelines of acceptable conduct in all business • Maryland transactions. With the Golden Rule at its foundation, • Massachusetts the Code expects licensees to be exemplary models of • Minnesota competency, fairness and high integrity. In the event • New Hampshire these obligations are not met, enforcement procedures • New Jersey take the form of disciplinary action. • New Mexico • New York Unfortunately, in highly competitive markets such as • Rhode Island ours, dishonesty in dealings is a common practice. • Vermont Brokers and salespeople alike display greed for • Wisconsin “getting ahead” and often rationalize blatant lies as

Code of Ethics Page 86 Fair Housing Amendments Act of 1988 concludes they are not the sort of buyers the sellers were The major changes came 20 years later in the Fair hoping to have. Instead, the sellers expressed wishes to Housing Amendments Act of 1988, which added sell their home to a well-to-do retired couple that would protected status to families with children and persons “fit-in” with their beloved neighbors. Licensee Laura with physical or mental handicaps. It also added new coyly suggests looking at a few properties closer to the enforcement procedures. city, as it turns out, in ethnic neighborhoods. Jose and Maria cooperatively concur. Licensee Laura has engaged The Fair Housing Act prohibits discrimination in in steering. housing because of: • Race or color Blockbusting/Panic Peddling • National origin Blockbusting, also called panic peddling, is the illegal • Religion and discriminatory practice of inducing another into a • Sex real estate transaction by making representations of the • Familial status entry, or prospective entry, of members of a minority • Handicap group. By representing that a change may occur, resulting in decreased property values, a decline in the The following are specific actions that are prohibited quality of schools or an increase in the crime rate, a real under the Fair Housing Act: estate professional is directly violating Fair Housing • Refusal to rent or sell housing or to negotiate for laws. Further, blockbusting is a violation of Article 2 housing of the Code of Ethics, as it involves misrepresentation. • Making housing unavailable or denying a dwelling • Setting different terms, conditions or privileges for Example sale or rental of a dwelling or in the provision of Dave and Christy, a young couple with a child, are different housing services or facilities owners of a small urban home, where they have lived • Falsely denying that housing is available for since they were married. In anticipation of expanding inspection, sale or rental their family, they consider selling their home to • For profit, persuading owners to sell or rent purchase a larger property outside of the city. They (blockbusting) consult with Broker Bob, who immediately lets them • Discriminating in residential real-estate related in on a “secret” about their current neighborhood. transactions To their surprise, ‘there has been an influx of African • Denying anyone access to or membership in a Americans, and crime statistics have risen dramatically facility or service (such as a multiple listing service) in the last eight months.” As a feeling of panic sets in, related to the sale of rental of housing Dave and Christy decide, in a matter of minutes, that it • Threatening, coercing, intimidating or interfering is definitely time to sell their first home. Broker Bob has with anyone exercising a fair housing right or just engaged in blockbusting. assisting others who exercise that right. Redlining Steering/Channeling Redlining is a practice by some lending institutions that Steering, also called channeling, is the illegal practice restricts the number of loans or the loan-to-value ratio of directing home seekers to particular areas because of in certain areas of a community. A redlining policy minority status, either to maintain the homogeneity or may be so severe that the lender prohibits lending any change the character of an area. This practice is in direct money in certain areas. Redlining is often justified by violation of Fair Housing laws, as it limits peoples’ wanting to limit the risks in an area that is deteriorating. home choices. Article 10 of the Code of Ethics is also The lender discriminates against a whole class of risks violated, as real estate professionals are expected to rather than distinguishing among individual risks. provide equal services to all parties. This practice can also be seen in a different light, as the Example illegal practice of refusing to originate mortgage loans, Licensee Laura has an appointment to show Jose and or limiting their number, in certain neighborhoods on Maria a house in an established, upper-middle class the basis of racial or ethnic composition. This sort of suburb. Upon meeting the young couple, she quickly motivation is in direct violation of Fair Housing laws.

Code of Ethics Page 87 Article 10 of the Code of Ethics is also violated, as balance of $890, decides to deposit the money into real estate professionals are expected to provide equal her own checking account to pay her bill until she can professional services. recover the money from her next paycheck for deposit into the escrow account. Though she has good intentions Example to repay the money, Stephanie has commingled funds. Hipple and Associates, a local mortgage lender, has received an application from a Russian family for a Pocket Listing loan to purchase a house on the East Side of town. The Pocket listing is when an agent lists a property for sale East Side has been deteriorating for several years, and does not enter it into the MLS system for several and Hipple and Associates has limited the number of days, keeping it in his “pocket” so other agents will mortgage loans for that area in response to decreased not know the property is for sale. This practice allows property values and in turn, decreased profit margins. the agent to show the listing to his customers without The Russian family is denied, and Hipple and Associates competition from other buyers. In the meantime, the is guilty of redlining. seller is unaware that the property is being offered to only the agent’s buyers and may accept a lower offer Puffing than they would have gotten if the property had been Puffing, also known as puffery, consists of non- exposed to ALL buyers. Pocket listing can be avoided factual or extravagant statements and opinions made by specifying that the listing agent provide the seller to enhance the perceived desirability of a property. with the MLS ID number within 24 hours of listing the There is a fine line between legal puffing and illegal property. misrepresentation, and puffing is best avoided. Example The term “caveat emptor,” also comes to mind when Agent Alan has received notice that the Vanderbilt discussing puffing. This term literally means “let the family is relocating and their massive and luxurious buyer beware” in Latin and suggests that buyers should home is for sale. Agent Alan has three wealthy clients inspect property before a purchase is made, regardless on a waiting list for openings in the Vanderbilt’s of what a sales professional may or may not say. neighborhood and decides to show the property only to them for the first several days. In order to provide Example this sort of exclusivity for these clients, he delays “The apartment has a fantastic view” is puffery entering the Vanderbilt home into the MLS system until because the prospective buyer can clearly assess the he has received word from all three families on their view individually. “The apartment has a fantastic view intentions. Agent Alan has unethically pocket listed the of the lake,” when in fact all windows face a parking Vanderbilt home. lot, would be illegal misrepresentation. Either way, the Code of Ethics is broken, as Article 2 prohibits exaggeration and misrepresentation of pertinent facts about property or transactions.

Commingling Commingling is the illegal practice of mixing client’s deposits or monies (trust funds) with one’s own funds. By law, brokers are required to maintain a separate trust or escrow account for other parties’ funds held temporarily by the broker. Commingling is also a direct violation of Article 8 of the Code of Ethics, which requires licensees to keep all monies for other persons separate from their own funds in a special account such as escrows. Example Salesperson Stephanie receives an earnest money check for $1000 from Buyer Bill for a home on Crescent Avenue. Stephanie, who has an outstanding credit card

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