How to Be Code Compliant
November 19, 2020
Barbara Betts still vividly remembers having to defend herself from a complaint filed by a fellow REALTOR® in front of a board of her peers. Though Betts reports that she was ultimately exonerated, she vowed from that point on to learn everything she could about the National Association of REALTORS®’ Code of Ethics and risk management in order to prevent a similar situation from happening again.
In the virtual 2020 REALTORS® Conference & Expo session, “How to Stay out of Trouble: Risk Management and Code of Ethics,” presented by Betts on Wednesday, she offered tips and best practices real estate professionals can incorporate into their business practices immediately. Betts covered managing the risk of potential litigation, reducing liability, and minimizing exposure to possible ethics complaints.
REALTORS® know that when they joined NAR, that they also agreed to operate within the association’s Code of Ethics, which asks members to hold themselves to a higher standard. Betts, however, who is the broker-owner of The Betts Group in Long Beach, Calif., said it’s not uncommon for newer members to not fully understand what complying with the code requires from them. Betts offered a high-level overview of some of the most common Code of Ethics violations that can trip up even the most well-intentioned REALTORS®.
Article 1: REALTORS® owe a fiduciary duty to their clients and honesty to all parties.
Common problem areas:
- Overpricing a listing—this can be considered misleading the lister.
- Not presenting all offers up until the closing.
- Disclosing confidential information about the seller, such as a bankruptcy filing or other financial troubles.
Article 3: Cooperation with other brokers.
Common problem areas:
- Misrepresenting access to show a home. For example, you list a date the property is available, and then show it earlier yourself.
- Providing access to a home on terms other than those established by the listing broker, such as giving clients access codes to use themselves without you present.
- Refusing to cooperate with another broker on the basis of the broker’s race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity.
Article 12: Honesty in real estate communications.
Common problem areas:
- Not making it clear in your advertising material who your broker is, especially if it’s not you.
- Not keeping your website information accurate and up to date.
- Using copyrighted images without permission in your communications, including social media posts.
Fair housing is covered by Article 10 of the Code of Ethics, and Betts highlighted two important topics related to this issue: steering and “love letters.” Betts warned engaging in either one of these practices can lead to a lawsuit—even if there was no intent to violate fair housing laws. Steering, she said, can be as simple as offering different opinions to two different clients. For example, if you tell one client a neighborhood is safe, and you tell another client not to buy there because of the crime rate—and you do so because of race—that would be considered steering.
“You have to give the same advice to everyone,” Betts said.
Love letters—personal offer letters from a buyer to a seller—can be problematic for the same reason, Betts noted. Love letters, she explained, are written by a potential buyer to express their reasons for wanting to purchase the home. Such letters are often well-intentioned, Betts said, but they can easily violate fair housing laws. For example, a buyer writing that she and her husband and children would love to spend Christmas in the house has just revealed her family status and her religion to the seller—which could potentially influence the seller’s decision in a discriminatory fashion.
“Your seller and you could be sued without intending to make a mistake,” Betts said. “I advise my sellers not to read or accept love letters.”
Betts also included her top seven tips for risk management—practices all real estate professionals can put into place to help make sure they are covered in the event that a complaint or lawsuit is filed against them. These practices, she said, will help ensure that you have the information you need on hand and that nothing pertinent, such as text messages, goes missing:
- Document everything—Betts uses Slack.
- Following conversations, summarize important information in email and send to the buyer or seller to make sure that there is a record of what you communicated to them.
- Give clients choices when it comes to home warranty add-ons and inspector choices—don’t make the decision for them.
- Email transaction milestones and reminders to clients.
- Explain all contracts before sending for signature.
- Save all text messages and communications with clients and other agents.
- Ask clients questions constantly, such as, “Do you understand?” or, “Do you have any questions?”
Betts said she loves clients who ask a lot of questions and advised real estate agents to work on getting silent clients to open up and reveal what they don’t understand about the process.
“Typically,” she said, “they won’t sue if they understand.”