The Right Query

Exclusivity determines who you can work with.

October 1, 2004

Q. Recently, I held an open house for a listing. I asked two different sets of prospective buyers the same question: Are you working with another practitioner? Each couple responded, “Not really.”

What constitutes an exclusive representation agreement, as defined in Code of Ethics Standard of Practice 16-13? I don’t think I asked the right question since I received such vague responses. Should I have followed up with a more specific query? For future guidance, what would it be?

A. You’re right about needing to follow up or ask the initial question differently. Although it’s customary, your query—“Are you working with another practitioner?”—doesn’t fulfill your obligation under Standard of Practice 16-13. However, it’s a good question from a business perspective because it may provide you with information to help you decide whether to commit time and resources to the buyers. The question also may help you extract the details that do fulfill your Code obligations under Standard of Practice 16-13. So what’s your obligation? You should ask prospects whether they’re a party to any exclusive representation agreement. Remember: Exclusive is the key word that determines whether you can work together.

The second paragraph of Standard of Practice 16-13 guides you on this score: “REALTORS® shall not knowingly provide substantive services . . . to prospects who are parties to exclusive representation agreements, except with the consent of the prospects’ exclusive representatives or at the direction of prospects.”

So it’s not enough to ask whether a prospect is working with another real estate licensee or if the prospect has an agent. The key concept in Article 16 and Standard of Practice 16-13 is that REALTORS® should respect and honor clients’ exclusive agreements. The better, more direct question is: “Are you a party to an exclusive agreement with another real estate licensee?”

Article 16, which was clarified as of Jan. 1, 2004, applies only to exclusive agreements. Specifically, Article 16 requires that “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.”

Article 16 doesn’t restrict business relationships that haven’t yet become exclusive. But if they are exclusive, the message is clear: Don’t interfere.

Q. Many offers today are presented with additional information such as preapproval financing agreements from lending institutions. Is a buyer’s agent obligated to notify a seller’s agent if, for instance, the buyer’s lender later changes?

A. First, look to the language of the purchase contract. It may contain provisions requiring a buyer to apply for the loan specified in the contract. It might even specify that the buyer apply for the loan at the lending institution named in the contract. If the contract doesn’t provide for these specifics, then, most likely, all that’s required is for the buyer to proceed on a bona fide basis to diligently pursue financing.

From a Code of Ethics perspective, the buyer’s agent has an obligation to be honest with all parties in the transaction. Two articles broadly relate to this situation: Article 1 requires that we protect and promote our client’s interests but that we also be honest with everyone involved in the transaction. Article 2 provides that REALTORS® avoid exaggeration, misrepresentation, and concealment of pertinent facts about the property or the transaction. The mere change of a lender doesn’t violate either of these two articles as long as the buyer proceeds to obtain the loan on a good faith basis.

Bruce Aydt

Attorney Bruce Aydt, ABR, CRB, SRS, is a national real estate educator, a Missouri real estate broker, and past chair of the National Association of REALTORS® Professional Standards Committee.

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