End Run Illegal

Exclusive right to sell means just that

August 1, 2006

Q: I listed a property under an exclusive right to sell agreement and placed the property in my MLS. Without my or my office’s knowledge, a sales associate in another company, who is also a member of my MLS, wrote an offer on the property and presented it directly to my seller. My seller called me when he received the offer and told me that he didn’t initiate the contact with the other salesperson. Is this a violation of the Code of Ethics, and if so, what can be done about it?

A: From what you’ve said, this is a violation of Article 16 of the Code of Ethics. Article 16 says “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 is intended to prevent interference with exclusive relationships, like the exclusive right to sell listing agreement you had.

The first paragraph of Standard of Practice 16-13 also relates directly to situations like yours. It states: “All dealings concerning property exclusively listed . . . shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client.” Since you didn’t give permission to the sales associate to contact your client and your client didn’t initiate the contact, the salesperson’s conduct violates Article 16.

You have a right to file a Code of Ethics complaint against this salesperson at your local association of REALTORS®. After you file the complaint, the association’s Grievance Committee will review it. If the committee finds that the complaint involves a possible violation of the Code, the committee will forward the complaint to a hearing panel of the association’s Professional Standards Committee.

If the hearing panel finds the respondent in violation of the Code, it can recommend disciplinary action to the association’s board of directors. Disciplinary action can include a letter of warning or reprimand, attendance at a relevant education session, fines up to $5,000, and suspension or expulsion from membership in the association.

Q: I’m a real estate practitioner, and my husband owns a mortgage company. If I refer clients to my husband, am I required to disclose to my clients that the loan officer is my husband?

A: Although the Code doesn’t require that you tell clients that the loan officer is your husband, both the Code of Ethics and federal law require disclosure of financial benefits or fees that may result from recommending real estate products or services to a client.

The second paragraph of Article 6 provides: “When recommending real estate products or services (e.g., homeowners insurance, warranty programs, mortgage financing, title insurance, and so on), REALTORS® shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the REALTOR® or REALTOR® ’s firm may receive as a direct result of such recommendation.”

The federal Real Estate Settlement Procedures Act prohibits the receipt of anything of value for the referral of settlement services, including the benefit you might potentially receive through your spouse.

There is, however, an exception to this limitation. A company with an affiliated business can make a return on its investment from the affiliated business. Your relationship with your spouse may qualify as an affiliated business relationship regardless of whether you personally have an ownership interest in the mortgage company.

Affiliated business relationships must meet several very specific conditions, including making detailed disclosure. Failing to meet all of these conditions may make your referral of business to your spouse's business illegal under RESPA. And even with an affiliated business exception, you may not receive any compensation for simply making the referral.

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.