Appraisals Aren't Fact

Value is in the eye of the beholder.

February 1, 2007

Q: I represented a buyer who, even though I advised him not to, made a full list price offer of $479,900 on a property. The offer was accepted by the seller, but the bank appraisal put the value of the home at only $454,000. The listing agent and the seller received copies of the appraisal, but the seller refused to lower the price. The contract was terminated.

The listing agent continued to market the house at $479,900. She later told me that she had used active listings, not closed listings, to determine the suggested listing price. She also went outside of the market area for comps. Did the listing agent violate the Code of Ethics by not disclosing the $454,000 appraisal (as a material fact that might affect a subsequent buyer’s decision to make an offer) to agents representing other buyers?

A: An appraisal is generally considered a professional opinion of the market value of a property, not a fact. Although it’s both legally and ethically necessary to disclose a material fact, the same requirement doesn’t apply to an opinion. Article 2 of the Code focuses on pertinent facts, not opinions: “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” Because an appraisal is an opinion, the listing agent isn’t violating Article 2 by not disclosing it.

The only area of possible concern is in how and why the listing agent completed the market analysis. Standard of Practice 1-3 says, “REALTORS® . . . shall not deliberately mislead the owner as to market value.” If the agent used market data she knew was inaccurate to deliberately mislead the owner simply to acquire the listing, then she would be in violation of the Standard of Practice 1-3.

Q: I showed my buyer client a property listed with another brokerage a few days before the expiration date of the listing agent’s exclusive right to sell agreement. The buyer decided not to make an offer at that time. After the listing agreement expired, our company secured a new listing on the property in question. After showing several other listings to my buyer over the next several days, I took my buyer back to see the property that was previously listed with the other company. My client eventually purchased that home.

The original listing agent found out that a buyer introduced to the property during his listing period purchased the home and claims we owe his company the listing commission. A listing agreement was used during the original listing period that obligated the seller to pay a commission to the listing broker if, for a certain period after the listing expired, the property was sold to a buyer introduced during the listing period. However, the protection period doesn’t apply when the property is listed with another brokerage. Does the other broker have an arbitration claim for the listing commission?

A: The other broker doesn’t have an arbitration claim against your REALTOR® principal or company. Article 17 of the Code requires arbitration only when there’s a “contractual” dispute or certain types of “noncontractual” disputes specified by Standard of Practice 17-4. There was no contract between your REALTOR® principal and the REALTOR®principal of the other brokerage to pay or share the fee. Nor is this situation one of the noncontractual disputes specified by Standard 17-4.

The other broker’s rights to the listing commission are derived from the listing agreement between that broker and the seller of the property. This matter isn’t arbitrable.

In addition, Article 16 provides “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.” Because the other broker’s listing expired and you say the protection period in the agreement didn’t apply, your company didn’t and couldn’t interfere with the other broker’s listing.

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.