Buck Wargo is a real estate reporter and writer based in Las Vegas.
5 Everyday Ethical Dilemmas
The REALTOR® Code of Ethics sets rigorous guidelines, but some situations can confound even the most moral of minds.
March 1, 2007
The Code of Ethics is the backbone of the NATIONAL ASSOCIATION OF REALTORS®. It’s what separates the country’s 1.3 million REALTORS® from other real estate licensees.
However, as with any set of rules or laws, the Code “is not all black or white,” says Sharon Steele, 2007 chair of NAR's Professional Standards Interpretation and Procedures Subcommittee. “It’s shades of gray.”
Knowing how to respond comes in part from experience in handling uncomfortable situations, says Steele, ABR®, CRS®, who also is president of the Sharon Steele Group in Providence, R.I. But that doesn’t mean seasoned professionals aren’t stumped from time to time.
Steele and other ethics experts identified these dilemmas that are likely to pop up in today’s market, and provide guidance on how to respond.
Dilemma 1: Should I Disclose That?
“REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” (Article 2)
The scenario: Your seller client tells you that a home inspector recently was suspicious of insect damage when he saw the home's damaged siding. However, the seller disputes that notion, saying he’s never had an insect problem in or around the home.
The risk: Withholding pertinent facts from buyers.
What to do: Disclose anything that affects the value or desirability of the home, says Bruce Aydt, ABR®, CRB, general counsel and senior vice president of St. Louis-based Prudential Alliance, REALTORS®. That may include insect damage, water leakage, structural problems, and more.
Otherwise, you’re putting yourself at risk of serious legal action. “I think some agents are unaware of the potential liability and might agree with the home owner and keep quiet,” Aydt says.
Practitioners may be stumped because they don’t know whether or not a particular fact is important enough to share with prospective buyers, Aydt says. If you find yourself in this situation, it’s best to err on the side of disclosure.
You’re not the expert; the home inspector is. So if a home inspector says there’s a problem, but the seller disagrees, you have to stick with the assessment of the inspector.
What if sellers refuse to disclose, and urges you to do the same? It’s the safest practice to surrender your listing, Aydt says. The legal risks to you are simply too great.
Dilemma 2: Sending Mixed Signals
“REALTORS® pledge themselves to protect and promote the interests of their client.” (Article 1)
The scenario: You’re hosting an open house for your client, a seller. A woman seems very interested in the property and asks many questions about the home, local schools, and proximity to public transportation. She also asks why the sellers would want to move out of such a nice house.
The risk: Violating loyalty to your client, the seller. Some buyers, particularly first-timers, don’t always understand that the listing agent’s primary obligation is to the seller, Steele says. If you don’t tell them, it could lead to undisclosed dual representation.
“It ought to be fairly clear but unfortunately some agents don’t have the confidence to say: By the way, I represent the seller,” she says. “If the buyer gets the wrong signal, there’s potential for undisclosed dual agency, which is clearly not a good thing.”
What to do: As a listing agent, your responsibility to the prospective buyer is to treat them honestly, but to your client you owe confidentiality, accountability, and loyalty, Steele says.
You can always provide buyers with information that's public knowledge or with copies of the seller’s disclosure, which is required in most states. But you should center your conversations on the house and not issues such as the seller’s motivation, Steele says. “In an effort to be helpful, agents can sometimes overstep the line,” she says. “They don’t give clear signals.”
“There are a myriad of reasons for it,” Steele says. “Inexperience is one. If you don’t want to alienate a buyer, it can be a difficult situation.”
Dilemma 3: Ethics in Advertising
“REALTORS® shall becareful at all times to present a true picture in their advertising and representations to the public.” (Article 12)
The scenario: You’re looking for a way to differentiate yourself from the competition and give your marketing materials a kick. You decide on a new tagline: “The No. 1 Real Estate Agent For You.”
The risk: Stretching the truth. If your statements are truthful and accurate, it’s not wrong to tell prospects how you measure up to competitors. But when you make an advertising statement about being the “No. 1” agent, you could be misleading the public.
What to do: Making the claim of being No. 1 is perhaps the most abused or misused term in real estate advertising, Aydt says. If you really want to use that phrase, be careful to explain what you mean by “No. 1.” For example, cite your market share, a date range, and a specific geographic area.
Experts advise focusing on your own merits and what you bring to a prospective client rather than comparing yourself directly to competitors.
Ethics in advertising extends to property marketing, too. Be clear about how you describe the home, Steele says, and stay away from sweeping statements or exaggerations. It’s incumbent to avoid mistakes as well, she says. Double-check property tax figures with your local government, and be sure that square footage is measured correctly.
Finally, never say anything to buyers that you can’t confirm as a fact. “You can only represent what you know,” Steele says. “If you don’t know the answer, say ‘I don’t know, but I will go to City Hall and try to find an answer.’ In this business, you don’t make assumptions.”
Dilemma 4: One Brokerage, Multiple Offers
“Obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly.” (Article 1)
The scenario: Two interested buyers have submitted offers on your listing. One buyer is represented by an agent who works at your brokerage. The other buyer is represented by an agent from a franchise across town.
The risk: “Regardless of the intent, there may be concern that more attention will be paid to an in-house deal than out-of-house deal,” says Dale Mattison, CRS®, GRI, an associate broker with Long & Foster Real Estate in Washington, D.C.
“I know my ethical intent is to treat the offer fairly, but there’s always the risk that someone will get the wrong impression,” he says.
What to do: Mattison, past chairman of NAR’s Professional Standards Committee, says the Code of Ethics only requires such information to be disclosed to the buyer upon request, but he says it’s a good practice to disclose it anyway. That way, you won’t give anyone the idea that you’re favoring one offer so that your brokerage will capture the full commission.
In order to remain objective, his company’s policy is to have a third party that’s not directly involved in the deal, such as a brokerage office manager, present both offers to the seller.
Dilemma 5: Can You Write Me an Offer?
“REALTORS® shall not engage in any practice or take any action inconsistent with the exclusive relationship recognized by law that other REALTORS® have with clients.” (Article 16)
The scenario: You are representing clients who want to sell their home quickly so they can move into their new home. You get a call from a prospective buyer who says that he’s already viewed the property and would like to make an offer immediately. He asks for you to write the offer.
The risk: The buyer may already be represented.
What to do: First, ask the buyer if he’s working with a buyer’s agent, says Bill Lublin, CRS®, CRB, chief executive of Century 21 Advantage Gold in Philadelphia.
If he’s represented, encourage him to submit an offer through his agent. Also, the buyer should be made aware that he may have contractual obligations to the buyer's agent, says Lublin, vice-chair of the NAR’s Professional Standards Committee. In most cases, the buyer’s agent can be owed a portion of the sales commission.
If the buyer is unable to work through his agent, and still demands that an offer be written immediately, your duty as the listing agent is to follow through with the request, Lublin says. After writing the offer, contact the buyer’s agent and let that person know what’s going on, and let them know they'll receive commission from the deal as set out on the buyer's rep contract.
“It’s good to do the right thing,” Lublin says. “You sleep so much better and feel so much better. The people I know who are successful in business are always extremely ethical. I don’t see that it has any kind of negative impact on anybody.”