Understanding the Realtor® Code of Ethics ... Article 1

This is one of a series of posts describing what the Code of Ethics are and what they mean to you - the buyer or seller.

First, we need to understand the difference between a real estate agent and a Realtor®. A real estate agent is a person who has obtained the proper education and has obtained a license to practice real estate in a particular state. Licensing laws are governed at the state level, so there are varying degrees of competency and difficulty to become licensed from state to state. (Sorry - Wikipedia's definition of a real estate agent is highly inaccurate...)
A Realtor® is a member of the National Association of Realtors® (NAR) - the world's largest professional association, and who is bound by a strict Code of Ethics.

There are 3 parts to the Code of Ethics: A Realtors® duties to...
1. their clients and customers
2. the general public, and
3. other Realtors®

Article 1
"When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS^® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS^® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS^® remain obligated to treat all parties honestly."

This article covers a large chunk of the duties to a Realtors® clients and customers. Let's take a look at how this article affects you - the buyer or seller ...

• First and most importantly, this means that every Realtor® has the duty to treat everyone involved in a transaction with honesty. No lying. No skirting the truth. No "pulling one over" on anyone.

• When you, the seller or buyer, signs an agency agreement (Buyer Agency or Exclusive Right to Sell) with a Realtor® - they owe you the duty of promoting and protecting your interests, as their client.

• A Realtor® is also bound by these Codes to not deliberately make a seller believe that a home is worth more, or less, than what market value really is. Market value is a "living number" and can vary. However here is an example of where there may be a possible Code violation:

You want to list your home. You interview a potential listing agent who tells you that your home is worth XX dollars. This amount is much higher than any other like homes in your area, but hearing this number makes you very happy, so you list with that agent. However, this agent also knows that this amount is too high, but figures after a few weeks of no showings, you will lower the price to "market value" This is called "Buying a Listing" - where an agent tells a seller a "magic number" that will ensure they get the listing, knowing that the price will be lowered eventually.

What this does is destroys the initial marketability of your house. How? Well, a properties best time is the first two weeks on the market. That is when it is HOT! If a house is overpriced during that time, chances are that it will stay on the market longer, and eventually sell for under market value. So, now you, the seller, have made more mortgage payments than you may have needed to and may also take a hit on the price, as well.

Homes that have been on the market longer may also be a target for buyers looking for sellers to pay a large chunk of money in concessions - The buyer understands that the seller may be more "motivated" to sell under "less than savory" terms, just to get rid of the house. This can be avoided by requesting a comprehensive Comparative Market Analysis (CMA) or investing a few hundred dollars in a professional appraisal.

• A Realtor® is bound by the Code of Ethics not to lie to people about the benefits of working with him or her. Beware of the agent who offers things that are "too good to be true" - they probably are.

• DISCLOSURE - This is a big one, both in this article, as well as other articles. This one in particular, means that a Realtor® may represent both the buyer and the seller in the same transaction, as long as each party knows and consents to it.

• A Realtor® has the duty to submit offers and counter offers to their sellers objectively and as quick as possible. Although a Realtor® does not have the obligation to continue marketing a property after an offer has been accepted by the seller, they do have the obligation to present any other offers that may be made on the property. However, a Realtor® must always recommend the seller to seek legal advice on how to deal with accepting a different offer while under contract with another buyer.

Example: You list your house with Realtor® Rachael. Realtor® Ray submits an offer from Buyer Bob. Realtor® Rachael presents this offer to you and you accept it. You are now under contract with Buyer Bob. A few days later, Realtor® Robert submits an offer from Buyer Brenden. Realtor® Rachael presents this offer to you. This new offer is much nicer than the one that you accepted, as you would walk away with more money. Realtor® Rachael recommends that you seek legal advice from a real estate attorney. The attorney will guide you through the process of how to handle this transaction, and will work closely with Realtor® Rachael, to make sure that your highest and best interests are preserved.

• Realtors® are obligated to preserve the confidential information of their clients, at all times (read: forever!). This means that  a Realtor® cannot reveal confidential information, nor are they allowed to use their knowledge of their clients' confidential information to out their clients' in a disadvantageous situation. According to the Code of Ethics, the only time it is permissible to divulge confidential client information is:

• "clients consent after full disclosure; or
• REALTORS^® are required by court order; or
• it is the intention of a client to commit a crime and the information is necessary to prevent the crime; or
• it is necessary to defend a REALTOR^® or the REALTOR^®'s employees or associates against an accusation of wrongful conduct."

• When working as a property manager, a Realtor® must protect the rights, safety and health of the tenants of the properties that they manage. They also have the duty to protect the managed property from any foreseeable losses.

• A Realtor® has the duty to disclose to sellers, as they must advise on the following:

1. "the REALTOR^®'s company policies regarding cooperation and the amount(s) of any compensation that will be offered to subagents, buyer/tenant agents, and/or brokers acting in legally recognized non-agency capacities;
2. the fact that buyer/tenant agents or brokers, even if compensated by listing brokers, or by sellers/landlords may represent the interests of buyers/tenants; and
3. any potential for listing brokers to act as disclosed dual agents, e.g. buyer/tenant agents." (Please note: Dual Agency is illegal in Colorado)

• A Realtor® has similar duties to buyers, advising on the following:

1. the REALTOR^®'s company policies regarding cooperation;
2. the amount of compensation to be paid by the client;
3. the potential for additional or offsetting compensation from other brokers, from the seller or landlord, or from other parties;
4. any potential for the buyer/tenant representative to act as a disclosed dual agent, e.g. listing broker, subagent, landlord's agent, etc., ( again, Dual Agency is illegal in Colorado) and
5. the possibility that sellers or sellers' representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties.

• A Realtor® must have approval, from the seller, to disclose to other interested parties that other offers may exist on the listed property. Example: If you list your house and an offer comes in, and then another offer comes in before you accept or counter the first one, you would have to give your Realtor® permission to tell the agent with the 2^nd offer that there is already an offer "on the table" if you wanted the other agent to know. A Realtor® cannot disclose this information without the sellers consent.

What this all boils down to is this: A Realtor® is bound by the Code of Ethics to behave in the best possible way to the public, and especially to their clients. A Realtor® must be honest, in everything that they do and must conduct business with their clients' best interests in mind, at all times.

Although all real estate agents should abide by these codes, a Realtor® is bound by these Codes of Ethics.
To insure that you benefit from these codes, please make sure that your next agent, is a Realtor®.