Ethical Requirements for Real Estate Brokers

What is the REALTOR® code of ethics?

When does it apply to real estate brokers?

How to reduce the risk of liability?

How a REALTOR® should behave?

What does it meant to be an “Agent”?

1. An agent is someone who represents another party in a transaction with a third party, meaning the agent speaks on behalf and in place of the party they represent as if that party was communicating directly to the third party.
2. The agency relationship is a legal relationship that authorizes the agent to perform certain acts on behalf of another party.

Duties of An Agent

1. 1. 1. Fiduciary duties are legal responsibilities of a party to act on behalf of another party’s interests.
      2. A fiduciary relationship is a legal relationship that applies to any situation in which one party places confidence in another party and that confidence is accepted, thereby creating a situation of influence by the dominant party and dependency by the non-dominant party.
      3. Fiduciary duties include loyalty and trust in caring for the property or assets of another party, as well as full disclosure, accountability, obedience, skill and diligence.
      4. The party to whom an agent owes a fiduciary responsibility is called a “Principal.”
         1. Agents must be accountable to the principal, must use care and skill, must obey legal instructions, must be loyal to the principal and must disclose all relevant information to the principal.
         2. Agents must keep all confidential information of the principal confidential.
      5. A fiduciary may not profit at the expense of the principal without express informed consent.

Agency Relationship

Agency Disclosure

1. It is important to disclose in written form the parties the licensee will be performing services for before the parties sign any real estate related contract.
2. An agent must disclose to all parties in a transaction which party he or she is representing.
3. If the agency relationship changes during a transaction this change must be disclosed in writing and the principal must consent to this change.

There are different types of agency relationships that may be formed. The types of agency relationships that licensed real estate brokers enter into:

Express Contracts

1. Express contracts such as a listing agreement, for example.
2. Express contracts can be verbal or written.
3. A listing agreement should be written and signed by both parties.

Implied Agency

1. Agency is formed because of the behavior or conduct of real estate broker and client.
2. There is no written agreement.

Seller’s Agent

1. A seller’s agent represents the seller in a real estate transaction and holds allegiance to them.
2. A seller’s agent helps list and promote the seller’s property for sale.

Buyer’s Agent

1. A buyer’s agent represents the buyer in a real estate transaction and holds allegiance to them.
2. A buyer’s agent helps the buyer find a property to purchase by finding properties, touring the properties with them, and helping them with the process of submitting an offer.

Dual Agent

1. A dual agent represents both the buyer and the seller in a real estate transaction.
2. Dual agency is not legal in all states because the agent may show favoritism to one party over the other.

Gratuitous Agency

1. An agent who is not paid for their services.
2. Regardless of the fact they are not being paid, the agent still owes full fiduciary duties to their client, for example if they are helping a family member or friend sell their house without taking a commission.

REALTORS® are not legally allowed to write their own listing contracts for their clients.

1. 1. 1. REALTORS® company policies regarding cooperation.
      2. Amount of compensation that will be paid by the client.
      3. The potential for additional compensation from other brokers or from the seller or landlord or any other party.
      4. Any potential for a buyer or tenant representative to act as a disclosed dual agent.
      5. The potential situation that a seller or sellers’ representative may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or a specific confidentiality agreement between the parties.

Fully Informed

Confidentiality Issues

1. 1. 1. Knowingly reveal confidential information of clients.
      2. Use confidential information of clients to the disadvantage of clients.
      3. Use confidential information of clients for the REALTOR®’s advantage or the advantage of third parties.

1. 1. 1. Clients consent after full disclosure REALTORS® are required by court order to reveal information.
      2. A client intends to commit a crime and revealing the confidential information is necessary to prevent the crime.
      3. Revealing confidential information is necessary to defend a REALTOR®, or the REALTOR®’s employees or associates against an accusation of wrongful conduct.

Additional tenants from the Code of Ethics for REALTORS® include:

1. 1. 1. REALTORS® must not deliberately mislead a seller about the market value of his or her property when trying to secure a listing with that seller.
      2. REALTORS® must not mislead anyone as to the value of the services rendered by the REALTOR®.
      3. REALTORS® may not enter into a Dual Agency agreement without full disclosure and informed consent of both parties to the transaction.
      4. REALTORS® should always consult with their managing brokers when it comes to Dual Agency relationships.
      5. REALTORS® should never customize any forms used with clients in real estate transactions.

According to the Code of Ethics Article 4, REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, or any real property, without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative.

Following the rules set forth in Article 4 is also ethically important for real estate brokers who are not members of NAR.

There are also limitations that real estate brokers and REALTORS® must understand when they receive compensation or “kickbacks” for recommending services to their clients. Specifically, according to the Code of Ethics at REALTOR.org:

REALTORS® may not accept a commission or a rebate or profit on expenditures made for their client or for recommending real estate products or services unless their client knows and they have the consent of their client.

Take Our Free House Flipping Seminar: Fair Housing Laws and Example Scenarios

Always follow the local, state and federal Fair Housing laws!

The National Association of REALTORS® Code of Ethics Article 10 is in many ways similar to The Fair Housing Act, but in some ways provides protections for additional classes of people.  Article 10 states, in part:

“REALTORS® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. REALTORS® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity…REALTORS®, in their real estate employment practices, shall not discriminate against any person or persons on the basis of race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity.”