Oct. 8, 2005 - Case #1-25: Disclosure of Latent Defects

Case #1-25: Disclosure of Latent Defects
(Adopted November, 2000.)

REALTOR® A had listed Seller Ss vintage home. Buyer B made a purchase offer that was contingent on a home inspection. The home inspection disclosed that the gas furnace was in need of replacement because unacceptable levels of carbon monoxide were being emitted.

Based on the home inspectors report, Buyer B chose not to proceed with the purchase.

REALTOR® A told Seller S that the condition of the furnace and the risk that it posed to the homes inhabitants would need to be disclosed to other potential purchasers. Seller S disagreed and instructed REALTOR® A not to say anything about the furnace to other potential purchasers. REALTOR® A replied that was an instruction he could not follow so REALTOR® A and Seller S terminated the listing agreement.

Three months later, REALTOR® A noticed that Seller Ss home was back on the market, this time listed with REALTOR® Z. His curiosity piqued, REALTOR® A phoned REALTOR® Z and asked whether there was a new furnace in the home. Why no, said REALTOR® Z. Why do you ask? REALTOR® A told REALTOR® Z about the home inspectors earlier findings and suggested that REALTOR® Z check with the seller to see if repairs had been made.

When REALTOR® Z raised the question with Seller S, Seller S was irate. Thats none of his business, said Seller S who became even angrier when REALTOR® Z advised him that potential purchasers would have to be told about the condition of the furnace since it posed a serious potential health risk.

Seller S filed an ethics complaint against REALTOR® A alleging that the physical condition of his property was confidential; that REALTOR® A had an ongoing duty to respect confidential information gained in the course of their relationship; and that REALTOR® A had breached Seller Ss confidence by sharing information about the furnace with REALTOR® Z.

The Hearing Panel disagreed with Seller Ss contentions. It noted that while REALTORS® do, in fact, have an obligation to preserve confidential information gained in the course of any relationship with the client, Standard of Practice 1-9 specifically provides that latent material defects are not considered confidential information under the Code of Ethics. Consequently, REALTOR® As disclosure did not violate Article 1 of the Code of Ethics.

Oct. 8, 2005 - Case #1-12: Presentation of Subsequent Offers

Case #1-12: Presentation of Subsequent Offers After an Offer to Purchase Had Been Accepted by the Seller (Adopted November, 1987 as Case #7-16. Transferred to Article 1 November, 1994.)

REALTOR® A, the listing broker, presented an offer to purchase to his client, Seller X, which was $20,000 less than the propertys listed price. The property had been on the market for several months and had not generated much interest. In his presentation, REALTOR® A told Seller X that, in his opinion, the offer was a good one and Seller X should consider accepting it. With interest rates on their way up again, said REALTOR® A, properties are just not moving the way they did six months ago. Seller X decided to accept the offer and the transaction closed. Several months after the sale, Seller X filed a complaint against REALTOR® A alleging a violation of Article 1, as interpreted by Standard of Practice 1-7. It had come to Seller Xs attention that a second offer had been made on the property after Seller X had accepted the first offer but prior to closing. This second offer, alleged Seller X, had not been submitted to him by REALTOR® A and was for $2,500 more than the first offer. Seller Xs complaint stated that by not presenting the second offer to him, REALTOR® A had not acted in his (the sellers) best interest, as required by Article 1.

At the hearing, REALTOR® A produced a copy of the listing contract, which contained a provision reading: Seller agrees that Brokers responsibility to present offers to purchase to Seller for his consideration terminates with Sellers acceptance of an offer. REALTOR® A told the Hearing Panel that he had explained this provision to Seller X at the listing presentation and that Seller X had agreed to it, as indicated by Seller Xs signature on the listing contract.

Seller X admitted that he had understood and agreed to the provision at the time he listed the property, but he felt that REALTOR® A should have advised him of the second, higher offer nonetheless.

The Hearing Panel found REALTOR® A not in violation of Article 1. In their decision, the panel noted that REALTOR® A had explained the contract provision relieving him of the obligation to submit subsequent offers to Seller X; that Seller X had agreed to the provision and had signed the listing contract; and that, while it was unfortunate that Seller X had received less than full price for the property, REALTOR® A had fulfilled his obligations under the listing contract once the first offer to purchase had been accepted by Seller X.

Oct. 8, 2005 - Case #1-6: Fidelity to Client Interests

Case #1-6: Fidelity to Clients Interests (Originally Case #7-7. Reaffirmed May, 1988. Transferred to Article 1 November, 1994. Revised November, 2001.)

REALTOR® A managed an apartment building owned by Client B. In his capacity as property manager, REALTOR® A received a written offer to purchase the building from Buyer C. REALTOR® A responded that the building was not for sale. A few days later Buyer C met Client B and told him that he thought he had made an attractive offer through his agent, and indicated that he would be interested in knowing what price would interest Client B. Client B answered that he had received no offer through REALTOR® A and asked for the details.

Client B then filed a complaint against REALTOR® A with the local Board of REALTOR® charging failure to represent and promote his interests. His complaint specified that while REALTOR® A had been engaged as a property manager, he had at no time told him not to submit any offers to buy, and that in the absence of any discussion whatever on this point, he felt that REALTOR® A should have recognized a professional obligation to acquaint him with Buyer Cs offer which, he stated in the complaint, was definitely attractive to him.

REALTOR® A was notified of the complaint and directed to appear before a panel of the Boards Professional Standards Committee. In his defense, REALTOR® A stated that his only relationship with Client B was a property manager under the terms of a management contract; that he had not been engaged as a broker; that at no time had the client ever indicated an interest in selling the building; that in advising Buyer C that the property was not on the market, he felt that he was protecting his client against an attempt to take his time in discussing a transaction which he felt sure would not interest him.

It was the conclusion of the Hearing Panel that REALTOR® A was in violation of Article 1; that in the absence of any instructions not to submit offers, he should have recognized that fidelity to his clients interest, as required under Article 1 of the Code of Ethics, obligated him to acquaint his client with a definite offer to buy the property; and that any real estate investor would obviously wish to know of such an offer.

Oct. 8, 2005 - Case #1-2: Honest Treatment of All Parties

Case #1-2: Honest Treatment of All Parties (Originally Case #7-2. Revised May, 1988. Transferred to Article 1 November, 1994. Cross-reference Case #2-18.)

As the exclusive agent of Client A, REALTOR® B offered Client As house for sale, advertising it as being located near a bus stop. Prospect C, who explained that his daily schedule made it necessary for him to have a house near the bus stop, was shown Client As property, liked it, and made a deposit. Two days later, REALTOR® B read a notice that the bus line running near Client As house was being discontinued. He informed Prospect C of this, and Prospect C responded that he was no longer interested in Client Cs house since the availability of bus transportation was essential to him. REALTOR® B informed Client A and recommended that Prospect Cs deposit be returned.

Client A reluctantly complied with REALTOR® Bs recommendation, but then complained to the Board of REALTORS® that REALTOR® B had not faithfully protected and promoted his interests; that after Prospect C had expressed his willingness to buy, REALTOR® B should not have made a disclosure that killed the sale since the point actually was not of major importance. The new bus route, he showed, would put a stop within six blocks of the property.

In a hearing before a Hearing Panel of the Boards Professional Standards Committee, REALTOR® B explained that in advertising Client As property, the fact that a bus stop was less than a block from the property had been prominently featured. He also made the point that Prospect C, in consulting with him, had emphasized that Prospect Cs physical disability necessitated a home near a bus stop. Thus, in his judgment, the change in bus routing materially changed the characteristics of the property in the eyes of the prospective buyer, and he felt under his obligation to give honest treatment to all parties in the transaction, that he should inform Prospect C, and that in so doing he was not violating his obligation to his client.

The Hearing Panel concluded that REALTOR® B had not violated Article 1, but had acted properly under both the spirit and the letter of the Code of Ethics. The panel noted that the decision to refund Prospect Cs deposit was made by the seller, Client A, even though the listing broker, REALTOR® B, had suggested that it was only fair due to the change in circumstances.

Oct. 8, 2005 - Preface To NAR's Case Interpretations

Preface to the Twenty First Edition of Interpretations of the Code of Ethics

The Code of Ethics of the NATIONAL ASSOCIATION OF REALTORS® establishes a public and professional consensus against which the practice and conduct of REALTORS® and REALTOR-ASSOCIATE®s may be judged. In joining a Board of REALTORS® , REALTORS®, and REALTOR-ASSOCIATE®s signify their intention to abide by the Code and thereby enhance the public and professional image of themselves and all other REALTORS®. Adherence to the Code is the first great bond between REALTORS® throughout the country.

Interpretations of the Code of Ethics has been developed by the Professional Standards Committee of the NATIONAL ASSOCIATION OF REALTORS® to help REALTORS® and REALTOR-ASSOCIATE®s understand the ethical obligations created by the Code of Ethics, and as a reference work for Grievance Committees, ethics and arbitration Hearing Panels, and Boards of Directors.

Interpretations of the Code of Ethics presents specific situations involving charges of alleged unethical conduct by REALTORS® and/or REALTOR-ASSOCIATE®s, which are reviewed by a peer panel of Board Members and in which decisions as to ethical conduct are reached. Each case provides the Hearing Panels decision based on the facts and the rationale for the decision, but does not specify a specific sanction or discipline to be imposed. There are two reasons for this. First, any sanction imposed must always fit the offense and must involve every consideration of justice, equity, and propriety. Second, a Hearing Panel may base its recommendation for discipline on a Members past record of ethics violations.

For this reason, the Code of Ethics and Arbitration Manual establishes that a Member Board may utilize a wide range of sanctions for ethics violations. These sanctions include:(a) Letter of Warning with copy to be placed in Members file; (b) Letter of Reprimand with copy to be placed in Members file; (c) Requirement that Member attend the ethics portion of the Board Indoctrination Course or other appropriate course or seminar specified by the Hearing Panel, which the respondent could reasonably attend taking into consideration cost, location, and duration; (d) Appropriate and reasonable fine not to exceed $5,000; (e) Member placed on probation for a stated period of time not less than thirty (30) days but no more than one (1) year; (f) Membership of individual suspended for a stated period not to exceed one (1) year, with automatic reinstatement of membership in good standing at the end of the specified period of suspension (decision should be written clearly articulating all intended consequences, including denial of MLS participatory or access privileges). The Directors may order suspension unconditionally, or they may, at their discretion, give the disciplined member the option of paying to the Board, within such time as the Directors shall designate, an assessment in an amount fixed by the Directors, which may not exceed $5,000 and which can be utilized only once in any three (3) year period, in lieu of accepting suspension. But, if the conduct for which suspension is ordered consists of failure to submit a dispute to arbitration, the Directors may not permit the disciplined member to avoid suspension without submitting to the arbitration in addition to paying the assessment, unless in the meanwhile the dispute has been submitted to a court of law without any objection by any party that it should be arbitrated; (g) Expulsion of individual from membership with no reinstatement privilege for a specified period of one (1) to three (3) years, with reinstatement of membership to be by application only after the specified period of expulsion on the merits of the application at the time received (decision should be written clearly articulating all intended consequences, including denial of MLS participatory or access privileges); (h) Suspension or termination of MLS rights and privileges may also be utilized. Suspension of MLS services may be no less than thirty (30) days nor more than one (1) year; termination of MLS services shall be for a stated period of one (1) to three (3) years; (i) REALTORS® who are not members of a Board from which they purchase the multiple listing service and their users and subscribers remain obligated under the Code of Ethics on the same terms and conditions as REALTORS® and REALTOR-ASSOCIATE® members of that Board. Discipline that may be imposed may be the same as but shall not exceed the discipline that may be imposed on that Boards members. Boards entering into regional or reciprocal MLS agreements are encouraged to include provisions requiring signatory Boards to respect, to the extent feasible, decisions rendered by other Boards involving suspension or expulsion from membership or from MLS. (Revised 5/02)

In addition to any discipline imposed, Boards and Associations may, at their discretion, impose administrative processing fees not to exceed $500 against respondents found in violation of the Code of Ethics or other membership duties. Any administrative processing fee will be in addition to, and not part of, any disciplinary sanction imposed. Boards and Associations are encouraged to determine in advance when, and under what circumstances, administrative processing fees will be imposed so that imposition is a matter of administrative routine. (Revised 11/98)

While Boards of REALTORS® have wide latitude in the sanctions which may be imposed for violations of the Code of Ethics, they must always act responsibly in the application of these sanctions, attempting to make the punishment commensurate with the offense. The mildest forms of sanction, a Letter of Warning or a Letter of Reprimand, would generally be the appropriate sanction for first offenses, except in cases involving gross or willful misconduct. Where ignorance of the Code of Ethics is involved, the Board may find that requiring the Member to attend a course or seminar reviewing the Code of Ethics and its interpretations to be the most appropriate sanction.

Interpretations of the Code of Ethics is formatted to provide the reader with information on each Article of the Code of Ethics and its interpretations in sequence. Interpretations of the Code of Ethics contains citations to Case Interpretations which were deleted, amended, or adopted as a result of the work of the Interpretations Subcommittee in 1986–2000, providing a complete historical record for the reader. All new and amended Case Interpretations become effective upon approval by the National Associations Professional Standards Committee and publication on REALTOR.org.

Oct. 1, 2005 - Dealing With Another REALTOR's Client

http://www.realtor.org/rmomag.NSF/pages/ethicsjuly05?OpenDocument

Q: A seller Id never spoken to before called me to list his house. He told me it had been listed with another salesperson, but he wasnt working with her anymore. I checked the property status in the MLS, which showed the listing as withdrawn. When I asked the seller about his previous listing agreement, he told me hed been released from that contract. I went ahead and listed the property. Now the original listing salesperson claims I violated the Code of Ethics. Did I?

A: No, you didnt violate the Code. Although Standard of Practice 16-4 says you cant solicit the exclusive listing of another REALTOR®, that isnt what happened here. Instead, without either directly or indirectly initiating the discussion, you were contacted by the client of another REALTOR®. In such a case, Standard of Practice 16-6 permits you to discuss the listing with the client. When REALTORS® are contacted by the client of another REALTOR® regarding the creation of an exclusive relationship . . . they may discuss the terms in which they may enter into an agreement.

You also did the right thing by checking the status of the listing in the MLS. Because you found that it had been withdrawn rather than expired, there was a question about whether the previous listing was still in effect. Standard of Practice 16-9 requires that before entering into an exclusive agreement with a client, a REALTOR® make reasonable efforts to determine whether the client is subject to an existing exclusive agreement with another broker. In asking about the previous listing and learning that the seller had been released, you fulfilled your ethical obligation. Its also a good idea to ask to see the sellers written release if the seller is willing to share it with you.