NAR’s Realtor Code of Ethics, adopted in 1913, was one of the first codifications of ethical duties adopted by any business group.
Many professional fields have codes of ethics. But real estate is one of the only industries where the organization creating the code has both procedures and power.
Based on the concept of “let the public be served”, the code governs the dealings between Realtors, their clients, and the public interest.
Let’s explore the code of ethics, how it’s enforced, common violations, and the code’s influence on real estate.
What are ethics in real estate?
Realtor ethics are guidelines to help strengthen customer awareness, trust, and legal practices in the industry. Ethical standards create consistency in the profession. They also make the consequences of ignoring these rules clear.
What is the Code of Ethics and to who does it apply?
There isn’t an official code for all real estate agents. But many are members of the National Association of Realtors (NAR), which has an ethics code.
The Code of Ethics for real estate has existed in some form for over 100 years. The original Code of Ethics was adopted in 1913 as a much leaner list of rules, while the current Code of Ethics consists of 17 articles. It was initially drafted for the quote “Real Estate Men.” That’s ironic, considering that 66% of all Realtors are women.
Here’s an example of why a code of ethics is helpful. A client came to David Magua, a top-selling real estate agent in Weston, Florida, asking for advice on a subdivision he had his eye on. The buyer wanted to know: is now the right time to buy the property?
“I looked at the subdivision, and I looked at the analytics,” recalls Magua. “And I said, ‘No, I think you should wait. The market’s going down. Rent for a period, and you’ll get it for substantially less.'” He was honest, but there went Magua’s $12,000 commission.
This type of situation is one real estate professionals deal with often — the responsibility to give honest advice that goes against their own financial interests. In some cases, a deal falling through could mean a Realtor can’t afford their next car or mortgage payment. The stakes are high.
So, NAR has good reason to set ground rules for behavior in the profession. The Code of Ethics & Standard of Practice isn’t an imaginary benchmark, but a meticulous ethical framework. It protects both buyers and sellers and makes sure that Realtors cooperate.
Realtor vs. Real Estate Agent
A common misconception among consumers is that real estate agent and realtor are interchangeable terms.
But to earn the trademarked title of “Realtor,” a real estate licensee must officially join the National Association of Realtors, the largest trade organization in the country representing almost 1.6 million members. For context, there are an estimated 2.4 million active real estate agents in the U.S.
What does it mean to become a “Realtor”? Well, for one, you have to pay annual dues ($150 per year as of 2022). A Realtor also must:
- Hold an active real estate license in their state and be part of a real estate firm there
- Have no civil judgments imposed on them in the past seven years
- Provide mitigating factors for the association to consider if there’s been any history of criminal convictions in the past seven years
- Agree to continuously adhere to the Realtor Code of Ethics
In other words, abiding by the Code of Ethics is required of all realtors — but not real estate agents in general. A real estate licensee agrees to follow the code at the time of their application to become a NAR member. Realtors also may be asked by their broker or team leader to sign more ethics paperwork when they sign on.
Who enforces the code of ethics in real estate?
Local Realtor associations enforce the NAR Code of Ethics. At the same time, NAR controls its code of ethics.
Its articles offer standards for conduct with clients and customers, the public, and other Realtors. If a Realtor violates the code of ethics, any person can file a complaint about that person. Then the local association can move forward with the disciplinary action process.
What is included in the NAR real estate Code of Ethics?
The NAR Code of Ethics sets the standard for Realtor business practices. Its 17 articles provide standards for conduct with clients and customers, the public, and other Realtors.
Principles of the Realtor Code of Ethics
In practice, Realtors are required to abide by the Code of Ethics as a way of doing business. The standard of conduct applies in a Realtor’s dealings with:
- Their clients and customers: It’s their duty to protect their client’s best interest, but treat all parties involved in a transaction honestly.
- The public: The Realtor needs to meet professional competency standards and stand against discriminatory housing practices.
- Other Realtors: Realtors must refrain from making false or reckless statements about their fellow professionals.
There are several common themes in the Code of Ethics that outline best practices for real estate as a whole. These themes include:
- Honesty and fairness
- Competency and integrity
- Maintaining high personal and professional standards
- Constant improvement
- Community support and awareness
NAR Code of Ethics
According to the code’s preamble, Realtors “pledge to observe [the code’s] spirit in all of their activities whether conducted personally, through associates or others, or via technological means and to conduct their business in accordance with the tenets.”
Let’s take a look at the Code of Ethics. If you’re unclear on a rule or are using this as a guide for your own conduct as a Realtor, please consult the full Code.
Realtor Code of Ethics Preamble
The preamble to the Code of Ethics sets what NAR describes as the aspirational objectives of moral conduct. The preamble even cites the Golden Rule, “Whatsoever ye would that others should do to you, do ye even so to them.”
The philosophical and subjective nature of the preamble means that it cannot be used as grounds for disciplinary action against a Realtor. That’s what the 17 articles to follow are for.
Duties to Clients and Customers
Article 1: Protect the best interests of the client.
Article 2: No misrepresentation, exaggeration, or hiding of facts about the property at hand.
Article 3: Realtors should cooperate with each other unless it’s not in the client’s best interests.
Article 4-5: Disclose any personal interest in a property.
Article 6-7: No recommending services for a kickback or collecting money under the table.
Article 8: Keep client funds separate from your own.
Article 9: All documents for the transaction should be presented to the buyer/seller in understandable terms.
Duties to the Public
Article 10: No denying services on the basis of discrimination.
Article 11: Provide clients with competent services only within a Realtor’s professional scope.
Article 12: No false or misleading advertising.
Article 13: Don’t break the law.
Article 14: Cooperate with the Realtor board’s investigative proceedings if charged with a violation.
Duties to Realtors
Article 15: No false or misleading statements about other Realtors.
Article 16: Don’t solicit clients that have already signed an exclusive listing agreement with another Realtor.
Article 17: Contractual disputes will be mediated or arbitrated by the Realtor Board.
What are the three major sections of the code of ethics?
The Code of Ethics has three major sections:
- Duties to Clients and Customers
- Duties to the Public
- Duties to Realtors
Under each section is a list of articles and standards of practice, and this code is continually edited and updated.
What rules does the Code of Ethics set?
This code outlines the values of Realtors in real estate. It covers the ethical principles and standards that NAR believes professionals should aim for.
“I try to keep to these standards, if not higher,” says Magua. “You’re dealing with people’s money. You’re dealing with probably their biggest asset. I’d always rather keep a good relationship with the client, be truthful, and keep to what my ethics tell me to do. I’m there to be a concierge. I’m there to direct. And I’m there to give unbiased good advice.”
Code of Ethics Violations
Common real estate ethics complaints can include:
- Not acting in the best interests of clients
- Revealing private or confidential information
- Advertising a listed property without disclosing their Realtor status
- Exaggerating the qualities or features of a property
- Failing to disclose a personal relationship with a purchaser to a home seller and client
- Collecting extra commission from a client
- Posting discriminatory or offensive comments on social media
Complaints can also include requests to arbitrate money disputes. For example, commission disputes between Realtors of different firms.
The board will typically try to mediate contractual disputes before they go to arbitration. The exception to this is when both parties in the dispute advise against mediation in writing.
The code helps Realtors avoid legal battles by settling disputes through arbitration overseen by the association instead. The types of disputes that qualify for arbitration can be found in Article 17 of the Code.
Per the Code of Ethics and Arbitration Manual, sanctions for a violation may include:
- A fine not to exceed $15,000
- Suspension from the board or association
- A letter of reprimand
- Required education courses
As stated earlier in this article, enforcement of the NAR standards of practice unfolds at a local level first. Disciplinary power is mainly wielded by the 1,200 local Realtor associations across the country.
Anyone with a complaint can bring their grievances to their local association. From there a few different bodies may get involved in reviewing the issue.
- The association’s Grievance Committee screens complaints and passes on violations or arbitration matters to the Professional Standards Committee.
- The Professional Standards Committee then conducts a hearing with a panel. The panel consists of 3-5 committee members (this is the Realtor version of “due process”). The committee decides if there was a violation and determines disciplinary action. In the case of arbitration, they decide who is deserving of a monetary award.
- The Board of Directors holds the right to review or appeal the committee’s decisions.
The Importance of Ethics in Real Estate [New Data]
The 2008 subprime mortgage crisis affected trust in the real estate industry for many years. For example, only 2% of those surveyed in the 2018 Gallup poll for honesty and ethics in professions rated their trust in real estate agents as “very high.”
But according to 2022 NYTimes research on Google search trends, the top job-related search in 2021 was “How to become a real estate agent.” Recent news in real estate is less on individual agents and more focused on tech firms. For example, practices from firms like Opendoor and Zillow are the subject of both FTC investigations and viral TikTok videos.
Even with this increased attention, home buyers are looking online. According to a 2021 NAR survey of more than 8,000 home buyers and 160,000+ NAR members, 97% of homebuyers use the Internet for their home search.
Social media also makes an impact, and 90% of Realtors use Facebook. Another 52% use Instagram and 48% are active on LinkedIn.
Realtors are still a very important part of the home-buying process. 86% of buyers make a home purchase with a real estate agent or broker, and another 86% get help from a real estate agent when selling their home. This makes customer relationship management for real estate agents vitally important.
2023 PWC trends research says that amid major changes in real estate and the economy, professionals need to focus on trust. The report emphasizes that trust can improve both business outcomes and relationships in the industry.
The Realtor Code of Ethics: A North Star for the Profession
NAR’s Code of Ethics is an aspirational guide for any real estate professional. With these clear standards, any real estate agent can develop trust with members of their local community. With focus and effort, these guidelines can help you grow your real estate agency or brokerage.
Editor’s note: This post was originally published in February 2019 and has been updated for comprehensiveness
Source: hubspot.com ~ By: Caroline Feeney ~ Image: Canva Pro