Ethics
So, You’re No Expert?
Whose Job Is It?
Time and time again while teaching classes the issue of disclosures comes up and the argument about who is responsible for making them. In Virginia, a Seller is not obligated to disclose anything about the property, however a Listing Agent is required to make disclosures to all involved about anything that they have knowledge of, regarding the property. I hear that many states are similar. Regardless, I am more concerend about the Buyer agent’s responsibility, than that of the Listing Agents in this post. Since the mid-nineties when Buyer Agency was first introduced, Buyer Agents have been given increased amounts of liability. Caveat Emptor is becoming more and more of a fallacy – and I’m not sure it’s a bad thing.
Disclosures
Last week Jim Duncan wrote an article, here on AgentGenius, entitled Buyer Agents Warn of Mold! Seller’s Rights?
The point of that particular post was to discuss Buyer Agents disclosing mold via an online format. There are always those agents who hide behind the “I’m no expert” line, and typically case law shows us that of expertise in a certain area is sometimes a valid defense. However, I doubt it will be for much longer and I would never accept a lack of training as an excuse. The tides are turning and agents are being held to an even higher standard.
Let’s look at the mold issue – an agent witnesses green / black furry growth inside the house. They may not know if it’s mold or something else; but since there is a chance that it may be, why not tell the buyer “I’m not sure what that is, but since mold is potentially dangerous and could look like that, you may want to get an inspector in here?”
Saying that you don’t KNOW that its mold, or that it’s potentially dangerous is not a good excuse. If you were preparing a sandwich and saw green spore like stuff on the bread, would you eat it? Hopefully, you would have God given sense and throw out the bread…. but, wait what if it isn’t mold? The point is, you may not know why moldy bread is bad and blue cheese dressing is good, but you’re not going to take a chance.
Customer Service Enforced By The Courts
One recent case Carl Michel vs. Palos Verdes Network Group (Cal. Appls 2nd Dist., Div. 8) found an agent guilty, who went to a listing interview and made notes about issues with the house, but didn’t get the listing. The same agent reportedly assisted an agent in his office by showing that agent’s buyer the home in question, but did not reveal to the buyer the noted material facts from the listing appointment. Since the agent didn’t get the listing in the first place and reportedly had no client relationship to the Seller, therefore no fiduciary duties the duty of disclosure were given to the buyer, as the firm was responsible for his/her protection.
In this case the court did not seem to be concerned about the agent’s level of expertise, solely that they didn’t give the buyer a chance to explore the material issues.
Agents are hired to represent their client’s best interest and to navigate the client through the transaction, all the while looking for the what the client needs or wants. There is a trust factor the buyer has with their agent and all decisions should be made by the agent, as if it were their family buying the real property. This is not only a good business practice bt a fantastic way to reduce liability.
Ethics
The problem with a self-policing industry: you have to be a narc
Ethics violations in the real estate industry can make or break a Realtor’s career, depending on the severity, so it would stand to reason that all would be mindful of the rules, but there are always individuals in the field that act as if the Code of Ethics is irrelevant.
An animated discussion on ethics training
“Does anyone else find it ironic that NAR – the trade association for Realtors – has to mandate that members take an ethics class every four years?” An agent who attended one of my company’s broker opens yesterday posed that question to the wine and cheese grazing attendees. Of course, that opened up an animated discussion on the value of etchics training and the lack of enforcement when the rules are violated.
One agent volunteered that the guy sitting next to her in her last ethics class played games on his cell phone and then cheated during the test at the end of the class. Seriously, dude? You cannot even pay attention long enough to pass what should be the easiest test you’ll ever have to take in your career? Perhaps he was just seeing how far he could push it by cheating during an ethics test, to see if anyone else around him caught the extreme irony there. None of the other agents around him – including the agent he cheated off – turned him in and the instructor didn’t notice.
This same agent later called one of my sellers and tried to convince him to break a listing contract with me, because he had a “guaranteed buyer” in the wings. The seller was an attorney, and this bozo tried to get me cut out of the deal, offering the seller a reduced fee to dump me. The seller held firm and directed the agent to call me, then the seller called to let me know about the conversation.
“But you know if you file something the other agent will know.”
It gets better. After the deal closed, I requested paperwork from our local Board of Realtors to file an ethics complaint. The person in charge said, “But you know if you file something the other agent will know.” Gee. Really? I asked her to send the paperwork over anyway.
I called the seller/attorney and asked him to repeat the conversation to me, because I was documenting it to file a complaint. He turned wishy washy on me at that point and his story changed from “The other agent tried to get me to dump you as the listing agent to cut you out” to “Well he really only asked a few questions and I told him to call you. He probably didn’t mean any harm by it.” So there goes my star witness, who doesn’t want to rock the boat.
I didn’t file the complaint. I resorted to the “turn the blind eye but never trust the sleazeball again” path. And that is what happens to almost all ethics issues I hear about / see in person.
That’s what happens when you have a self-policing group of “professionals” who would rather not “narc” on a fellow agent. After all you’re probably going to end up on the other side of a deal from this guy some day, right? The guy in my example has sold two of my houses since that run-in. Why tick him off by filing a complaint and going through all that hassle? If he stops bringing buyers to my properties then my sellers ultimately lose, right?
Boiling down the CoE
The NAR Code of Ethics takes up pages and pages of tiny print, and it runs each year in their trade magazine (I think it’s the January issue). Does anybody read that? Probably not many. I’d argue none of us ever should have to read it again. Simply follow this advice instead. The thousands of words in the Code boil down to one thing: Do unto other agents, and consumers, and clients, what you would have them do unto you. It’s the Golden Rule. Simple. Well, obviously not, for many agents and brokers.
The sad part is the agent in my example had no clue how close I was to filing that compaint, and if he did know he’d probably scratch his head and wonder why his actions were “wrong.” Making us take a one-day class every few years won’t “make” the unethical agents suddenly operate ethically. Most of them just don’t get it.
Fight Club and real estate
For those of you that saw the movie ‘Fight Club’ you’ll remember that Rule #1 is “You do not talk about fight club,” followed closely by Rule #2, “You DO NOT talk about fight club.” Which, believe it or not, brings me to today’s topic: The Real Estate Code of Ethics and Arbitration. Article 17 obligates Realtors to resolve fights disputes with another Realtor through arbitration (not litigation). Arbitration is conducted at the local board level, and I am not aware of a local board that doesn’t require arbitration to be confidential.
I respect that public internecine warfare amongst Realtors isn’t in the interest of our industry, and doesn’t belong in the public spotlight. I’m not here to advocate the collective airing of our dirty laundry. That said, I wonder if our collective agreement to keep our concerns confidential can inadvertently harm the consumer and ultimately makes all of us look a little shoddier?
To find the first arbitration guidelines created by NAR and distributed as a set of suggested rules for boards to follow, we have to travel all the way back in time to 1929. NAR’s first Code of Ethics & Arbitration Manual wasn’t created until 1973, and it credited a 1965 California Association of Realtors version as its model.
Appalling conduct
I can think of two instances in the past year where I was so appalled by the conduct of a fellow Realtor that I went to the trouble to inquire about how to lodge a Code of Ethics complaint with my local board. After weighing the time required to make a competent complaint and comparing it with the best case outcome (a closed-to-the-public hearing in which they were found to have violated the code of ethics), I decided not to pursue a complaint in both cases. My association’s bylaws (and probably yours) give it the power to discipline any member based on the results of a Code of Ethics hearing, “provided that the discipline imposed is consistent with the discipline authorized by the Professional Standards Committee of the National Association of REALTORS® as set forth in the Code of Ethics and Arbitration Manual of the National Association.”
“Sanctioning Guidelines” – (Appendix VII of Part 4 of the 2011 manual for the very curious), guides member boards to impose disciplinary consequences that are progressive and fair, taking all considerations into account. Sample first-time disciplinary actions include suggestions of a letter of warning, a fine (amounts range from $200 to $5,000 depending on the severity of the violation), and attendance at relevant education sessions. Not to sound defeatist, but a confidential letter of warning and a fine of around $200 doesn’t seem like an outcome worth investing much of my time in.
Practicing in the internet era
Given that we live and work in the internet era, and review sites like Yelp abound, it seems a bit odd to me that a local board might know of an agent with problem behavior that is documented yet choose to make that information unavailable to consumers. My understanding is that the results of a code of ethics hearing are confidential with disclosure authorized in a few situations, none of which deal with informing the public.
Many of my fellow colleagues feel that the best response to a bad agent is to be patient and give them enough time to work themselves out of business. I can respect and understand their hands-off approach. But what about the damage that individual does to our industry as a whole? While we whisper, warn in confidence and know amongst ourselves how awful they are, the public doesn’t get the benefit of our perspective. Deprived of it, they turn to consumer review sites like Yelp.
How do you think we, as an industry, can help consumers in their quest to find a trustworthy agent?
A letter from the child of a Realtor.
Real estate now vs. 1987
In Real Estate, some things are always changing, like financing, education, laws, rules and technology. The two that will always remain constant, as long as they are within the law, are following our clients’ directions, and working with their best interests in mind. I’m not sure we always follow through with this, though.
Some of us knowingly take over priced listings. Some of us take listings that are out of our area of expertise. Some of us won’t show short sales or REOs. Some of us won’t show homes with low co-op splits. Some of us don’t have Supra/e-Keys, and miss out on those listings entirely.
Putting our interests first
When these things occur we are putting our own interests first, not our clients’. We may think that by having as many listings as possible is a good thing, that’s what we’re taught after all, isn’t it? It may not matter that some are overpriced, eventually, whether one month or four months down the line, the price will be reduced. It’s just a matter of time and money, for our clients, after all. The same can be said when we take listings outside our area of expertise, just to add on to our inventory. If we don’t know what we’re doing, on a short sale listing, for example, it will only cost our clients a lot of time and money. A lot.
By eliminating certain houses our clients see, that may already fit their criteria, we’re taking away their choices. Distressed sales account for close to 40% of the market. This is probably higher in some local markets. There is no legitimate way to ignore roughly 1/3 of the homes being sold. Co-op fees are often a touchy subject, especially when they are, not “enough.” If everyone utilized a Buyer Broker Agreement that stipulated what their fee was, the issue would take care of itself. Not being able to access listings with the use of Supra/e-Keys is a choice. Choosing not purchase one will mean agents will not be able to access Fannie Mae (and eventually, probably additional Gov REO homes) along with the listings that are already using them.
Our priorities versus theirs
We totally need to get over ourselves already. We are not bigger than our clients. Our priorities are not more important than theirs when it comes to the actual listing and selling of homes.
Recently, my awesome parents dug through a few boxes and rounded up one of my first art projects. About 25 years ago I did the poster featured above about my Mom, and her Real Estate career. It was for an Open House (no pun, honest!!!) for the elementary school where I attended first grade. It was just, what she did according to me way back then. Things are way more complicated now, than when I was six. There’s a heck of a lot more paperwork for one. But the same basic principle still applies.
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Matt Wilkins
July 12, 2008 at 8:40 pm
This post brings up an long time debate that has been around for at least the six years that I have been in the business:
If an agent interviews for a listing and is not hired but ends up representing the buyer for the same property, are they obligated to use any confidnetial informaiton regarding the circumstances of the sale or the property itsself to the advntage of the buyer?
IAlthough a buyer’s agent is supposed to use any information to their client’s advantage, there is an assumption among many sellers that what is discussed at a listing appointment s completely confidential EVEN if no agency agreement is signed with that broker/agent.
Julie Emery
July 12, 2008 at 8:52 pm
There still seems to be a tendency in the industry to protect the seller over the buyer. Maybe it is the “caveat emptor” that seduces agents into believing buyers don’t have many rights. Maybe it’s a carryover frm the days when there was only seller agency. Whatever the reason, even for agents representing a buyer, the priorities often seem to be:
1. Protect self
2. Protect other agents
3. Protect seller
4. Protect my buyer client
Certainly nothing in my original licensing coursework spent any time on buyer agency. The Fast Start training by L&F also largely ignored the subject. Maybe it’s just lack of knowledge?
Richard Johnston, Sherman Oaks Homes
July 12, 2008 at 10:53 pm
Hi Mattew,
I agree with you that the listing agent should disclose all known facts concerning the property – even if those facts are from other sources. Because we are in a litigious society, agents should do their best to disclose all information even if it’s to the detriment to the owner.
I always say, “It’s better to be safe than sorry.”
Richard
Bill Lublin
July 13, 2008 at 8:00 am
Matthew – With transactions sometime failing, we are in a position to have possession of a home inspection report paid for (therefore owned by) a previous purchaser. My read on that situation vis-a-vis later buyers is that we ay not provide the information from the report to a later buyer, since we did not pay for the work product and do not have the right to reproduce or dissemiate it. We do however ask the seller to redraft their seller disclosure form with appropriate changes reflecting things they may now know about the property, which they may not have known before they read the report.
While I know that’s little off topic here – what do you think about that situation?
Greg Cremia
July 13, 2008 at 9:02 am
“I’m no expert” should always be followed up with “but I know a couple.”
No matter how bad a condition a property is in there is always a buyer for it. There isn’t anything that can’t be fixed or ignored. I sold a house with the deadly kind of mold in it, my buyer. Testing and remediation works.
This is why I never bad mouth a house that I have shown. Just because I might not have been able to get this buyer inside the door doesn’t mean the next one won’t love it. If the next buyer who loves it, mold and all, is to get a good deal on it then I have to remain neutral as far as the seller and their agent are concerned.
If the seller and their agent hate me because of something I said or did my buyer will suffer the consequences. Clients come first.
The agent who posted the pictures of the mold did so in an effort to promote themselves as the best buyer agent available. Bad mouthing houses, the sellers and their agents as a way to gain more business should be a warning to buyers to be aware of this agent. For a start, they made a statement they could not back up. This is nothing more than negative advertising and in this election year most people are fed up with it.
Matthew Rathbun
July 13, 2008 at 11:32 am
Bill,
If you review http://www.VAREALTOR.com and even our states association’s Commonwealth magazine, the state association’s general counsel has written about this often. How I understand his opinion is that there is no confidentiality unless it’s obligated by agreement or statute. In Virginia (only area I am knowledgeable enough to comment on) the statute obligating confidentiality is only required for clients. That is to say that Customers, Prospects and Non-Clients are only given Honesty and disclosure of material facts. The listing appointment is typically done prior to agency being agreed to.
This is why I think th COE should be amended to obligate the Realtor to advise a “prospect” that they are not obligated to confidentiality; before the first real appointment with the Seller or even as the buyer first agrees to meet with you. BTW, there are some things (suicide, murder, ghosts, HIV/AIDS and other stigmatized issues) that the Listing isn’t obligated to disclose unless expressed permission from the Seller is received.
If most states follow form, than about a year after the COE is modified the change will be adopted by statute.
As far as the buyer’s home inspection report is concerned, yes it’s the belonging of the person who purchased it, but our state regs requires the Listing Agent to disclose any material facts that they have actual knowledge of, unless the item is repaired. There is some question as to if this disclosure continues after the Listing Agent was terminated…. That’s a whole other post.
It’s important to note that the information about the disclosure needs to be from a reliable source. I think a ASHI certified home inspector or licensed contractor is generally reliable; but a cousin who used to be a plumber’s assistant is not.
Bottom line… The agent needs to know their state’s statutory requirements. For us, it’s disclose, disclose, disclose… what is reliable and materially known.
Matthew Rathbun
July 13, 2008 at 11:33 am
Greg: “I am not an expert, but I know a few” is a great line.
Matthew Rathbun
July 13, 2008 at 12:21 pm
Julie, YOu’re right about what the priorities seem to be, unfortunately too few understand that if an agent gives outstanding customer service; they can often avoid liability.
Paula Henry
July 13, 2008 at 2:31 pm
Matthew – Originally licensed in California, where there is a disclosure for everything and even an agents visual inspection report, I still visually look at everything. I look for watermarks on the ceiling, cracks around the foundation, sagging floors, etc.
I don’t pretend to be the expert and always recommend my buyers get a professional inspection.
Even if I previously represented the seller and know of material defects, I believe I am obligated to tell my “now” buyer client. Material defects are not protected by the agency relationship and must be disclosed, if known. I could not disclose the sellers motive for moving, their finances, or any other non material fact, but a material fact which could affect the buyers decision to buy, should be disclosed.
We must always remember who we represent and what our agency relationship requires of us.
Raymond Stoklosa
July 13, 2008 at 5:50 pm
Matthew,
From my vantage point you are describing a Dual Agency issue. Both “agents” worked for the same company who is by law the agent of record, hence a dual agency situation and a conflict of interest. Agency is tested on a company basis and not an individual basis. The “agents” had a fiduciary duty to make a full and complete disclosure of material facts that affect value or desirability. It seems to me that the court is correct in it’s finding. Full disclosure is the law and apparently the “agents” lost sight of that.
Thomas Johnson
July 13, 2008 at 9:57 pm
“to have possession of a home inspection report paid for (therefore owned by) a previous purchaser”
In the enlightened Lone Star State, a seller must disclose if a previous inspection exists. Obviously, a seller probably is not in possession of the inspection, but someone on the seller side may end up with it if the buyer send it over with a request for repairs referenced in the report. If that sale busts, I shred immediately. The last thing I need to be is a canonical repository of defects in houses I have attempted to transact. Am I wrong?
Matthew Rathbun
July 13, 2008 at 10:13 pm
Raymond: You’ve mostly got it. There wasn’t a dual agency, in that the Broker was not representing the Seller. The agent in question only had a listing interview, but never had a bilateral agreement with the seller to represent them. Therefore they weren’t clients. Dual Agency would require the Broker (directly or with agent from the company) to represent both. However, in your vantage point, your comment is otherwise correct. Good to hear your thoughts – thanks for commenting!
Thomas: I agree that it is an enlightened state that would require the Seller to be responsible for disclosure, as well as the Listing Agent. I am at a quandary on how I feel about previous inspections. If I’ve got some crack-pot home inspector that ruined the potential closing; I’d hate to think that I would be forced to pass on the legacy of that knuckle head. If the Seller has repaired all the items, I don’t think they should have to reveal the report or fact that its been repaired… Those are just my thoughts and I don’t have a lot of basis further than that. It’s interesting to know what your state requires. Thanks for stopping in and commenting!
Vicki Moore
July 13, 2008 at 10:43 pm
Do I have to disclose that? The answer is always yes. Disclose. Disclose. Disclose. Just like location, location, location.
If you know it, you disclose it. Bad or good. Bad and good are subjective.
In California everybody discloses; seller and both agents.
“If the Seller has repaired all the items, I don’t think they should have to reveal the report or fact that its been repaired.” We have to disclose that too.
Ken in Chicago
July 13, 2008 at 11:19 pm
“Do I have to disclose that? The answer is always yes. Disclose. Disclose. Disclose. Just like location, location, location.”
That sums it up.
Why people think that they can get away with hiding something is beyond me. Why would you attempt to hide a known defect and risk getting sued or worse. Sure an agent might get away with hiding things a few times, but sooner or later it will catch up to them.
Holly White
July 14, 2008 at 12:48 pm
When in doubt, disclose. When there is no doubt, disclose. …And closing your eyes to a potential material defect doesn’t make it go away.
Grant in Nashville
February 11, 2010 at 10:19 am
In Tennessee we have even gone to a second mold disclosure much like we did for the normal home inspections. In addition, we have a 3 page blanket disclaimer that in meant to indemnify agents from having any opinions or passing comments becoming hard fact. We have certainly passed the point where common sense is enough.