3 Ethics Violations to Guard Against During This Hot Housing Market
The last year has seen unprecedented times—from a once-in-a-century pandemic to a once-in-a-lifetime real estate market—that have often pushed ethical boundaries.
The National Association of Realtors®’ Code of Ethics & Standards of Practice was created over 100 years ago to guide real estate professionals in how to conduct their business. While the code’s basic principles have remained largely unchanged, the document is constantly evolving to keep up with the times.
Demand for homeownership is at an all-time high yet inventory is low, so multiple offers, offers over asking price, bidding wars and buyers making offers without Realtor® representation have become the new normal.
“Times like these truly test the Code of Ethics,” says Dennis Bowers, principal of The Bowers Group at Compass in Naples. “There can be some real shady situations right now, so it’s important for agents to protect themselves and their customers no matter what the scenario is and stay true to the Code of Ethics that we’ve all [agreed to abide by].”
Here are some possible violations that are occurring more frequently in today’s fiercely competitive market:
Mishandling multiple offers
[Possible Article 1 Violation]
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.
Bowers received an offer the first day he listed a client’s $2.3 million home. The next day, before the 5 p.m. deadline for acceptance of the offer, he had seven more showings. One prospect showed up without Realtor representation and wanted to make her own offer.
“When I informed her we currently had an offer she asked, ‘What is the offer?’ and ‘What do I need to offer to beat out the other offer?’” he says.
Even though he told the woman he wasn’t at liberty to disclose that information, she persisted.
“After about 30 minutes, she decided to write a full-price offer that was [slightly] higher than the first offer. So, I presented both offers to the owners and asked if they wanted a final and best situation or to select one.” The seller chose the full-price offer.
It may be tempting for some agents to manipulate the outcome of an offer when inventory is historically low.
“In multiple-offer and over-asking [situations], it’s important for owners to indicate in the [listing agreement’s] check box whether you can tell someone if there’s another offer,” Bowers says, adding that he had his client’s permission to reveal prior offers without divulging the amount.
“The full-price offer won the contract, but I could’ve easily said we have a higher offer. Or, I could’ve gone back to both parties to make them [bid against each other]. Our goal as agents is to get the best offer for the customer and to remain ethical. Those who stay true to their customers in this market are the real professionals who are doing the business the right way. They will remain in good standing as the market shifts.”
“Some agents aren’t aware that Florida Realtors® has in their arsenal some disclosure documentation they’ve created specifically for us to help our clients in multiple offers,” says Richard Masterson, broker-associate with ONE Sotheby’s International Realty in Fort Lauderdale. “It’s a disclosure form to send to other agents that basically protects everyone involved and [prevents] an agent from being accused of steering as opposed to letting the client choose the best offer. This is addressed in the beginning of Article 1 [that says] first and foremost, you have to protect the best interest of the client.”
Soliciting listings
[Possible Article 16 Violation]
Realtors shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other Realtors have with clients.
When housing inventory is low, listings are a hot commodity. Withdrawn and temporarily “off market” listings indicate that a contract still exists between the listing agent or broker and the seller and, therefore, other agents may not contact them.
Although expired and canceled listings are no longer bound by a contract between the listing agent or broker and the seller, agents must confirm that the property hasn’t been relisted (with a new MLS number) before contacting the seller.
“Some of my clients are receiving solicitation letters from other agents even though the property is currently listed [by me],” Masterson says. “That’s a violation I haven’t seen before, and I think now that inventory is very tight, some agents are doing things they shouldn’t be doing.”
The buyer love letter
[Possible Article 10 Violation]
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.
In this current climate of low inventory and bidding wars, some buyers have resorted to writing a “love letter” to the seller explaining why the seller should choose their offer.
“This has become a hot-button [issue] considering the activity in the market,” says Masterson, who has also served on the grievance and professional standards committees. “Realtors have been sending these letters written by their client to try to create an emotional connection to the contract, but Florida Realtors’ legal counsel has advised that it opens the door to possible discrimination [violations].”
Receiving these letters isn’t in the seller’s best interest, he says, because it’s not about the best price or other terms that benefit the seller.
“The letters aren’t part of the equation. If you receive one you could possibly be obligated to present it but it doesn’t necessarily work in the best interest of the client and you have to be careful of that.”
Moreover, these letters often reveal personal information deemed “protected characteristics” under the U.S. Fair Housing Act, such as familial status, race or religion.
Revealing protected characteristics could inadvertently cause discrimination for or against a “person for reasons of race, color, religion, sex, handicap, familial status, national origin, sexual orientation or gender identity.”
“The Code of Ethics applies to every [transaction] and should be followed every day by every Realtor,” Bowers says. “It’s more important now than ever and Realtors really have to hold tight to it and not vary just because they might be able to get more money.” Masterson adds, “Realtors need to look at themselves as ambassadors of the industry. If you understand the do’s and don’ts that have been laid out in the Code of Ethics, you have a better [likelihood] of conducting yourself in a professional way.”
Leslie C. Stone is a Vero Beach-based freelance writer.