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What You Might Want to Know About Ethics in Real Estate Sales

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As a member of the Honolulu Board of Realtors Ethics Complaints Review Committee for the past two years and serving an eight year term, I have seen a lot of complaints come into Committee. I cannot make any out side of Committee disclosures or comments on these cases but the intent of this article is to make an attempt to allow the Public to be more aware of what can go wrong and what to look for during their Real Estate related endeavors when it involves Ethics.

It is important to understand that not all real estate agents are Realtors or Realtor Associates. Realtors and Realtor Associates are members of the National Association of Realtors or N.A.R. and both must adhere to a strict Code of Ethics which is mandated and administered by the N.A.R and its membership.

A Realtor who is a member of the N.A.R. is generally considered to be a “Broker” who is licensed to operate a Brokerage. A Realtor Associate who is also a member of the N.A.R. is one who works under the supervision of a Broker who is a member of the N.A.R.

A Broker who is a member of the N.A.R. will have a “B” following his or her name as part of their credentials and upon their business card. The Realtor Associate who is a member of the N.A.R. will have “R.A.” The terms “Realtor” and “Realtor Associate” are both copyrighted by the N.A.R.

Unfortunately in today’s Real Estate World, the terms Agent, Realtor and Broker are all often incorrectly used to simply mean, real estate agent or agent. A clear understanding of the meaning of each term will benefit a buyer and seller tremendously as non members of the N.A.R. are not subject to the Code of Ethics. However Non members and members alike are both subject to the law and regulatory agencies of the State and Federal Government.  

The Code of Ethics can be located for all to see as easily as going to the internet and typing in a search for “N.A.R. Code of Ethics” or contacting the local Realtors Association where you are located. If in Honolulu, you can explore this Code of Ethics at the Honolulu Board of Realtors at their website: http://www.hicentral.com/

Currently there are 17 Codes of Ethics and all are dedicated to protecting the public’s ever changing needs and acts as a guide to increase the professionalism of the members who serve the public. The Code first came into being in 1913 and continues to this day, not in opposition to the laws but designed to work with the laws of the Country. It is equally important to understand that the code is not the law and not an interpretation of the law. It was designed to create a “professional compact” with its membership to the terms of which the Code defines.

In general terms, the Code is set up to accomplish the following:

  1. Define the Duties to Clients and Customers
  2. Define the Duties to the Public
  3. Define the Duties to other Realtors and Realtor Associates

Going into the detail of each of three duties as shown above is too complex and lengthy and is not my intent for this article. My intent for this article is to bring forward a few points that involve the Code that I believe the public should be more knowledgeable about before they begin their investigations into buying or selling real estate.

Who represents you?

I believe that this question is hardly ever raised as a buyer or seller in a real estate related transaction until it is often too late.

Let us take a simple Open House as an example whereby a potential buyer will attend in order to see if the home is suitable to their needs.

Clearly the Realtor or Realtor Associate conducting the Open House is representing the seller right? The answer is “yes” but in some circumstances, can quickly make the answer of “who is representing whom” at the Open House less clear. After all, the Realtor or Realtor Associate is not only there to sell the home, but is there to meet potential buyers and turn them into buyer clients not only for the house they are sitting but any house that may meet the buyer’s requirements.

The Realtor or Realtor Associate who is conducting the Open House has a contractual agreement with the seller and they must protect any confidentiality the seller has provided to him or her. Another duty of the Realtor or Realtor Associate is to treat all of the public with honesty and fairness in all of their statements and actions regardless whom they are coming into contact.

Have you ever gone to an Open House where the Realtor or Realtor Associate asks “Are you working with an agent?” or “Are you working with a Realtor?” I ask the latter question of all who enter my Open House. Sometimes the answers received from the guest are “Yes”, “No”, “I am not sure, I am working with a couple of Realtors right now.” Depending upon the answer I receive I will ask for their Realtor or Realtor Associate’s name and what brokerage they work with.

If the answer to the above question “Are you working with a Realtor?” is “Yes” then all efforts to solicit the guest to become a client of the Open House Realtor or Associate must stop. Have you ever been asked when first entering an Open House to sign in the Guest Log or leave your agents business card? The reason for this is twofold. One: is to identify who has visited the Open House, obtain their contact information for future use to either establish who as at the Open House for the seller and to establish if the guest was represented by a Realtor or Associate. Two: is to later contact all guests that are not represented by a Realtor or Associate in an effort to convert them to buyer clients of the Open House sitter whether it be for the Open House the Guest visited or a different home.

You should also be aware that often, the listing Realtor or Associate is not the individual who has taken the listing of the seller (Listing Realtor) and the Open House Realtor or Associate is simply sitting the Open House with the approval of the listing Realtor or Associate, to help sell the property and ‘pick-up’ potential buyer clients. Under either circumstance the Open House sitting Realtor or Associate is contractually obligated to represent the seller.

The term “working with” means that a Realtor or Associate is under direct supervision of the brokerage as a member of that brokerage. If a Realtor or Associate who is “working with” the listing brokerage that has the listing of the seller has a buyer for the sellers property and wants to submit an offer, it is called a “Dual Agency.” The reason for the “Dual Agency” is that now the brokerage is representing the buyer as well as the seller. All confidentialities of the seller and duties of the Realtors or Associates are kept separately apart and the buyer and seller both have complete but separate representation by two different Realtors or Associates who are required to keep each of their client’s confidentialities.

Another form of “Dual Agency” is when the same listing Realtor or Associate who took the listing and who represents the seller decides to submit an offer on behalf of a buyer. Now this listing Realtor or Associate represents both the buyer and the seller for the same property.

I personally believe that the first type of Dual Agency is workable and is readily accepted in the market place. The second Dual Agency however can present a much different set of challenges for the Realtor or Associate who is both representing the seller and the buyer on the same transaction. The challenges of this type of  Dual Agency for the Realtor or Associate in this type of Dual Agency is that this Realtor or Associate now has a fiduciary responsibility to represent both the seller and the buyer and for the lack of a better term, keep both the seller and buyer ‘happy.’

“Yes, I have a couple of Realtors working for me to find a home”

The situation where a potential buyer has contacted more than one Realtor or Associate to help them find a home happens with more frequency than one would think. When I am faced with a request from a potential buyer to help find them a home the first words out of my mouth should be “Are you working with a Realtor?” If the answer to this question is “no” then I proceed to find out what the buyer is looking for in a home’s attributes, price range, etc. I then will go over a quick explanation of “agency” and explain to the buyer that they need use my services exclusively and not intermittently combined with the services of another Realtor or Associate.

One way to emphasize this point with a buyer whom I am working with is to provide them with a stack of my business cards and ask the buyer when visiting a property that is for sale, while unescorted by me, that he or she immediately hand over the showing Realtor or Associate at the Open House or while on a separate appointment to see a home, my business card. I cannot be in all places at once and this action immediately clears up any potential misunderstanding that might arise in who is representing whom. Fortified with my business card, the buyer is also not usually obligated to sign in, register or provide any contact or personal information to the attending Realtor or Associate who is showing the property.

I often wonder what is going through the mind of a buyer who has more than one Realtor or Associate working for them to find a home, where each of the Realtors or Associates is unaware that they are working with the same buyer. I had an experience where this situation came up and I was one of two Realtors working with the same buyer. Let me explain what happened and the difficulties it presented to both the Realtors as well as the buyer.

After I had worked with the buyer for over a week and discovered he was also working with someone else that same week, I asked him how he decided to pick whom to work with?  He explained he had gone to my website and several other websites to look for property to buy and to find what he deemed the most experienced Realtors after he had made a list of properties he wanted to see. He then contacted myself and one other Realtor and asked us to provide him with our services in order to find him a home. When he decided upon the property he wanted to buy, his reasoning to choose me as his ‘final Realtor pick’ was because I found him the property he wanted to buy. This meant that although the other Realtor had shown the buyer many properties as well, it was I who found the right one. If it had been the other way around, the buyer would have chosen the other Realtor to write the offer and that Realtor would represent him and write the buyers offer for the property they had chosen.

I have to admit, it sounds logical to me, so I really had no argument with his reasoning. My mistake in all of this was I ‘assumed’ he was only working with me and no one else. At no time did the words “Are you working with any other Realtors?” pass my lips. In the buyers thought processes, since I was the one who found him the property he wanted to buy, he asked me to write the offer.

The next morning, just before I submitted his offer I received a some what concerning email from another Realtor asking me ‘Why are you working with my client?’ Apparently the listing agent of the property my buyer wanted to purchase had informed the other Realtor that I was about to submit an offer on a property this Realtor had shown him as well and the listing Realtor also mentioned my buyer’s name during their conversation.

The only reason the buyer chose me to write the offer is because I took him back to the same property he had seen before with the other Realtor although the buyer had told me he did not care to see it. Since we were already at the same complex visiting a different unit, he conceded to my request and we went to the property he had seen with the other Realtor and humored me. I really am not sure why, but after seeing the property again, even though he initially did not want to see it again, the buyer made a decision this was the property for him and asked me to write the offer!

Apparently the ‘other’ Realtor had made the same mistake in not asking the buyer if he was working with another Realtor and it all ended up very embarrassing for both of us as well as our buyer.

After learning of the other Realtors existence, I contacted the other Realtor and requested that she submit the offer and provide me with a referral fee if the offer resulted in a sale. She agreed. After explaining what had happened between me and the other Realtor and providing the buyer with a lengthy explanation of Agency, the buyer understood what role he had played in this scenario. The client was disappointed in not working with me when I explained that all of our combined actions had created an “Agency” situation and that I would not be presenting his offer, but if chose to, the other Realtor would do so. He understood and the other Realtor submitted his offer and eventually he successfully closed on his property. I believe it was happy ending for everyone.

The point of this story is that although we may think we know who represents a buyer or seller it may not always be the case. I would suggest that all potential sellers and buyers obtain a clear understanding of who is representing them and why.

Both the Purchase Contract and the Listing Agreement both have paragraphs explaining who represents who and although a buyer or seller is required to sign their acknowledgement and acceptance of the explanation, I often see many buyers and sellers just sign the documents without question.

Although by signing documents without question might be a demonstration of trust of the seller or buyer’s Realtor, it is not a good practice to do so without having the Realtor go over the document and explain it’s contents thoroughly and prompt the seller and buyer with questions. It is still a Realtor’s or Associates responsibility to ensure there is a complete understanding by the buyer and seller, that they understand what they are signing.

Ultimately, by signing any documents, a buyer and seller are responsible for the terms and conditions of what they have signed.

Listing Agreement and Agency

In an effort to avoid prospective buyers from working with multiple Realtors simultaneously, many Realtors and Associates use the following form which explains Agency and the need to work with one Realtor or Associate. If I had used this form to begin with the client I had, it would have prevented a lot of misunderstanding.

Buyers Representation Agreement

As a buyer, if you are presented with this form, you might be a little hesitant to agree and sign the form. This form primarily benefits the Realtor or Associate. I personally have made a business decision not to use this form as I believe it ‘scares away’ too many potential clients and an explanation to a prospective buyer of Agency and of course asking “Are you working with another Realtor or Associate?”, works just fine for me and my clients.

If there is one final word of advice I would like to share to prospective buyers and sellers, it is ask questions if in doubt and make sure you understand what you are signing.

If you have any questions or need a good Broker for your next real estate investment efforts please give me a call or send me an email. I will be happy to help you!

I wish you all much Aloha,

Mike Gallagher, Broker in Charge, Abe Lee Realty
Ethics Committee Complaints Review Committee Member, Honolulu Board of Realtors.
808-384-9015 cell, mikeg@hawaii.rr.com

Other websites where you can me and where I believe you can learn much about Real Estate in Hawaii:


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Comments

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Tina — Thursday, December 9, 2010
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These agreements choke off the good service that precipitates from healthy competition. Why shouldn't an agent work for the huge amounts of money involved in these imoprtant transactions? Why shouldn't a buyer be to able to call 10 agents, give them their criteria, and say: Find me my house? That is working for the buyer. That would be healthy competition. www.globimmo.net



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