Ethics Overview:  from Grievance to Professional Standards
By Larry Lowenthal, Chair, Grievance Committee

In the course of going about our business, situations or events occur that can lead to Realtors being charged with some form of misconduct or unfairness by customers and Realtors.   The National Association of Realtors has established a mechanism whereby local boards can process such charges and complaints without involving duels or the courts. 

  Our area of concern is strictly limited to matters of professional ethics and arbitration or mediation of commission disputes.  And just so there is no uncertainty or vagueness in the process, the local boards are guided by an official Code of Ethics that is updated every year as our business evolves and new types of situations develop.

  The Grievance Committee’s function is to examine and then filter ethics complaints and arbitration requests as submitted to the board.   Like a grand jury, we basically judge the complaint itself to see if the alleged misdeed(s) corresponds to any of the 17 Articles listed in the Code of Ethics.  Then we vote to dismiss the complaint, ask for more information, or forward it to Professional Standards for a full hearing with the parties in attendance.    

Just one side

   Here’s the substance of how Grievance “judges” a complaint.  We ask, “If this complaint is true, might there be a violation of the Code of Ethics?” 

 After discussing the complaint to make sure we understand it, and after examining the Code to see if there are corresponding Articles, we vote the question.   Despite the great curiosity of some members, we do not – and should not in my opinion – get the respondent’s side of the story.   Because if our mission is to only evaluate the complaint, then taking the response into account is a waste of time.   That’s solely the responsibility of Professional Standards.

  Occasionally, the allegations describe activities that seem criminal, but unless there are specific violations of the 18 Articles, the complaints are dismissed.  (Example:  a homeowner sent in a complaint stating that a Realtor obtained a courtesy key in order to enter and wantonly vandalize his property.   Nasty as it was, that kind of activity is not addressed in the Code, and the complaint belongs with the DBPR and city police.

  Because of simple, straightforward guidelines that we follow, arbitration requests are much simpler to process and most are voted forward.

  Sometimes our job is easy and obvious, sometimes it’s labored and tortuous when a complaint is not precisely written, the links are not clear, or the charges are many and subtle or complex. 

Part 2:  Professional Standards

It’s the responsibility of the Professional Standards Committee to conduct full hearings, which are somewhat like trials, on matters forwarded by Grievance.   These matters are limited to Ethics complaints and requests for Arbitration.

   A hearing panel typically consists of three to five committee members and is conducted by a chairman.   Both parties to the issue are in attendance along with their evidence, witnesses, and sometimes even their attorneys.   The proceedings, sometimes referred to as Tribunals,  are taped and each party and witness is sworn in. 

  We go through the procedure by following step-by-step guidelines provided to us by NAR.  This is to ensure that the parties – complainants & respondents – receive a full and fair hearing with all due process afforded to both sides.   Afterwards, in closed session, we discuss our findings on each Ethics charge to determine if there is a violation or to dismiss.  If the former, we then assess a penalty that can range from a simple letter of reprimand, continuing education or even a monetary fine and/or suspension.

 Who gets the money?

  In arbitration disputes, a typical conclusion determines which party gets the disputed monies.  During the course of arbitration hearing, each side presents its case as the hearing panel listens closely and asks questions which usually focus on procuring cause.   Contrary to what many agents believe, the mere fact that you write up the offer does not necessarily entitle you to the commission. Procuring cause is a chain of events, and writing an offer is just one of the many complex links.
 
Sometimes the respondent gets to keep the whole amount, but we’ve had cases where a panel decided the complainant is actually entitled to some part of the commission.

  Ethics decisions are sent to the Board attorney for review, then provided to the Board of Directors for ratification. In keeping with confidentiality requirement, the Board gets it in abstract form with no names disclosed.

Got a gripe?
Larry Lowenthal, Grievance Committee

 Your Board – like all in the country – has procedures in place whereby both Realtors and members of the public can complain about the behavior of other Realtors.   In order for these complaints to be processed, the alleged actions (or inactions) if true, must constitute violations of one or more of articles of NAR’s Code of Ethics.

 In future issues, you will read sample cases to help you identify what may or may not constitute a breach of Ethics, but a reading of the Code’s articles will serve as an immediate guide to professional conduct for both yourself and other Realtors.

 GRIPE TIP:  If you ever have to file a complaint, you will be asked to specify which Articles of the Code you believe were violated by the other Realtor.  Today,  the Grievance Committee also asks you to make sure you include a brief narrative explaining how and why you believe the other Realtor violated each Article you are specifying.   This will help the Committee understand why you want the Board to take action, and   without such a narrative, we just may postpone deliberation of your charges until one is received.   Supporting documentation, while important, doesn’t fulfill this need.

 To claim only that “Realtor A violated Article One when she lied to me” and nothing more just doesn’t cut it.  The narrative must include enough details to give the complaint substance before Grievance can consider it.  So take the time to write,  “Realtor A violated Article One when she lied to me.  She told me her seller refused my buyers’ offer and accepted another offer when in fact she never presented mine and was only waiting for an offer to come in from another agent in her office.” 

I hope this never happens to you – either side of the story.  But if it does, that’s how it might look in writing.

Avoid problems:  ask the Magic Question
By Larry Lowenthal, Grievance & Communications

At a Board-sponsored Ethics seminar, speaker Al Liebert spent over half the time discussing Arbitration issues, and led off the discussion by stating that most arbitration hearings are held to discover “procuring cause”. 

Procuring Cause is defined as “the uninterrupted series of causal events which results in the successful transaction”.  But based on questions and comments from those in attendance, it is clear that many Realtors still do not fully understand the concept. 

“I thought whoever writes the contract gets the commission.”   Not necessarily, replied Liebert.   “I was told whoever shows the house gets the commission.”   Not necessarily, repeated the speaker.  No single event automatically determines who is entitled to a commission.  Once challenged, the entire transaction has to examined and analyzed, which often means questioning the buyers as well.  

It’s not uncommon for Realtor A to initially show the property, for Realtor B to write the successful offer, and for both to claim the same commission.   This will end up in the hands of a Board Arbitration panel to determine who actually earned it. 

Liebert added that the National Association of Realtors current policy is that the entire amount should be awarded to one party OR the other, and not divided in any way.  However, if the panel finds that the transaction just could not have succeeded without the efforts of both parties, then the panel may consider some sort of split. 

It’s a good idea for the competing brokers to try and work something out between themselves before resorting to a potentially all-or-nothing arbitration, especially when there are circumstances and evidence favoring both sides.  Board Mediation is also a possibility if the brokers need help in arriving at a compromise. 

The tip of the day 

Liebert passed on this tip to help prevent problems from coming up in the first place.  Before you take new prospective buyers out to show property – even before you discuss the computer results with them – ask them straight out, “Are you working with any other Realtor or broker?”.

If the answer is “no,” make a written note to yourself and proceed.  If the answer is “yes,” then ask the second question, “If I show you a property that you would like to buy, who would write up the offer?”.  If the answer is you, make a note to yourself and proceed.  If the answer is someone else, end the relationship immediately.  

The two concepts named when the original or “showing” Realtor loses customers – and commissions -- to another are Abandonment: (“We liked the Realtor but she took off for the weekend and did not call us back when she knew our parents wanted to see the house, so we found another Realtor”) and Estrangement:  (“The Realtor made mean, disparaging remarks about homeless people we saw on the street corner…he turned us off because of his attitude”).   

When the “writing” Realtor loses the commission, it’s often because of Intrusion: (“We liked the house but another Realtor we met at a neighbor’s party told us she could help us get it for less money.  So we had her write the offer.”)  

(Larry’s notes:  There are occasions when Realtors go to Board arbitration to determine who is procuring cause of a listing commission.  Finally, if another  Realtor does not pay a Board-arbitrated commission settlement, your broker’s only option is a lawsuit, and the courts nearly always award a judgment based on the Hearing Panel’s decision.) 

Don’t use the MLS to deceive.
By Larry Lowenthal, Grievance 

Have you ever shown a property and discovered – too late – that the listing information contained seriously false information?  Do you remember how angry you got?  The listing Realtor either knew – or should have known – what to enter in the listing, but purposely entered something else just to attract trusting Realtors with customers in tow. 

Well, in February, the Grievance Committee reviewed a complaint alleging the entry of false and misleading information in a property listing on the MLS.   This was the first complaint of its kind that we’ve seen this year, but based on what we see in the listings, it may not be the last. 

Sometimes, in their zeal to sell a listing, Realtors may be tempted to cross the line and deceptively enter false data.   Our MLS rules identifies some items that are often “fudged” --  the MLS area, square footage, garage, number of bedrooms, association fees, lot size, and the like. 

Besides the obvious exposure to agents and their offices to costly lawsuits, transgressions may also lead to discipline through the Ethics/Professional Standards procedure.  This can range from a reprimand to continuing education to a fine…even to suspension. 

We think the best rule is the Golden Rule.  If you hate to be tricked by a false listing, promise yourself that you won’t try to trick other Realtors.

And by keeping the MLS honest, you are helping maintain the public’s confidence in our profession.

Violating the Code of Ethics can get you sued.

By Larry Lowenthal
Realtor at Century 21 Rose Realty West, Cooper City, Florida
Note: this article was not published elsewhere.

After we’ve been in the business a few years, most Realtors seem to forget that we once swore to be guided by the Realtors’ Code of Ethics.  We don’t remember that the promise to do so is the heart of the oath we took when we first joined our local board.

Because our memories of Code specifics usually turn to dust, the NAR instituted a mandatory Ethics review that each of us must attend every four years in order to keep our membership alive.

The trouble is, not all Realtors take the Code seriously, and their failures to do so frequently result in miserable, nasty, expensive lawsuits as buyers, sellers, and other licensees become plaintiffs who claim financial injury and initiate actions at law.

You may wonder ask how this is possible when the harshest punishments available to a board’s Professional Standards Committee are summary expulsion from the board and/or a $1,000 fine. 

On the surface, that seems like a good question, which I will answer with another.  What makes you think that the injured parties are going to be content with simply filing an ethics complaint?

The fact is, lots of people never even bother with filing ethics complaints and go straight to attorneys, who are all too happy to advocate for them in a court of law.  After all, that is what litigation attorneys do – they either sue or they defend those who are sued – at the rate of $200-$350 per hour.

As a Realtor called upon by attorneys to offer expert testimony in lawsuits involving Realtors, I have seen the good, the bad, and the loathsome.  In case after case where the evidence supports the plaintiffs’ claims for damages, I have stated my opinion that the Realtors conduct violated one or more articles of the Code of Ethics.   And that is just the half of it.

You see, each of those relevant Code violations also constitutes a breach of one or more duties imposed upon licensees by Florida Statute 475.   It’s easy as pie for most experts to connect a violation of one to a breach of the other because 475.278 (2) (a) is both simple and crystal clear.  Among other requirements, It declares that the duties of a Transaction Broker to buyers and sellers include (1) dealing honestly and fairly, and (3) using skill, care, and diligence in the transaction. 

Now here’s the big news for most readers; the fact that you no longer have to disclose your status as a Transaction Broker does not relieve you of your lawful statutory duties.  

When consulting to attorneys, I find that nearly all are ignorant of our Code of Ethics, and they are happy to add that fuel to their fire when focusing on a Realtor’s misdeeds.  But sometimes, a Realtor’s adherence to the Code will let me come to an opinion that, in fact, the Realtor’s conduct is ethical and he or she is being unjustly accused by a disgruntled buyer or seller.

Some examples.

Case 1:  Buyer sued the listing office that was handling sales at a large townhome community, claiming substantial damages because the broker and salesperson did not inform him of the presence of a sewage lift station and a community trash compactor near the several units he had purchased.   An examination of the evidence showed that the clearly visible lift station enclosure had been there for years, and that the huge compactor construction stood out like an elephant at both the buyer’s agent’s many inspections during construction and at the buyer’s walk-through.

Article 2 of The Code prohibits us from concealing pertinent facts, and our corresponding FREC duty requires us to disclose known but hidden defects in the property.  Inasmuch as the two items were out in the open, I testified that there was no concealment on the part of the listing broker, and no requirement to disclose that which was clearly visible and obvious. 

Case 2:  Buyers sued a listing Realtor and the sellers for damages after their offer to purchase her listing at full price without an appraisal was not accepted, but a lower offer was.   My examination of the evidence revealed that the agent had negotiated a secret agreement with the sellers providing for a lower commission if she also procured the buyers, which is exactly what happened.   Dual or variable commission arrangements are not illegal, but according to Article 3 of the Code of Ethics, they must be indicated as such in the MLS and the details have to be disclosed immediately to any cooperating agent who plans to present an offer.

So, in my sworn deposition, I declared that this breach of the Code also led to a violation of the FREC requirement that licensees deal fairly and honestly.   The sellers also lost thousands of dollars when they dropped the price to meet the lower appraisal, and they joined the buyers’ suit against the Realtor.

Case 3: Buyer sued Realtor for substantial damages (claiming lost potential profit) charging that the Realtor unfairly failed to inform him of better competing offers.   This was an easy case.  It turned out that the buyer neither asked if there were any competing offers, nor did the seller give the required permission for his Realtor to reveal their existence.   Article 1 of the Code says that conduct is o.k., so I concluded that – insofar as meeting the standards of FREC -- the listing Realtor was both fair and honest.

Cases 4, 5, & 6:  I will spare you the details, just be sure to have your Seller’s Disclosure forms signed by the buyers, get the signed forms back to sellers, and keep copies for both yourself and your broker.   This will protect you from charges of violating Article 9 of our Code, and thus insulate you from FREC charges that you failed to exercise skill, care, and diligence in the transaction.   More importantly, such taking care of business can also help shield you from nasty claims of “failure to disclose a hidden defect”  (Article 2) if the seller itemized one in the disclosure, and a count that you were unfair and dishonest.  We’re talking FREC here.

The Right Side

The Realtor Code of Ethics and our duties as spelled out by Chapter 475 do not dovetail in every respect.  For example, FREC does not give a hoot if you recklessly make false or misleading statements about your competitor or former partner -- conduct that is outlawed by Code Article 15.  But if a Realtor violates Code articles that relate to any type of real estate transactions from residential to commercial to leasing to management, there’s a chance that one or both of the principal parties might suffer financial loss and, just as bad, serious emotional distress.   

That’s how lawsuits begin.  And the next thing you know, an expert is hired who will tie the violations of the Code of Ethics to particular violations of Florida Statute 475, and then tell the jury all about it.

Believe me; I would much rather help your attorney defend you than help the plaintiff’s attorney prosecute you.  Study the Code, conduct yourself accordingly, and you will be on the right side.