The NAR Code of Ethics: How They Apply to Everyday Business

The National Association of Realtors® Code of Ethics is a set of ethics guidelines, articles and rules set forth to govern the ethical behavior of all Realtor Members of the Association. Each member takes a pledge to follows these principles as part of their membership to a higher authority known as the National Association of Realtors. With the Code of Ethics, the National Association of Realtors sets rules and stipulations for Realtors in (1) Duties to Clients and Customers; (2) Duties to the Public: and, (3) Duties to other Realtor Members. This article is about what parts of the Code apply to almost daily practice of real estate. I hope you find this useful.

While some of the duties and standards written within the Code do not apply to everyday practices of real estate, many of the ethical guidelines do. With over a decade of licensed real estate experience, I have personally observed many of the sections of the Code being misapplied, possibly forgotten or, worst, totally ignored. The last observation of “totally ignored” is inexcusable and is what gives some Realtors and brokerages a bad name among both other Realtor Members and the public.

Consider this article a refresher course as to the duties and mindset all Realtor Members should have and uphold when both operating in business and dealing with clients, customers and members of the public.

The Difference Between a Realtor and Real Estate Agent

Many members of the public and, sadly, some real estate agents do not understand is the actual difference between a Realtor and a real estate agent. In our state, Texas, the State Commission issues a real estate license. There are two types of real estate license in the state of Texas – (1) Salesperson; and, (2) Broker. Each new license holder must start their career as a salesperson and work directly under a sponsoring broker. Simply getting your real estate license does not make you a member of the National Association of Realtors. A license holder would then have to join a local Realtor board to become a Realtor member. A license holder may practice real estate without being a Realtor.

A Realtor member is a license holder who has chosen to join a professional organization to adhere to an even stricter policy of ethics and rules as a National Association of Realtors member.

Remember this – you must have a real estate license to be amember of the National Association of Realtors. But, you do not have to be a member of the National Association of Realtors to hold a real estate license. In fact, most commercial real estate salespersons are not members of the National Association of Realtors. Why? Because the MLS, which is controlled by the local Realtor associations, is primarily geared toward residential real estate and not commercial. Therefore, most commercial brokers do not consider it greatly beneficial to be a part of the local Realtor Association(s).

National Association of Realtors Code of Ethics: Preamble (a Great Place for Us to Start!)

The Preamble is the beginning of the Code of Ethics. Frankly, it is both wordy and can be described as having a lot of “flowery” language. If you would like to read the National Association of Realtors Code of Ethics Preamble in its entirety, click here. It is about a page long and has seven paragraphs summarizing the true nature of the Code’s existence.

All the flowery language set aside, it does provide some immediate “advice” and obligations assigned to any Realtor who decides to undertake the responsibility of being associated with the organization.

First example of importance within the Code’s Preamble:

“They impose grave social responsibility and a patriotic duty to which REALTORS ® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS ®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS ® a common responsibility for its integrity and honor.”

This language is written within the second paragraph of the Preamble and is already stating that real estate salespersons who choose to be a part of the organization should be prepared to dedicate themselves. The Preamble uses strong language in how the Association expects their members to accept responsibility for the Code.

The word dedicate does not mean “halfway,” “somewhat,” “when I have time,” “when it is convenient,” etc. Dedicate is defined as “to devote wholly and earnestly, as to some person or purpose.”

This is the first strong mention as to how seriously the Association and its members should take the following Code.

The second bit of language I find interesting from the Preamble is located in the fourth paragraph and we will explore this statement more in depth later in the article as pieces of this statement apply to individual Code of Ethics articles.

“Realizing that cooperation with other real estate professionals promotes the best interests of those who utilize their services, REALTORS ® urge exclusive representation of clients; do not attempt to gain any unfair advantage over their competitors; and they refrain from making unsolicited comments about other practitioners. In instances where their opinion is sought, or where REALTORS ® believe that comment is necessary, their opinion is offered in an objective, professional manner, uninfluenced by any personal motivation or potential advantage or gain.”

The statement and language in the quote above is addressed in detail in several of the individual articles within the body of the actual Code of Ethics. In addition, the quote above from the Code is a great thing to store in the back of your mind as we continue the article with ways the Code is applied in everyday situations by Realtor members.

National Association of Realtors Code of Ethics: Duties to Clients and Customers

This section of the Code details our duties, as Realtor members, to clients and customers. So what are the sections of this part of the Code which apply to everyday situations in real estate.

“Standard of Practice 1-3 – REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.”

My take – Unfortunately, this happens almost daily. In an effort to secure listings, some Realtor members will deliberately mislead the owner as to the market value of their home in order to get a property listing. Some Realtors have decided that in lieu of providing honest, ethical information to help a potential client (not a client until the owner signs a listing agreement), the Realtor will inflate the estimated value of the listing while knowing it is only human nature for the seller to want to believe their home or property is worth more than market value. In doing so, the Realtor member knowingly misleads the seller. As much as I am convinced this intentionally happens, I am equally as convinced that many Realtors do not remember this is a direct violation of the Code of Ethics.

Setting a price on a home is NOT an exact science. And, just because a home fails to sell at a certain, original list price does not make this an automatic violation of the Code. Sometimes homes just don’t sell at a certain price. It happens. That’s why price reductions exist. However, intentionally inflating values to mislead potential seller clients is, in fact, a direct violation of the Code.

“Standard of Practice 1-5 – REALTORS® may represent the seller/landlord and buyer/tenant in the same transaction only after full disclosure to and with informed consent of both parties.”

My take – Also known as an intermediary. Be careful with this one! I try and avoid the conflict of interest created by an intermediary at all costs. As we are required to say, I am NOT an attorney but I see this as one of the best ways to get sued. It is our job to represent our client, with all self-interest as secondary. In my opinion, it is not in the best interest of the client to represent both parties in the role of intermediary. While acting as an intermediary is not a direct violation of the Code of Ethics, taking one false, unintentional step or saying the wrong thing could easily violate several articles of the Code of Ethics while in the position of intermediary!

“Standard of Practice 1-15 – REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker.”

My take – Honestly, one I was not familiar with until writing this article. So, if, as a Realtor, you are allowed (by your seller clients) to disclose to potential buyers or cooperating brokers that another offer on the property exist(s). I was not familiar with the second part of the Code – as a Realtor, you are also required to disclose the brokerage firm from which the other offer was submitted, if asked. In essence, if asked, you are required to disclose if you are an intermediary (either by yourself or by virtue of your brokerage with another agent from your same firm), or if the offer is by another, independent brokerage firm. Interesting and good to know. Make note of this part of the Code.

“Article 6 (Case Interpretations for Article 6) REALTORS® shall not accept any commission, rebate, or profit on expenditures made for their client, without the client’s knowledge and consent.”

“When recommending real estate products or services (e.g., homeowner’s insurance, warranty programs, mortgage financing, title insurance, etc.), REALTORS® shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the REALTOR® or REALTOR®’s firm may receive as a direct result of such recommendation.”

My take – I see this time and time again where a Realtor representing the buyer will be accepting monies from a cetain home warranty company, home security company or other business as compensation for a referral to that certain business. Each time I see this on a contract, I have to ask myself if the $25 to $50 the agent is receiving is worth it? What happens when something goes wrong with the service you, as a Realtor, have referred to your client? The client will get angry. The potential damages – best case, they will simply never refer you to another client when something goes wrong with the service you “represent.” Worst case, you will get sued, along with the service, if something major occurs. Notice I state you are “representing” the service you refer. Make no mistake, by accepting money from another business by guiding your client to purchase services from a specific business, you are now a direct representative of that business.

It makes me shudder each time I see a Realtor disclose they are taking money from a third party business by guiding a client to that business. The small amounts paid by the third party business are not even close enough to possibly compensate me for the potential future issues. In addition, I personally believe receiving any money for guiding a client to a certain business is the exact opposite of the section of the Code which states – “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.” I believe it is a direct conflict of interest to accept money from a third party company not involved with the transaction for referring our clients in exchange for nothing more than our own financial gain…a very small financial gain.

Some Realtors do this now. Other Realtors will continue to do this. But, I can honestly say that I’ve never accepted money from a third party vendor for referring a client and I never will. If you do it, you’re not in direct violation of the Code, but be sure to disclose your relationship.

“Article 8 (Case Interpretations for Article 8) – REALTORS® shall keep in a special account in an appropriate financial institution, separated from their own funds, monies coming into their possession in trust for other persons, such as escrows, trust funds, clients’ monies, and other like items.”

My take – Good Lord, commingling funds is a bad idea! Thankfully in my state, I never touch any money during a sale’s transaction. All checks are either written or wired to the seller (option monies) or to the title company (earnest monies and closing monies).

And, in a lease transaction, I make sure all checks are written to the landlord. If I have a lease property and I am representing the landlord, I have a potential tenant write any checks directly to the landlord (application fees, deposits, first and last month’s rent checks, etc…). That way, no monies ever touch your account. Messing with peoples’ money is dangerous. Make a paper trail where you never touch any of the money. It isn’t worth it!

National Association of Realtors Code of Ethics: Duties to the Public

“Standard of Practice 10-3 – REALTORS® shall not print, display or circulate any statement or advertisement with respect to selling or renting of a property that indicates any preference, limitations or discrimination based on race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity.”

My take – 99% of Realtors would never intentionally violate the Code of Ethics on the Article above. However, here is where to be careful – I see way too many Realtors who have certain demographics posted on their websites. I think it is very easy to get into trouble and be misquoted as potential “steering” by having demographic statistics posted on an agent’s website. Mentioning an area as being “family oriented” on your website could absolutely violate this Article of the Code.

The Code is often revised and please note where the Code now references “display.” I have a strong opinion and feeling that the term “display” was inserted into the Code largely in part, and in reference, to “electronic display”…as in the Internet. So, I bring up this section and its small intricacies to help you avoid accidentally violating the Code of Ethics.

“Standard of Practice 12-5 – Realtors® shall not advertise nor permit any person employed by or affiliated with them to advertise real estate services or listed property in any medium (e.g., electronically, print, radio, television, etc.) without disclosing the name of that Realtor®’s firm in a reasonable and readily apparent manner either in the advertisement or in electronic advertising via a link to a display with all required disclosures.”

My take – OK, another Internet type of issue for which a Realtor should be aware. I see multiple agent-owned websites (almost daily) which try and almost hide their affiliation with their sponsoring broker. Not only is this a Code issue, but most state real estate commissions are also very strict on this policy. While, as a Realtor, you are technically an independent contractor and therefore do, in fact, own your own business, both the Code of Ethics and most state commissions (of which I’m aware) are very strict in requiring the use of your brokerage being displayed within certain specifications on any piece of advertising. This “advertising” includes, but is not limited to, “electronically.” When the Code says “electronically,” you are smart enough to know this means Internet sites. Unless you are your own broker, don’t take chances in breaking this rule. It isn’t worth it.

“Standard of Practice 12-9 – REALTOR® firm websites shall disclose the firm’s name and state(s) of licensure in a reasonable and readily apparent manner.”“Websites of REALTORS® and non-member licensees affiliated with a REALTOR® firm shall disclose the firm’s name and that REALTOR®’s or non-member licensee’s state(s) of licensure in a reasonable and readily apparent manner.”

My take – Another clause of which I honestly was not aware. The National Association of Realtors states that any website should display the “…state(s) of licensure…” I’m licensed in Texas. As such, I already had all of my Texas licensure affiliations in the footer section of my website’s homepage. If you have an agent-owned website, I suggest you do the same as well. Agent-owned websites have almost become a regular marketing “must” for most agents. If you have a personal real estate website (and I’m betting you do), be sure to follow this article of the code. This has to be a little known article of the Code because I pride myself on my website’s compliance and even I was not aware of this section until writing this article. This is a good piece of the Code to know. If you aren’t currently within compliance of the Article, I suggest you either make the correction yourself or have your website administrator make the correction as soon as possible.

National Association of Realtors Code of Ethics: Duties to REALTORS®

Probably the section where I see the largest number of Code violations by Realtor Members.

“Standard of Practice 15-2 – The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. This duty applies whether false or misleading statements are repeated in person, in writing, by technological means (e.g., the Internet), or by any other means.”

My take – Don’t badmouth other Realtors. It’s as simple as that. You are more than welcome to tell prospective clients (buyers and sellers) how you would market a listing property or how your services are superior in representing buyers. However, don’t sling mud. It isn’t becoming of you or the profession. It will catch up to you. People have loose lips and whatever you say about another agent or brokerage will eventually make its way back to that other agent and/or brokerage. Set yourself apart by your excellent representation of clients, not by badmouthing other Realtors. Remember, there is a very good possibility that you will want to do business with that other agent or brokerage firm in the future and badmouthing could absolutely come back to bite you.

“Article 16 (Case Interpretations for Article 16) – 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.”

My take – In simple terms, do not solicit buyer clients or listings for which other Realtors have an existing, exclusive representation agreement. Do not intentionally send postcards about listing a home to homes which are already listed. Do not tell buyers (solicit) how much better you are than the agent they have representing them in the purchase of a home. The worst and most egregious examples are Realtors who know exclusive representation agreements exist, yet ignore the agreements and proceed in essentially stealing a client from another Realtor member with an exclusive representation agreement. This generally happens with buyers, as it is much harder to ignore exclusive agreements when a listing sign is sitting in the seller’s yard.

Standard of Practice 16-2 – Article 16 does not preclude REALTORS® from making general announcements to prospects describing their services and the terms of their availability even though some recipients may have entered into agency agreements or other exclusive relationships with another REALTOR®. A general telephone canvass, general mailing or distribution addressed to all prospects in a given geographical area or in a given profession, business, club, or organization, or other classification or group is deemed “general” for purposes of this standard.(Amended 1/04)”

Article 16 is intended to recognize as unethical two basic types of solicitations:

First, telephone or personal solicitations of property owners who have been identified by a real estate sign, multiple listing compilation, or other information service as having exclusively listed their property with another REALTOR®, and

Second, mail or other forms of written solicitations of prospects whose properties are exclusively listed with another REALTOR® when such solicitations are not part of a general mailing but are directed specifically to property owners identified through compilations of current listings, “for sale” or “for rent” signs, or other sources of information required by Article 3 and Multiple Listing Service rules to be made available to other REALTORS® under offers of subagency or cooperation.”

This speaks to my point of mailing postcards intentionally targeted at current listings. The Code stipulates that you are within the Code of Ethics if the postcards are part of a “general mailing” or “distribution address to all prospects in a given geographical area…” However, targeting current listings is absolutely off limits.

“Standard of Practice 16-5 – REALTORS® shall not solicit buyer/tenant agreements from buyers/ tenants who are subject to exclusive buyer/tenant agreements.”

“Standard of Practice 16-9 – REALTORS®, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service.”

To my point above of egregiously soliciting buyer clients who have exclusive agreements with other Realtors—this is completely, 100% out-of-bounds. This is not like some of the things mentioned in the article above where a Realtor may unintentionally violate one of the Articles within the Code of Ethics. This is flagrant. In fact, Standard of Practice 16-9 specifically states that Realtors have an obligation to determine if a prospect is subject to a current and valid agreement.

And, in addition, of all things which have the potential of having ethics complaints filed against you with the National Association of Realtors, soliciting clients with exclusive representation agreements is probably at the top of the list.

National Association of Realtors Code of Ethics: Conclusions

No doubt the Code of Ethics exists for a reason, obligates Realtor members to “dedicate” themselves to the Code, and should be reviewed by Realtors on a regular basis, I believe I have pointed out most of the Code’s Articles which apply to almost daily practices of real estate.

Did I miss anything? Let me know your opinions on this article.

If you are a proud Member of the National Association of Realtors and believe ethics are something which should be constantly enforced and protected in our industry, please consider sharing this article socially with your business peers.

Good luck out there and be careful!

To view the original article, visit the Point2Homes blog.