When you’re juggling multiple listings and demanding clients, it can be tempting to take short cuts here and there. It’s not worth the risk to your license and your business. Because they act as fiduciaries, real estate agents are held to higher standards than other business people.
Ethics is more than just being honest all the time. It some situations, straight honesty can get you in trouble. Fair housing laws and client confidentiality duties may prevent you from disclosing the facts. You’d have to say “I can’t answer that” and tell them why.
Keep an eye out for these ethical issues:
- Agency Disclosure
State license law and association codes of ethics usually require agents to disclose their agency status to customers at the first substantial contact. When the conservation with a consumer gets serious, it’s time to talk about agency and who is representing whom. This is also true if you are selling or buying property for yourself.
Some states have mandatory agency disclosure forms that licensees are required to give to third parties.
- Accidental Dual Agency
This is an extension of the first one. Non-existent or insufficient agency disclosure can lead to undisclosed dual agency. Informed written consent of both parties is required for lawful dual agency. A helpful listing agent can give buyers the impression that they are representing them if there is no clear, straight forward agency disclosure.
- Property Disclosure
All state real estate law and codes of ethics require agents to disclose all known material facts about the property to clients and customers. Omitting or misrepresenting significant information that affects the desirability or value of a property could land you in court.
When in doubt, disclose.
It can be easy to make this mistake when you’re trying to help people. Steering is the practice of providing real estate advice or services in a way that perpetuates segregated housing. This could include basing your location suggestions on a person’s race, religion, or other protected class or focusing your advertising narrowly to a particular class, perpetuating housing segregation. Be careful when talking about the demographics of an area. Focus instead on the characteristics of the property, not the people.
This one is usually not an accidental fair housing violation. Blockbusting refers to the practice of encouraging the panic selling of homes below market value by raising fears that an increase of people of a minority group will decrease property values in a neighborhood.
The NAR Code of Ethics and state license law prohibit false or misleading information in advertising and listing information. Fraud and misrepresentation can lead to lawsuits and disciplinary actions. Indicating a preference for a particular class of people in advertising material can lead to fair housing violations.
Some clients may not be ethical. For example, they may request that you refrain from showing their property to certain groups of people or voice a preference for a type of buyer or tenant based on a protected class. You must tell them that you cannot do that because it is illegal.
- Antitrust Issues
The purpose of antitrust laws is to protect competition and prevent monopolies for the benefit of consumers. The elements of an antitrust violation are an agreement between competitors that impose an unreasonable restraint. A common antitrust pitfall in real estate is commissions. Brokerage firms may not agree about setting commissions. Commission rates are determined by each brokerage firm and through negotiation with clients. Real estate agents cannot discuss commission rates with each other.
State real estate license laws impose special fiduciary duties on licensees. This means that agents owe their clients the duties of:
That last one can cause trouble when you’re discussing your listing with buyers who ask about the sellers and their motivations for selling. Unless the client has specifically said you can share this information, you cannot disclose it.
Sometimes it’s easy to get carried away when you’re talking about a great house or a hot market. Exaggerating or misrepresenting property condition, market value, costs, or other factors could result in a lawsuit.
Those were 10 common ethical pitfalls agents may encounter during the course of a real estate transaction. Periodically, review state law and codes of ethics to ensure you’re in compliance.