The National Association of REALTORS®’ Code of Ethics is 102 years old, yet this “elderly grandfather” continues to grow with the times and provide valuable guidance for the day-to-day practice of real estate professionals. The following Hotline questions address issues impacted by some of the more recent updates to our venerable Code.
Changes in compensation
Although there have been many showings, the listing broker and the seller amended the listing contract to change the cooperative commission. An agent showed the property before the co-broke compensation was changed, and that agent now wrote an offer after the new co-broke commission was posted on the MLS. What compensation is the agent entitled to?
The listing broker may unilaterally modify the offer of compensation until such time as an offer to purchase is submitted. Standard of Practice 3-2 provides, “Any change in compensation offered for cooperative services must be communicated to the other REALTOR® prior to the time that REALTOR® submits an offer to purchase/lease the property. After a REALTOR® has submitted an offer to purchase or lease property, the listing broker may not attempt to unilaterally modify the offered compensation with respect to that cooperative transaction. (Amended 1/14).” This question involves a timing issue: what was the offer of compensation in the MLS at the time the offer was submitted?
For more information regarding changing an MLS offer of compensation, see page 2 of the July 2005 Legal Update, “MLS and Professional Standards — 2005 Update,” at www.wra.org/LU0507.
The moral to the story: Always double-check the MLS compensation before submitting an offer so you know what co-broke to expect if you are procuring cause.
Disclosing multiple offers
Prior to requesting a showing, a cooperating agent called the listing agent to ask if there had been any offers on the property, and if so, who the agents were who submitted them. The property is bank-owned (REO), and the REO seller does not want this information disclosed. The buyer wanted this information prior to viewing the property. Is this allowed?
Two conditions must be met before a listing agent has any duty to disclose multiple offers under the Code of Ethics: The seller must grant permission to disclose such information, and the buyer or cooperating agent must ask for the disclosure. The same applies to revealing who obtained the offers —whether they were obtained by the listing agent, another agent with the listing agent’s firm, or a cooperating broker.
Standard of Practice 1-15 provides, “REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, divulge 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. (Adopted 1/03, Amended 1/09).” Therefore, if the seller directed the listing agent not to disclose, the agent may document this fact and follow the instructions of the seller.
This conduct would not violate Wis. Admin. Code § REEB 24.12(1), which states in relevant part, “A licensee may, but is not required to, disclose information known by the licensee regarding the existence of other offers on the property, the fact that a seller has accepted an offer, that the offer is subject to contingencies and that the offer is subject to a clause requiring removal of certain contingencies upon the occurrence of an event such as receipt, acceptance or conditional acceptance of another offer.” Therefore, if the seller required the broker to keep information about offers on the property confidential, the agent may decline to disclose that information.
Note that if the question had involved accepted offers, Standard of Practice 3-6 provides that REALTORS® must disclose the existence of accepted offers to brokers seeking cooperation (unless the seller has indicated that this information is confidential per Wis. Stat. § 452.133(1)(d)).
The moral to the story: Cooperating agents should always ask the listing agent if other offers exist and, if so, who procured them, if this information is relevant to the buyer.
Transparency in advertising
Every week, a broker sees ads in the local homes-for-sale paper that simply say to “call ‘X’ phone number.” These properties are listed with a real estate company, but nowhere in these ads does the company name appear. The broker has also seen homes for sale on Facebook where the agent does not disclose the company name. Are these blind ads legal?
Article 12 of the Code of Ethics says that REALTORS® must present a “true picture” in their advertising and real estate communications. No matter the medium, they must properly identify themselves as REALTORS®, licensees or real estate professionals and identify their company name. An advertisement with the wording of “just listed, 123 Elm Street” with a description of the listing does not make it clear that the person posting the information is a real estate professional.
Standard of Practice 12-5 requires that any advertisement of real estate services or of listed property in any medium — such as electronic, print, radio or television — must disclose the name of the REALTOR®’s firm “in a reasonable and readily apparent manner.” Exceptions exist for media with “abbreviated” formats, such as thumbnails, text messages and tweets. In these cases, the REALTOR® is not required to include the company name in the actual abbreviated format as long as there is a link back to a display of the REALTOR®’s full information, including company name.
Advertising by a Wisconsin licensee, including online advertising and advertising on Facebook, is subject to compliance with Wis. Admin. Code § REEB 24.04. Licensees may not advertise in a manner that is false, deceptive or misleading and shall disclose the broker’s name exactly as printed on the broker’s license or a trade name filed with the Department of Safety and Professional Services; there are exemptions for the sale or rental of real estate owned by the licensee.
For additional discussion, see the December 2007 WRA Broker Supervision Newsletter, “Know What Your Agents Are Doing — Online,” at www.wra.org/bsnDec07 as well as “Best of the Legal Hotline: Real Estate Brokerage in the Electronic Age,” in the January 2008 issue of Wisconsin Real Estate Magazine at www.wra.org/WREM/Jan08/ElectronicAge.
The moral to the story: Always present a true picture in your advertising, marketing and other representations. This mandate applies not just to traditional marketing but also to Facebook, Google+, Twitter, texts and other social media. Follow the Standard of Practice 12-5 guidance for the right way to present your identity as a real estate professional in social media venues.
Client confidentiality
The broker sold a bank-owned (REO) property six months ago to an investor. The broker served as both the listing and selling agent. Then the buyer rehabbed the property and sold it to an occupant. The owner occupant is now suing the rehabber because of a mold issue in the basement. The broker received a subpoena for the full file of the transaction prior to the one involved in the lawsuit. What does the broker legally have to provide? Does the broker need the original seller's (the bank's) permission to release these documents?
REALTORS® have the duty to preserve confidential information under Standard of Practice 1-9 of the REALTOR® Code of Ethics: REALTORS® shall not reveal client confidential information; use it to the disadvantage of clients; or use it for the REALTOR®’s advantage or the advantage of third parties unless the clients consent after full disclosure. REALTORS® are required to disclose confidential information if ordered by the court, the disclosure is necessary to prevent the client’s commission of a crime, or it is necessary to defend a REALTOR® or his employees or associates against an accusation of wrongdoing.
Wis. Stat. §452.133(1)(d) provides that Wisconsin licensees have “the duty to keep confidential any information given to the broker in confidence, or any information obtained by the broker that he or she knows a reasonable person would want to be kept confidential, unless the information must be disclosed by law or the person whose interests may be adversely affected by the disclosure specifically authorizes the disclosure of particular information. A broker shall continue to keep the information confidential after the transaction is complete and after the broker is no longer providing brokerage services to the person.”
The broker’s duty of confidentiality prohibits distribution of transaction documents without permission of all parties. General requests for documents, even if made by attorneys, should be denied unless an attorney serves the broker with a formal subpoena or court order. Then the broker is compelled to comply. Questions regarding the subpoena and what specific documents are being demanded should be referred to the brokerage legal counsel.
The moral to the story: A client cannot require an agent to keep confidential any information legally required to be disclosed to a buyer, but any other information defined as confidential may not be disclosed. Standard of Practice 1-9 and Wis. Stat. § 452.133 both say the duty of confidentiality continues after termination of the agency relationship.
Noninterference
A REALTOR® is acting as a buyer’s agent in a commercial real estate transaction. While the REALTOR® knew a property was listed with a broker’s firm, he submitted the offer directly to the seller/client without contacting the listing broker. The offer provides that he will be paid a 6 percent commission. The seller countered, stating that cooperating brokers were offered a 2.5 percent commission in the MLS. The seller received another counter-offer rejecting the MLS compensation and re-stating the 6 percent commission. How should the listing broker best handle this buyer’s agent?
Wis. Admin. Code § RL 24.13(5) provides that licensees may not negotiate the sale of a property directly with a seller with an exclusive right to sell listing. Similarly, Article 16 of the Code of Ethics states, “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. (Amended 1/04).” Standard of Practice 16-13 indicates in relevant part that, “All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client.”
This REALTOR®’s persistent negotiation with the seller and not the listing broker appears to constitute ethical and license law violations. Read about Standard of Practice 16-13 on pages 5-7 of Legal Update 03.02, “Professional Standards Changing for 2003,” at www.wra.org/LU0302.
An agent left her existing office and joined another firm. Since then, she has been contacting her prior seller clients using her new firm's email. Many sellers have been withdrawing. Is this appropriate behavior?
A listing contract is a contract between the client and the broker. The fact that the salesperson leaves the broker does not operate to terminate the listing; nor does it permit the sales associate to take along the listing contract to their new broker.
A licensee who coaches a seller about how to terminate a listing or a buyer about how to terminate a buyer agency agreement may be accused of numerous violations, such as giving legal advice in violation of Wis. Admin. Code § REEB 24.06(1) and Article 13 of the Code of Ethics.
It also may be seen as interference with the other broker/company’s agency agreement in violation of Article 16. A person who interferes with a contract may also be sued in civil court if damages can be proved.
Standard of Practice 16-20 reads: “REALTORS®, prior to or after their relationship with their current firm is terminated, shall not induce clients of their current firm to cancel exclusive contractual agreements between the client and that firm. This does not preclude REALTORS® (principals) from establishing agreements with their associated licensees governing assignability of exclusive agreements. (Adopted 1/98, Amended 1/10).”
The issue in this situation is whether the former agent’s emails violate these standards. The existing broker may be wise to retain legal counsel to sort out the specific facts and circumstances in this situation.
See the March 2008 Legal Update, “Running a Real Estate Office,” at www.wra.org/LU0803 for further information.
The moral to the stories: A key Code principle is not to deal directly with or solicit someone involved in an exclusive agency agreement with another REALTOR®.
Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.