LEGAL NOTES

Even though it is inaccurate, the perception of Real Estate agents as unethical is widespread. The term “Real Estate ethics” is often laughed off as an oxymoron by customers and sometimes even by Real Estate professionals. However, practicing good ethics is critical to the success of all Real Estate professionals. Each time a complaint is filed against an agent, the agent's Real Estate license and reputation are at stake.

Real Estate agents are generally as unpopular and disliked as lawyers among the general public, and ultimately that means a jury of your peers. The rule has changed from, "let the buyer beware," to "let the agent beware." As the one with the license and specialty, if something goes wrong, it is likely that you will be held accountable, and maybe legally liable.

To avoid the financial and personal repercussions of client complaints, it is important to fully understand the Real Estate laws and regulations. Each state creates its own laws and rules regarding licensing. For example, in Nevada, Real Estate agents obtain a license from the Nevada Real Estate Division, which can fine, suspend or revoke an agent's license if it finds violations of the law, or of the mandatory rules the Division imposes, including its rules on ethics.

In addition to state laws, agents are expected to practice good ethics. For example, the National Association of REALTORS® (NAR) provides a code of ethics for its members. The following simple precautions can ensure that you maintain solid ethics and good judgment in your practice:

Avoid the Appearance of Impropriety
Always remember that all Real Estate agents are considered fiduciaries. Other examples of fiduciaries are trustees, executors, and guardians. As a fiduciary, an agent owes specific duties to his clients, in addition to duties or obligations set forth in listing agreements or buyer representation agreements. These specific fiduciary duties include the following:

• Agents must get the best possible price and terms for their clients. Agents must disclose all material facts about property (roofing problems, mold, etc.).
• Agents should disclose personal facts that indicate sellers will accept a reduced price (such as tax liens, foreclosure, divorce, etc.).
• Agents must disclose serious problems with the property. There are thousands of state and federal regulations, court decisions and licensing standards affecting disclosure procedures.

In addition to these duties, agents must not act for more than one party without the knowledge of all parties. Typically, lawsuits and complaints in this area are related to dual agency and special relationships between clients, agents and affiliates.

Dual agency presents an inherent conflict of interest because the agent is representing both the buyer and seller, who have different and competing interests. To avoid the appearance of impropriety in this case, a dual agent must be sure to disclose the duties owed to each party in writing. In addition, both parties should sign a dual agency agreement to avoid legal issues.

Whenever a special relationship exists, you have a duty to disclose this information to all parties. If you have a special relationship with any party involved in the transaction (for example, the seller is your mother), disclose it to all parties to avoid the appearance of impropriety.

Know Your Ethical Obligations and Follow Them So As
to Remain Above Reproach
When you avoid even the appearance of impropriety, and put yourself in your client’s shoes, you are acting ethically. Unfortunately, this standard can be difficult to apply in practice. When working with a client, it is expected that you will not lie, cheat or trick your client. These are obvious expectations. However, some obligations are not as clear, and agents often behave unethically without realizing they are doing so. These tips can help you stay on the safe side of the ethical line:

• Avoid recommending title or mortgage companies, appraisers and other organizations solely because they provide financial incentives or gifts. While this practice is not mandated, it is good practice. If you do receive anything of value, including money, for your referral, be sure to disclose this in writing to your client, and in that writing let them know they have other alternatives.
• Always disclose any potential conflict of interest. For example, if the appraiser you recommend to your client is your brother-in-law, you should disclose this to your client in writing. The same rule applies if you are receiving gifts or compensation for referrals. Your receiving anything of value generally needs to be disclosed by professional codes of ethics and, in some cases, by state laws.

Document, Document, Document
The following scenario is common in today’s Real Estate market. When buyers are in the courtship stage of buying a house, they fall in love with a property and want to make it their own. Their agent may have concerns over the condition of the property or the circumstances of the sale, but, in many cases, the buyers ignore their warnings. When things go wrong after the sale is complete, that same smitten buyer often blames the agent, even though the agent completely acted in good faith. Without documentation, the agent’s full disclosure and due diligence is hard to prove.

If a client decides to pursue a lawsuit against you, chances are slim that the judge and jury will take your word over your client’s version of what happened. Your best defense is documentation, especially e-mails, listing agreements and buyer’s agreements. With solid documentation, your case will be much stronger, and you may end up saving hundreds of hours and thousands of dollars on litigation.

Use Common Sense
As a Real Estate agent, your reputation is everything. For this reason, it is critical that you avoid walking on the ethical line, and that you never cross it. One slip, whether intentional or not, could come back to bite you later. If it is proven that you have behaved unethically, the legal and financial repercussions can be costly, and the damage may not stop there. You may also lose future business from customers and associates if word gets out that you have misrepresented a client.

Fortunately, by following a few basic principles and using good common sense, you can maintain your good reputation and stay out of trouble. When in doubt, work with an experienced Real Estate lawyer to ensure the best outcome.

Disclaimer: The above is not intended to be, nor is it legal advice, and should not be relied upon for any reason. Even though this article maybe disseminated throughout the U.S., the material covers only Nevada law, and no other. E RealEstateExec and Exec MediaGroup, LLC expresses no opinion on any other state's law, nor about the handling of any particular legal situation. You should consult your attorney, accountant or business advisor before undertaking any action. No attorney-client relationship is created between E RealEstateExec, Exec MediaGroup, LLC and the reader.