Distressed Properties Sharp Practices Work Group Report and Recommendations
September 22, 2011 C.A.R. Professional Standards Committee
The following is for study only and has not been approved by the Professional Standards Committee, Executive Committee, or the Board of Directors.
WORK GROUP MEMBERS:
Nick Lymberis, Professional Standards Committee Chair (Santa Clara County) Ken Neufeld, Professional Standards Committee Vice Chair (Fresno) Dave Tanner, Tanner & Associates, Sacramento Jim Keith, Prudential, Thousand Oaks Carol Jean Olney, Keller Williams, Hermosa Beach
C.A.R. STAFF MEMBER:
Susie Kater, Senior Counsel, Professional Standards Committee Coordinator
The plethora of REO and short sale properties (“distressed properties”) on the market has brought with it an increase in sharp practices by some listing brokers. Some of these actions challenge the very core of REALTOR® professionalism. Misconduct often associated with distressed properties has generated many complaints from REALTORS®. A number of these behaviors implicate the Code of Ethics. The issues were briefed and discussed at the May 2011 Professional Standards Committee Meeting. Although the Committee voted to take no action at that time, Committee asked that a Work Group be assembled to consider what, if any, action could be recommended for dealing with the practice of listing brokers not responding to inquiries about a property or presentation of a cooperating broker’s buyer’s offer. This paper outlines the issues, presents possibilities considered by the Work Group and ultimately concludes with its recommendations.
Issue: What position should CAR take regarding a request to NAR for an expansion of their interpretation of, or amendment to, the Code of Ethics, to allow cooperating brokers to contact the seller of a distressed property directly, when the listing broker is not responding to inquiries about the property or presentation of a cooperating broker’s buyer’s offer?
Options: Adopt Motions for any of the following:
1.Advocate a position to NAR that NAR expand its interpretation of the Code of Ethics, to allow cooperating brokers to contact the seller of a distressed property directly, if the seller has given permission, when the listing broker is not responding to inquiries about the property or presentation of a cooperating broker’s buyer’s offer.
2. Advocate a position to NAR that NAR amend the Code of Ethics, to specifically allow cooperating brokers to contact the seller of a distressed property directly, if the seller has given permission, when the listing broker is not responding to inquiries about the property or presentation of a cooperating broker’s buyer’s offer.
3. Take no action.
Code of Ethics Implications: What are the Code of Ethics issues when the listing agent of a distressed property does not acknowledge an offer submitted by a REALTOR® on behalf of a potential buyer? Does the listing agent’s failure to communicate justify the buyer’s agent going directly to the seller?
Article 16 of the Code of Ethics prohibits a REALTOR® from engaging in any practice or taking any action inconsistent with the exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients. Further, Standard of Practice 16-13 states “All dealings concerning property exclusively listed … 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.”
The protections of Article 16 certainly are warranted when an individual consumer-seller is involved. Individual sellers generally do not want to be bombarded by calls or complaints from potentially cooperating agents – that’s why they hire a listing broker in the first place.
Large banks and institutional lenders stand in a different position, however. In a recent speech to a group of real estate professionals, a representative of a major bank stated “if the [listing] agent isn’t representing us well and not presenting your offer, we want to hear about it.” Is that representative asking REALTORS® to violate the Code of Ethics by contacting the bank (seller) directly?
Standard of Practice 16-13 prohibits contact with a client except where contact is “initiated by the client.” Is a blanket invitation from a bank sufficient to constitute an initiation by a client? A hearing panel could interpret it that way. A new Case Interpretation from NAR would also clarify the issue.
If you believe that such an interpretation is a stretch of the language; however, NAR could amend the language at the end of Standard of Practice 16-13 to say “…except where such dealings are initiated or invited by the client.” Global bank approval for buyers’ agents to contact them directly could qualify as such an invitation.
A reading of Article 16, and its accompanying Standards of Practice, makes it clear that Article 16 is meant to prohibit a REALTOR® from contacting the client of another broker, without the other broker’s permission. However, is Article 16 really meant to be used as a shield for a listing broker who is not performing his or her job in a way that is in the best interest of the seller? In addition, the clear directive of Article 3 that requires brokers to cooperate with other brokers bolsters the argument that the Code is not to be used to protect those brokers who thwart the efforts of buyers’ brokers to cooperate – except in the special circumstance where cooperation is not in the best interest of the seller.
Conclusion: The question is whether the Code should shield a listing broker of distressed property, who is protecting his or her own interest, rather than that of the seller. A representative of a major bank has stated that the bank would like to know if a listing broker is not doing a good job for the bank and not presenting potential buyers’ offers. Asking NAR to expand their interpretation of Article 16 to allow direct contact with the seller when contact is invited by the seller, is in keeping with REALTORS® overall goal of professionalism and protection of clients’ interests. Further, an amendment of the Code to specifically allow such contact, while harder to obtain from NAR, makes the permission more clear and serves the same goal.
RECOMMENDATON OF THE WORK GROUP:
Code of Ethics Article 1
The NAR Code of Ethics addresses this issue directly. Article 1 imposes a duty on REALTORS® to promote and protect the interests of their client. Specifically, (i) Standard of Practice 1-6 requires a listing agent to submit offers and counter-offers to their client as quickly as possible and (ii) Standard of Practice 1-7 requires a listing agent to continue to submit to their client all offers, unless the seller directs otherwise in writing.
It seems clear that the failure of a listing agent to present offers and counter-offers - to even an institutional client - is a violation of Article 1, unless the client directs otherwise. Therefore, the Work Group feels that a buyer’s agent, who believes that a listing agent is not representing the seller’s best interest and is not submitting all offers to the seller, can file an ethics complaint alleging violation of Article 1.
Accordingly, the Work Group believes that an unhappy buyer’s agent has sufficient remedy under the Code of Ethics and is recommending to the Committee that no action be taken on this issue.