Explicitly Not Confidential
A change to the Code of Ethics states you must tell
your clients that offers are not confidential
By Paula Hess
Suppose your seller asks you to reveal the price of an offer in
order to leverage a better offer. If you, your agents or clients are
uncomfortable doing this, it may have more to do with marketing style versus
ethics. In fact, there’s nothing in the National Association of REALTORS® Code
of Ethics—there never was—that ensured confidentiality of the terms of an offer
or prevented a listing broker or agent from using this tactic, if it is in the
seller’s best interest. • However, the NATIONAL ASSOCIATION
OF REALTORS® recently revised three of its Standards of Practice and these
changes require all buyer’s agents to inform clients that their offers might
not be kept confidential. While this revision is being construed as a change in
the way real estate agents and brokers can ethically conduct business, it’s
not, says June Barlow, CALIFORNIA ASSOCIATION OF REALTORS® vice president and
general counsel. “Although most listing agents think it is unethical to share
the price of another’s offerwith someone else, there is nothing in the NAR Code
of Ethics that prohibits it,” Barlow explains.
“The rules have always been that the seller has no obligation to keep any offer
confidential unless you have a written agreement. What’s changed,” says Barlow,
“is that NAR’s Code of Ethics explicitly requires a buyer’s agent to tell
clients that their offers may not be kept confidential.”
That said, the whole issue of “shopping offers” has come intoplay, admits
Barlow.
“In buying and selling businesses and other transactions, it’s very common to
have a confidentiality agreement or nondisclosure agreement, which would be
signed before ‘secrets’ are spilled. With real estate’s dynamics, buyers
usually don’t get something signed by the seller—except for the agency
disclosure form—before you present offers and put pen to paper on the purchase
contract.”
For Barlow, the legal implications of NAR’s revisions have yet to fully
manifest: Will buyers who are aware of NAR’s provision insist on a
confidentiality agreement to protect them? “If they do that,” Barlow opines,
“then we’re going to see confidentialityagreements and, once that starts, that
will change the dynamic of our transactions. It would require a pre-agreement
(the confidentiality agreement) before engaging in the real estate purchase
offer interplay. If it is signed, there would be other issues: How much subtle
info do you give someone to work in your client’s best interest without going
over the line and breaching the confidentiality agreement?” Barlow asks. “If
confidentiality agreements become common, it will be a challengefor all the
brokers, both in the terms of training and a human challenge in terms of
changing behavior.”
We’ve provided some examples of how the current changes to the Code of Ethics
impact the agent-client relationship.
Scenario #1
A buyer’s agent working with a buyer presents a purchase offer to the
seller through the listing broker. The listing broker takes the offer under
consideration but doesn’t respond immediately.
Meanwhile, the listing broker has talked to the seller and other offers have
come in. The seller advises the listing broker to reveal what the first offer
is to see if subsequent buyers will beat it. Is it ethical for the listing
broker to share the offering price with others?
Answer: There is nothing in the REALTOR® Code of Ethics to
prohibit this. “It may not be the way that every listing agent would operate,”
says Barlow, “and some would contend that could hurt the seller. That’s a
marketing decision that the client, the seller, and thelisting broker need to
make.”
Scenario #2
A broker is representing both the buyer and seller. During the transaction,
the seller says, “I am OK at $450,000, but I might go as high as $470,000, and
the buyer says I am going to offer $430,000 but I might go up to $450,000.” Can
you share that information?
Answer: No. Under dual agency, this would clearly be against
the listing broker’s own buyer’s interest in most instances to share this info
with other competing buyers, becausethe listing agent also represents the
buyer. Civil Code Section 2079.21 prohibits dual agents from disclosing that
the buyer is willing to pay more than the offer price or that the seller will
take less than the list price without the express written consent of that
client.
Scenario #3
Does the dual agency apply if there are two different sales agents in the
same office representing a buyer and a seller?
Answer: Yes. The brokerage firm is the dual agent even though
many offices use two different agents to give each client separate attention.
The brokerage firm itself is the “agent.”
Scenario #4
If you have a confidentiality agreement–which is very unusual–is it
confined to only price or price and terms?
Answer: Because there is no standard confidentiality
agreement, you would have to look at the scope of each one. Does it include
terms? When does it expire? Are there exceptions? Does it include other agents
in the form? If an agent has a confidentiality agreement, then agents will have
to be very careful to comply with its precise terms. This includes
communication with other agents. Once under such an agreement, hints that
reveal the price may violate the agreement. Anything covered by the
confidentiality agreement is off-limits.
In order to avoid an implied breach, you cannot provide hints or suggestions.
According to Barlow, agents working under this scenario “would have to be
extremely careful lest they violate that agreement. It’s not the open kind of
communication that many are used to."
C.A.R. Standard Forms Address Confidentiality
Four standard forms were revised to address the issues of confidentiality
raised in this article and by the changes to the REALTOR® Code of Ethics: Buyer
Broker Agreement (Form BBNN), Buyer Broker Agreement Exclusive (Right to
Represent) (Form BBE), the Buyer Broker Agreement Non-Exclusive (Right to
Represent) (Form BBNE) and Statewide Buyer and Seller Advisory (SBSA). These
standard forms are available at
www.car.org
by selecting “Legal,” then “Standard Forms.
The Cons of Shopping Offers
• Shopping offers may make buyers angry.
• Disrupts relationships with other brokers.
• Competing buyers might offer lower prices than they otherwise would
have.
Code of Ethics Revisions*
Specifically, the revised Standard of Practice 1-13 reads: When entering into
buyer/tenant agreements, REALTORS® must advise potential clients of the
possibility that sellers or sellers’ representatives may not treat the
existence, terms, or conditions of offers as confidential unless
confidentiality is required by law, regulation, or by any confidentiality
agreement between the parties. (Adopted 1/93, Renumbered 1/98, Amended 1/06)The
revised Standard of Practice 1-15 reads: 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 whether offers were obtained by the listing
licensee, another licensee in the listing firm, or by a cooperating broker.
(Adopted 1/03, Amended 1/06)
Paula Hess is senior editor for California Real Estate magazine.
* Reprinted with permission from the NATIONAL ASSOCIATION OF
REALTORS®. The Standards of Practice are excerpted from the Code of Ethics and
Standards of Practice of the NATIONAL ASSOCIATION OF REALTORS®, which is
copyrighted. Please visit
www.realtor.org/mempolweb.nsf/pages/Code?OpenDocument
to read the Code in its entirety.
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