The Code of Ethics: Our Promise of Professionalism The REALTORS® Code

The Code of Ethics: Our Promise of Professionalism The REALTORS Code of Ethics Quadrennial Member Education Program Slide 1

PG, Page 1 Course Objectives Identify key aspirational concepts in the Preamble to the NATIONAL ASSOCIATION OF REALTORS Code of Ethics. Describe “general business” ethics and compare and contrast them with the REALTORS ’ Code of Ethics. Describe concepts established in Articles 1, 2, 12, and 17 and possible violations of them. The Code is good business. Slide 2

PG, Page 1 Course Objectives Describe the professional standards process for enforcing the Code of Ethics, including the duty to arbitrate. Identify critical elements of due process as they relate to Code enforcement. Identify factors considered by hearing panels in procuring cause disputes. The Code is good business. Slide 3

PG, Page 2 Ice-breaker Exercise The Code is good business. Slide 4

PG, Page 2 Ice-breaker Answers The Code is good business. Slide 5

PG, Page 3 PART 1: History of the Code of Ethics The Code is good business. Slide 6

PG, Page 3 Pre -1900 No licensing of real estate practitioners Speculation, exploitation, and disorder Caveat emptor governed transactions The Code is good business. Slide 7

PG, Page 3 NATIONAL ASSOCIATION OF REALTORS Formed in 1908 Known then as the National Association of Real Estate Exchanges The Code is good business. Slide 8

PG, Page 3 Code of Ethics Adopted in 1913 Established professional standards for conduct First ethical code for business after medicine, engineering, and law Focused on: – service to the public – commitment to professionalism Included “Duties to Clients” and “Duties to Other Brokers” The Code is good business. Slide 9

PG, Page 3 The Code of Ethics was the basis for later-adopted license laws. The Code is good business. Slide 10

PG, Page 3 The Code Ethics Since its inception, the Code has required: arbitration of contractual disputes between/among REALTORS respect for other brokers’ exclusive relationships with clients cooperation between/among REALTORS The Code is good business. Slide 11

PG, Page 4 PART 2: Business Ethics, NAR Code of Ethics, and Pathways to Professionalism The Code is good business. Slide 12

PG, Page 4 Business Ethics Industry codes Company policies Individual moral values Business ethics and legal standards The Code is good business. Slide 13

PG, Page 4 REALTORS Share One Common Characteristic Regardless of real estate business specialty (such as appraisal, property management, etc.), all REALTORS are bound by the Code of Ethics. The Code The Code is good business. Slide 14

PG, Page 5 Preamble to the Code of Ethics The Code is good business. Slide 15

PG, Page 6 Under all is the land. The The Code Code is is good good business. Slide 16 business.

PG, Page 6 The Golden Rule . . . Whatsoever ye would that others should do to you, do ye even so to The Code is good them. business. Slide 17

PG, Page 6 Alleged violations of the Preamble may not be the basis for disciplining a REALTOR . The Code is good business. Slide 18

PG, Page 7 Structure of the Code of Ethics Three Sections Duties to Clients and Customers Duties to the Public Duties to Other REALTORS The Code is good business. Slide 19

PG, Page 7 Structure of the Code of Ethics 17 Articles Each section is comprised of Articles, which are broad statements of ethical principles. Only Articles of the Code may be violated. The Code is good business. Slide 20

PG, Page 7 Structure of the Code of Ethics Standards of Practice Support, interpret, and amplify each Article. May not be charged, but may be cited in support of an alleged violation. The Code is good business. Slide 21

PG, Page 7 Official Case Interpretations Fact situations for which each Article and/or Standard of Practice of the Code are applied. May not be charged, but may be cited in support of an alleged violation. The Code is good business. Slide 22

PG, Page 7 How the Code of Ethics Evolves Amendments made during Midyear Meetings and REALTORS Conference and Expo. Revisions require approval by NAR Professional Standards Committee and Board of Directors. Interpretations and Procedures Subcommittee of the Professional Standards Committee recommend many of the changes. The Code is good business. Slide 23

PG, Page 7 Any change to an Article of the Code also must be approved by the NAR Delegate Body. The Code is good business. Slide 24

PG, Page 8 The Code and the Law The Code of Ethics: must be reasonably construed with the law imposes duties above and in addition to duties imposed by law or regulation restates certain fundamental legal principles The Code is good business. Slide 25

PG, Page 9 Pathways to Professionalism Three Sections Respect for Public Respect for Property Respect for Peers The Code is good business. Slide 26

PG, Pages 10 and 11 Pathways to Professionalism Exercise The Code is good business. Slide 27

PG, Page 12 PART 3: Enforcement of the Code of Ethics The Code is good business. Slide 28

PG, Page 12 Enforcement of the Code of Ethics Every associations is responsible for enforcing the Code. This includes providing mediation and conducting ethics and arbitration hearings. Only REALTORS and REALTORASSOCIATES are subject to the Code. The Code is good business. Slide 29

PG, Page 12 Enforcement of the Code of Ethics An association where someone holds membership or gains MLS access has jurisdiction to process ethics complaints and arbitration requests filed against that individual. Associations do not determine violations of law and regulation. The Code is good business. Slide 30

PG, Page 13 Association Dispute Resolution Option #1 – Informal Option #2 – Formal Ombudsman Ethics complaints Mediation Arbitration requests The Code is good business. Slide 31

PG, Page 14 Informal Dispute Resolution Ombudsman Program Only available if offered by local association. Voluntary process. Ombudsmen may field and respond to inquiries and complaints, solicit responses, and meet with disputing parties. Disputants reserve right to file a formal ethics complaint. The Code is good business. Slide 32

PG, Page 14 Ombudsman’s Functions Primary role is communication and conciliation (not adjudication). Does not determine an ethics violation. Anticipates, identifies, helps resolve misunderstandings or disagreements before disputes or unethical conduct charges arise. The Code is good business. Slide 33

PG, Page 14 Ombudsmen can help repair breakdowns in communication and develop acceptable resolutions between disputing parties. The Code is good business. Slide 34

PG, Page 15 Informal Dispute Resolution Mediation Voluntary process, unless the Association (at its discretion) requires its REALTOR members to mediate per Article 17. Enabling bylaw provisions (found in Article VII of the NAR Model Bylaws for Local Member Boards) must be adopted to mandate mediation. The Code is good business. Slide 35

PG, Page 15 Informal Dispute Resolution Mediation Disputing parties meet with a mediator appointed by the association. Parties create a mutually acceptable resolution of the dispute, rather than go before an arbitration hearing panel. The Code is good business. Slide 36

PG, Page 15 Mediation Preferred dispute resolution tool by the REALTOR organization. Must be available to all REALTORS . May offer before or after grievance committee’s review. If offered before, must offer again after grievance committee determines matter is arbitrable and forwards on to a hearing. The Code is good business. Slide 37

PG, Page 15 Mediation If a resolution is reached, parties sign an agreement containing the terms of the settlement, and no arbitration hearing is held. The Code is good business. Slide 38

PG, Page 15 Mediation Versus Arbitration Mediation Low-cost Arbitration Moderate cost Little delay Moderate delay Maximum range of solutions Parties control outcome Win/lose/split Uncertain closure Definite closure Maintain/improve relationships May harm relationships The Code is good business. Arbitrators control outcome Slide 39

PG, Page 16 Who can file an ethics complaint? The Code is good business. Slide 40

PG, Page 16 Grievance Committee in Ethics Is there a potential violation of the Code of Ethics? The Code is good business. Slide 41

PG, Page 16 Ethics Hearing Panel Following a hearing, panel decides whether the Code of Ethics has been violation, proven through clear, strong, and convincing evidence. If a Code violation is found, then the panel also determines the discipline. The Code is good business. Slide 42

PG, Page 16 Authorized Discipline Letter of warning Letter of reprimand Education Fine, not to exceed 15,000 Probation of one year or less Suspension of not less than 30 days, nor more than one year Expulsion from membership for one to three years Suspension or termination of MLS privileges The Code is good business. Slide 43

PG, Page 16 The primary emphasis of discipline is educational, to create a heightened awareness of and appreciation for the Code of Ethics. The Code is good business. Slide 44

PG, Page 17 Filing an Arbitration Request Arbitration is conducted under Article 17 of the Code of Ethics and under a state’s arbitration statute (if any). Article 17 provides that arbitration occurs under the following circumstances . . . The Code is good business. Slide 45

PG, Page 17 Arbitration and Article 17 Contractual or specific non-contractual disputes, as defined by Standard of Practice 17-4 Between REALTORS (principals) Arising out of their relationship as REALTORS NOTE: Clients also may arbitrate with their REALTOR principals. The Code is good business. Slide 46

Grievance Committee in Arbitration PG, Page 17 Is there an arbitrable issue? (That is, a money dispute, typically concerning which REALTOR is entitled to the cooperative commission in a transaction.) The Code is good business. Slide 47

PG, Page 17 Arbitration Hearing Panel Conducts full “due process” hearing. Comprised of members from an association’s professional standards committee. After a hearing, panel decides which party is entitled to the award, based on a preponderance of the evidence. The Code is good business. Slide 48

PG, Page 17 Payment of an Arbitration Award An unpaid award typically may be judicially enforced. Some associations require that award monies be deposited with the association, pending review of the hearing process or during a legal challenge. The Code is good business. Slide 49

PG, Page 18 PART 4: Concepts of Procuring Cause in Arbitration The Code is good business. Slide 50

PG, Page 18 Arbitration Guidelines Found in the Code of Ethics and Arbitration Manual. Guide hearing panels in resolving arbitrable issues. Focus primarily on procuring cause as the basis for resolving most commission disputes. The Code is good business. Slide 51

PG, Page 18 Procuring Cause Factors No pre-determiners. Consider the entire course of events. Writing an offer, making the first showing, or an agency relationship, in and of themselves, do not necessarily determine procuring cause or entitlement. The Code is good business. Slide 52

PG, Page 18 Procuring Cause The proximate cause; the cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime object. – Black’s Law Dictionary, Fifth Edition The Code is good business. Slide 53

PG, Page 18 Procuring Cause It is the squirrel that shakes the branch and not the squirrel that gathers the nut. – Arkansas Supreme Court The Code is good business. Slide 54

PG, Page 19 PART 5: Summaries and Case Studies of Selected Articles of the Code of Ethics The Code is good business. Slide 55

PG, Page 19 Article 1 Protect and promote your clients’ interests. This obligation to your clients is primary. Treat all parties honestly. Standard of Practice 1-2 defines terms such as: “client”, “customer”, “agent”, and “broker”. The Code is good business. Slide 56

PG, Pages 20 and 21 Article 1 Case Study (Based on Case Interpretation #1-26) The Code is good business. Slide 57

PG, Page 22 Article 2 Avoid exaggeration, misrepresentation, and concealment of pertinent facts about the property or the transaction. No obligation to discover latent defects, matters outside scope of license, or matters confidential under agency or non-agency relationships. The Code is good business. Slide 58

PG, Pages 23 and 24 Article 2 Case Study (Based on Case Interpretation #2-7) The Code is good business. Slide 59

PG, Page 25 Article 12 Requires truth and honesty in all real estate communications. The Code is good business. Slide 60

PG, Page 25 Article 12 Be honest and truthful in real estate communications. Present a “true picture” in advertising, marketing, and other representations. Ensure that your status as real estate professional is readily apparent in advertising, marketing, and other representations. The Code is good business. Slide 61

PG, Pages 26 and 27 Article 12 Case Study #1 (Based on Case Interpretation #12-17) The Code is good business. Slide 62

PG, Pages 28 and 29 Article 12 Case Study #2 (Based on Case Interpretation #12-19) The Code is good business. Slide 63

PG, Page 30 Article 17 REALTORS (principals) must arbitrate contractual and specific non-contractual disputes, as defined by SOP 17-4. Clients may invoke mandatory arbitration with their REALTORS (principals). REALTORS are obligated to cause their firms to arbitrate. The Code is good business. Slide 64

PG, Pages 31 and 32 Article 17 Case Study (Based on Case Interpretation #17-1) The Code is good business. Slide 65

PG, Page 33 PART 6: Conclusion The Code is good business. Slide 66

PG, Page 33 The REALTORS ’ Code of Ethics Protects the buying and selling public. Promotes a competitive real estate market place. Enhances the integrity of the industry. Is our promise of performance. Is our promise of professionalism. The Code is good business. Slide 67

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