Real Estate Trainers, Inc. Real Estate Practice Lesson 1 Section 2 Narrative Text

AREAS OF REAL ESTATE PRACTICE

Holding a real estate license allows a person to engage in any area of real estate practice, but of course, no one is involved in everything. Everyone eventually finds their own market niche, their own area of specialization. This may not happen by design, necessarily, but it will happen, if only because people will tend to focus their efforts where they find the most reward.

There are many different areas of real estate practice, each of which offers the potential for specialization. These areas include:

• Sale of real estate, including residential, commercial, and industrial properties;
• Real estate finance;
• Property management;
• Real estate development; and
• Business opportunities.

Sale of Real Estate - Residential Properties

The most common area of real estate practice is the sale of residential properties. The vast majority of real estate licensees are engaged in the sale of personal residences or rental homes. Licensees will inevitably specialize their activities within this broad category. They might focus on homes in a particular neighborhood, or they might focus on particular properties, such as those owned by absentee owners. They might focus on a particular price range, such as homes above $1,000,000. They might focus on particular types of buyers, such as first-time homeowners. Another area of specialization is in foreclosure properties.

Probably the most common type of residential specialization is to focus one's efforts on a particular neighborhood. A common way to market residential properties is to engage in a practice called "farming." In a typical farm, a licensee selects a specific neighborhood, usually 200 to 500 homes, and attempts to get everyone in that neighborhood to the point where when they think of real estate, they think of that salesperson. This can involve phone canvassing, door-to-door canvassing, promotional efforts and the like. Some agents have been known to sponsor neighborhood-wide garage sales, others pass out flags on the Fourth of July, and so on. The salesperson makes an effort to know every home in the area, every transaction in the area, and as many homeowners in the area as is humanly possible.

In the sale of residential real property, as in the sale of any real property, the salesperson has the objective of completing two contracts. The first contract is the listing contract, whereby the owner hires the broker (and thereby the salesperson) to find a buyer for the property. The owner promises to pay a commission if the property is sold and the broker and salesperson promise to do their best to find a buyer for the property.

The other contract is the real estate purchase agreement and receipt for deposit, commonly referred to as a deposit receipt. This is the contract between the buyer and seller when the property is sold. Both of these contracts will be discussed in more detail later in this course.

In dealing with clients and the public, licensees have the responsibility to act ethically and honestly with all parties. The National Association of REALTORS® (the NAR) has adopted a Code of Ethics, with which all licensees should be familiar.

CODE OF ETHICS AND
STANDARDS OF PRACTICE
OF THE NATIONAL
ASSOCIATION OF REALTORS®

Where the word REALTORS® is used in this Code and Preamble, it shall be deemed to include REALTOR-ASSOCIATES®.

While the Code of Ethics establishes obligations that may be higher than those mandated by law, in any instance where the Code of Ethics and the law conflict, the obligations of the law must take precedence.

Preamble

Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization.

REALTORS® should recognize that the interests of the nation and its citizens require the highest and best use of the land and the widest distribution of land ownership. They require the creation of adequate housing, the building of functioning cities, the development of productive industries and farms, and the preservation of a healthful environment.

Such interests impose obligations beyond those of ordinary commerce. They impose grave social responsibility and a patriotic duty to which REALTORS® should dedicate themselves, and for which they should be diligent in preparing themselves. REALTORS®, therefore, are zealous to maintain and improve the standards of their calling and share with their fellow REALTORS® a common responsibility for its integrity and honor.

In recognition and appreciation of their obligations to clients, customers, the public, and each other, REALTORS® continuously strive to become and remain informed on issues affecting real estate and, as knowledgeable professionals, they willingly share the fruit of their experience and study with others. They identify and take steps, through enforcement of this Code of Ethics and by assisting appropriate regulatory bodies, to eliminate practices which may damage the public or which might discredit or bring dishonor to the real estate profession.

Realizing that cooperation with other real estate professionals promotes the best interests of those who utilize their services, REALTORS® urge exclusive representation of clients; do not attempt to gain any unfair advantage over their competitors; and they refrain from making unsolicited comments about other practitioners. In instances where their opinion is sought, or where REALTORS® believe that comment is necessary, their opinion is offered in an objective, professional manner, uninfluenced by any personal motivation or potential advantage or gain.

The term REALTOR® has come to connote competency, fairness, and high integrity resulting from adherence to a lofty ideal of moral conduct in business relations. No inducement of profit and no instruction from clients ever can justify departure from this ideal.

In the interpretation of this obligation, REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, "Whatsoever ye would that others should do to you, do ye even so to them."

Accepting this standard as their own, REALTORS® pledge to observe its spirit in all of their activities and to conduct their business in accordance with the tenets set forth below.

DUTIES TO CLIENTS AND CUSTOMERS

Article 1

When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation of absolute fidelity to the client's interests is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly. (Amended 1/93)

• Standard of Practice 1-1
REALTORS®, when acting as principals in a real estate transaction, remain obligated by the duties imposed by the Code of Ethics. (Amended 1/93)

• Standard of Practice 1-2
The duties of the Code of Ethics imposes on agents/representatives are applicable to REALTORS® acting as agents, transaction brokers, facilitators, or in any other recognized capacity except for any duty specifically exempted by law or regulation. (Adopted 1/95)

• Standard of Practice 1-3
REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.

• Standard of Practice 1-4
REALTORS®, when seeking to become a buyer/ tenant representative, shall not mislead buyers or tenants as to savings or other benefits that might be realized through use of the REALTOR®'s services. (Amended 1/93)

• Standard of Practice 1-5
REALTORS® may represent the seller/landlord and buyer/tenant in the same transaction only after full disclosure to and with informed consent of both parties. (Adopted 1/93)

• Standard of Practice 1-6
REALTORS® shall submit offers and counter-offers objectively and as quickly as possible. (Adopted 1/93, Amended 1/95)

• Standard of Practice 1-7
When acting as listing brokers, REALTORS® shall continue to submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation in writing. REALTORS® shall not be obligated to continue to market the property after an offer has been accepted by the seller/landlord. REALTORS® shall recommend that sellers/landlords obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract or lease. (Amended 1/93)

• Standard of Practice 1-9
The obligation of REALTORS® to preserve confidential information provided by their clients continues after the termination of the agency relationship. REALTORS® shall not knowingly, during or following the termination of a professional relationship with their client:

1) reveal confidential information of the client; or

2) use confidential information of the client to the disadvantage of the client; or

3) use confidential information of the client for the REALTOR®'s advantage or the advantage of a third party unless:

a) the client consents after full disclosure; or

b) the REALTOR® is required by court order; or

c) it is the intention of the client to commit a crime and the information is necessary to prevent the crime; or

d) it is necessary to defend the REALTOR® or the REALTOR®'s employees or associates against an accusation of wrongful conduct. (Adopted 1/93, Amended 1/97)

• Standard of Practice 1-10
REALTORS® shall, consistent with the terms and conditions of their property management agreement, competently manage the property of clients with due regard for the rights, responsibilities, benefits, safety and health of tenants and others lawfully on the premises. (Adopted 1/95)

• Standard of Practice 1-11
REALTORS® who are employed to maintain or manage a client's property shall exercise due diligence and make reasonable efforts to protect it against reasonably foreseeable contingencies and losses. (Adopted 1/95)

Article 2

REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction. REALTORS® shall not, however, be obligated to discover latent defects in the property, to advise on matters outside the scope of their real estate license, or to disclose facts which are confidential under the scope of the agency duties owed to their clients. (Amended 1/93)

• Standard of Practice 2-1
REALTORS® shall only be obligated to discover and disclose factors reasonably apparent to someone with expertise in those areas required by their real estate licensing authority. Article 2 does not impose upon the REALTOR® the obligation of expertise in other professional or technical disciplines. (Amended 1/96)

• Standard of Practice 2-2
When entering into listing contracts, REALTORS® must advise sellers/landlords of:

1) the REALTOR®'s general company policies regarding cooperation with subagents, buyer/ tenant agents, or both;

2) the fact that buyer/tenant agents, even if compensated by the listing broker, or by the seller/landlord will represent the interests of buyers/tenants; and

3) any potential for the listing broker to act as a disclosed dual agent, e.g. buyer/tenant agent. (Adopted 1/93)

• Standard of Practice 2-3
When entering into contracts to represent buyers/tenants, REALTORS® must advise potential clients of:

1) the REALTOR®'s general company policies regarding cooperation with other firms; and

2) any potential for the buyer/tenant representative to act as a disclosed dual agent, e.g. listing broker, subagent, landlord's agent, etc. (Adopted 1/93)

• Standard of Practice 2-4
REALTORS® shall not be parties to the naming of a false consideration in any document, unless it be the naming of an obviously nominal consideration.

• Standard of Practice 2-5
Factors defined as "non-material" by law or regulation or which are expressly referenced in law or regulation as not being subject to disclosure are considered not "pertinent" for purposes of Article 2. (Adopted 1/93)

Article 3

REALTORS® shall cooperate with other brokers except when cooperation is not in the client's best interest. The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker. (Amended 1/95)

• Standard of Practice 3-1
REALTORS®, acting as exclusive agents of sellers or landlords, establish the terms and conditions of offers to cooperate. Unless expressly indicated in offers to cooperate, cooperating brokers may not assume that the offer of cooperation includes an offer of compensation. Terms of compensation, if any, shall be ascertained by cooperating brokers before beginning efforts to accept the offer of cooperation. (Amended 1/94)

• Standard of Practice 3-2
REALTORS® shall, with respect to offers of compensation to another REALTOR®, timely communicate any change of compensation for cooperative services to the other REALTOR® prior to the time such REALTOR® produces an offer to purchase/lease the property. (Amended 1/94)

• Standard of Practice 3-3
Standard of Practice 3-2 does not preclude the listing broker and cooperating broker from entering into an agreement to change cooperative compensation. (Adopted 1/94)

• Standard of Practice 3-4
REALTORS®, acting as listing brokers, have an affirmative obligation to disclose the existence of dual or variable rate commission arrangements (i.e., listings where one amount of commission is payable if the listing broker's firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker). The listing broker shall, as soon as practical, disclose the existence of such arrangements to potential cooperating brokers and shall, in response to inquiries from cooperating brokers, disclose the differential that would result in a cooperative transaction or in a sale/ lease that results through the efforts of the seller/landlord. If the cooperating broker is a buyer/tenant representative, the buyer/tenant representative must disclose such information to their client. (Amended 1/94)

• Standard of Practice 3-5
It is the obligation of subagents to promptly disclose all pertinent facts to the principal's agent prior to as well as after a purchase or lease agreement is executed. (Amended 1/93)

• Standard of Practice 3-6
REALTORS® shall disclose the existence of an accepted offer to any broker seeking cooperation. (Adopted 5/86)

• Standard of Practice 3-7
When seeking information from another REALTOR® concerning property under a management or listing agreement, REALTORS® shall disclose their REALTOR® status and whether their interest is personal or on behalf of a client and, if on behalf of a client, their representational status. (Amended 1/95)

• Standard of Practice 3-8
REALTORS® shall not misrepresent the availability of access to show or inspect a listed property. (Amended 11/87)

Article 4

REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have an ownership interest, any real property without making their true position known to the owner or the owner's agent. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser's representative. (Amended 1/91)

• Standard of Practice 4-1
For the protection of all parties, the disclosures required by Article 4 shall be in writing and provided by REALTORS® prior to the signing of any contract. (Adopted 2/86)

Article 5

REALTORS® shall not undertake to provide professional services concerning a property or its value where they have a present or contemplated interest unless such interest is specifically disclosed to all affected parties.

Article 6

When acting as agents, REALTORS® shall not accept any commission, rebate, or profit on expenditures made for their principal, without the principal's knowledge and consent. (Amended 1/92)

• Standard of Practice 6-1
REALTORS® shall not recommend or suggest to a client or a customer the use of services of another organization or business entity in which they have a direct interest without disclosing such interest at the time of the recommendation or suggestion. (Amended 5/88)

• Standard of Practice 6-2
When acting as agents or subagents, REALTORS® shall disclose to a client or customer if there is any financial benefit or fee the REALTOR® or the REALTOR®'s firm may receive as a direct result of having recommended real estate products or services (e.g., homeowner's insurance, warranty programs, mortgage financing, title insurance, etc.) other than real estate referral fees. (Adopted 5/88)

Article 7

In a transaction, REALTORS® shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the REALTOR®'s client or clients. (Amended 1/93)

Article 8

REALTORS® shall keep in a special account in an appropriate financial institution, separated from their own funds, monies coming into their possession in trust for other persons, such as escrows, trust funds, clients' monies, and other like items.

Article 9

REALTORS®, for the protection of all parties, shall assure whenever possible that agreements shall be in writing, and shall be in clear and understandable language expressing the specific terms, conditions, obligations and commitments of the parties. A copy of each agreement shall be furnished to each party upon their signing or initialing. (Amended 1/95)

• Standard of Practice 9-1
For the protection of all parties, REALTORS® shall use reasonable care to ensure that documents pertaining to the purchase, sale, or lease of real estate are kept current through the use of written extensions or amendments. (Amended 1/93)

Duties to the Public

Article 10

REALTORS® shall not deny equal professional services to any person for reasons of race, color, religion, sex, handicap, familial status, or national origin. REALTORS® shall not be parties to any plan or agreement to discriminate against a person or persons on the basis of race, color, religion, sex, handicap, familial status, or national origin. (Amended 1/90)

• Standard of Practice 10-1
REALTORS® shall not volunteer information regarding the racial, religious or ethnic composition of any neighborhood and shall not engage in any activity which may result in panic selling. REALTORS® shall not print, display or circulate any statement or advertisement with respect to the selling or renting of a property that indicates any preference, limitations or discrimination based on race, color, religion, sex, handicap, familial status or national origin. (Adopted 1/94)

Article 11

The services which REALTORS® provide to their clients and customers shall conform to the standards of practice and competence which are reasonably expected in the specific real estate disciplines in which they engage; specifically, residential real estate brokerage, real property management, commercial and industrial real estate brokerage, real estate appraisal, real estate counseling, real estate syndication, real estate auction, and international real estate.

REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/95)

• Standard of Practice 11-1
The obligations of the Code of Ethics shall be supplemented by and construed in a manner consistent with the Uniform Standards of Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation.

The obligations of the Code of Ethics shall not be supplemented by the USPAP where an opinion or recommendation of price or pricing is provided in pursuit of a listing, to assist a potential purchaser in formulating a purchase offer, or to provide a broker's price opinion, whether for a fee or not. (Amended 1/96)

• Standard of Practice 11-2
The obligations of the Code of Ethics in respect of real estate disciplines other than appraisal shall be interpreted and applied in accordance with the standards of competence and practice which clients and the public reasonably require to protect their rights and interests considering the complexity of the transaction, the availability of expert assistance, and, where the REALTOR®is an agent or subagent, the obligations of a fiduciary. (Adopted 1/95)

• Standard of Practice 11-3
When REALTORS® provide consultative services to clients which involve advice or counsel for a fee (not a commission), such advice shall be rendered in an objective manner and the fee shall not be contingent on the substance of the advice or counsel given. If brokerage or transaction services are to be provided in addition to consultative services, a separate compensation may be paid with prior agreement between the client and REALTOR®. (Adopted 1/96)

Article 12

REALTORS® shall be careful at all times to present a true picture in their advertising and representations to the public. REALTORS® shall also ensure that their professional status (e.g., broker, appraiser, property manager, etc.) or status as REALTORS® is clearly identifiable in any such advertising. (Amended 1/93)

• Standard of Practice 12-1
REALTORS® may use the term "free" and similar terms in their advertising and in other representations provided that all terms governing availability of the offered product or service are clearly disclosed at the same time. (Amended 1/97)

• Standard of Practice 12-2
REALTORS® may represent their services as "free" or without cost even if they expect to receive compensation from a source other than their client provided that the potential for the REALTOR® to obtain a benefit from a third party is clearly disclosed at the same time. (Amended 1/97)

• Standard of Practice 12-3
The offering of premiums, prizes, merchandise discounts or other inducements to list, sell, purchase, or lease is not, in itself, unethical even if receipt of the benefit is contingent on listing, selling, purchasing, or leasing through the REALTOR® making the offer. However, REALTORS® must exercise care and candor in any such advertising or other public or private representations so that any party interested in receiving or otherwise benefiting from the REALTOR®'s offer will have clear, thorough, advance understanding of all the terms and conditions of the offer. The offering of any inducements to do business is subject to the limitations and restrictions of state law and the ethical obligations established by any applicable Standard of Practice. (Amended 1/95)

• Standard of Practice 12-4
REALTORS® shall not offer for sale/lease or advertise property without authority. When acting as listing brokers or as subagents, REALTORS® shall not quote a price different from that agreed upon with the seller/landlord. (Amended 1/93)

• Standard of Practice 12-5
REALTORS® shall not advertise nor permit any person employed by or affiliated with them to advertise listed property without disclosing the name of the firm. (Adopted 11/86)

• Standard of Practice 12-6
REALTORS®, when advertising unlisted real property for sale/lease in which they have an ownership interest, shall disclose their status as both owners/landlords and as REALTORS® or real estate licensees. (Amended 1/93)

• Standard of Practice 12-7
Only REALTORS® who participated in the transaction as the listing broker or cooperating broker (selling broker) may claim to have "sold" the property. Prior to closing, a cooperating broker may post a "sold" sign only with the consent of the listing broker. (Amended 1/96)

Article 13

REALTORS® shall not engage in activities that constitute the unauthorized practice of law and shall recommend that legal counsel be obtained when the interest of any party to the transaction requires it.

Article 14

If charged with unethical practice or asked to present evidence or to cooperate in any other way, in any disciplinary proceeding or investigation, REALTORS® shall place all pertinent facts before the proper tribunals of the Member Board or affiliated institute, society, or council in which membership is held and shall take no action to disrupt or obstruct such processes. (Amended 1/90)

• Standard of Practice 14-1
REALTORS® shall not be subject to disciplinary proceedings in more than one Board of REALTORS® or affiliated institute, society or council in which they hold membership with respect to alleged violations of the Code of Ethics relating to the same transaction or event. (Amended 1/95)

• Standard of Practice 14-2
REALTORS® shall not make any unauthorized disclosure or dissemination of the allegations, findings, or decision developed in connection with an ethics hearing or appeal in connection with an arbitration hearing or procedural review. (Amended 1/92)

• Standard of Practice 14-3
REALTORS® shall not obstruct the Board's investigative or disciplinary proceedings by instituting or threatening to institute actions for libel, slander or defamation against any party to a professional standards proceeding or their witnesses. (Adopted 11/87)

• Standard of Practice 14-4
REALTORS® shall not intentionally impede the Board's investigative or disciplinary proceedings by filing multiple ethics complaints based on the same event or transaction. (Adopted 11/88)

DUTIES TO REALTORS®

Article 15

REALTORS® shall not knowingly or recklessly make false or misleading statements about competitors, their businesses, or their business practices. (Amended 1/92)

Article 16

REALTORS® shall not engage in any practice or take any action inconsistent with the agency of other REALTORS®.

• Standard of Practice 16-1
Article 16 is not intended to prohibit aggressive or innovative business practices which are otherwise ethical and does not prohibit disagreements with other REALTORS® involving commission, fees, compensation or other forms of payment or expense. (Adopted 1/93, Amended 1/95)

• Standard of Practice 16-2
Article 16 does not preclude REALTORS® from making general announcements to prospective clients describing their services and the terms of their availability even though some recipients may have entered into agency arrangements with another REALTOR®. A general telephone canvass, general mailing or distribution addressed to all prospective clients in a given geographical area or in a given profession, business, club or organization, or other classification or group is deemed "general" for purposes of this standard.

Article 16 is intended to recognize as unethical two basic types of solicitations:

First, telephone or personal solicitations of property owners who have been identified by a real estate sign, multiple listing compilation, or other information service as having exclusively listed their property with another REALTOR®; and

Second, mail or other forms of written solicitations of prospective clients whose properties are exclusively listed with another REALTOR® when such solicitations are not part of a general mailing but are directed specifically to property owners identified through compilations of current listings, "for sale" or "for rent" signs, or other sources of information required by Article 3 and Multiple Listing Service rules to be made available to other REALTORS® under offers of subagency or cooperation. (Amended 1/93)

• Standard of Practice 16-3
Article 16 does not preclude REALTORS® from contacting the client of another broker for the purpose of offering to provide, or entering into a contract to provide, a different type of real estate service unrelated to the type of service currently being provided (e.g., property management as opposed to brokerage). However, information received through a Multiple Listing Service or any other offer of cooperation may not be used to target clients of other REALTORS® to whom such offers to provide services may be made. (Amended 1/93)

• Standard of Practice 16-4
REALTORS® shall not solicit a listing which is currently listed exclusively with another broker. However, if the listing broker, when asked by the REALTOR®, refuses to disclose the expiration date and nature of such listing; i.e., an exclusive right to sell, an exclusive agency, open listing, or other form of contractual agreement between the listing broker and the client, the REALTOR® may contact the owner and may discuss the terms upon which the REALTOR® might take a future listing or, alternatively, may take a listing to become effective upon expiration of any existing exclusive listing. (Amended 1/94)

• Standard of Practice 16-5
REALTORS® shall not solicit buyer/tenant agency arrangements from buyers/tenants who are subject to exclusive buyer/tenant agency agreements. However, if a buyer/tenant agent, when asked by a REALTOR®, refuses to disclose the expiration date of the exclusive buyer/tenant agency agreement, the REALTOR® may contact the buyer/tenant to secure such information and may discuss the terms upon which the REALTOR® might enter into a future buyer/tenant agency agreement or, alternatively, may enter into a buyer/tenant agency agreement to become effective upon the expiration of any existing exclusive buyer/tenant agency agreement. (Adopted 1/94)

• Standard of Practice 16-6
When REALTORS® are contacted by the client of another REALTOR® regarding the creation of an agency relationship to provide the same type of service, and REALTORS® have not directly or indirectly initiated such discussions, they may discuss the terms upon which they might enter into an agency agreement or, alternatively, may enter into an agency agreement which becomes effective upon expiration of any existing exclusive agreement. (Amended 1/93)

• Standard of Practice 16-7
The fact that a client has retained a REALTOR® as agent in one or more past transactions does not preclude other REALTORS® from seeking such former client's future business. (Amended 1/93)

• Standard of Practice 16-8
The fact that an agency agreement has been entered into with a REALTOR® shall not preclude or inhibit any other REALTOR® from entering into a similar agreement after the expiration of the prior agreement. (Amended 1/93)

• Standard of Practice 16-9
REALTORS®, prior to entering into an agency agreement, have an affirmative obligation to make reasonable efforts to determine whether the client is subject to a current, valid exclusive agreement to provide the same type of real estate service. (Amended 1/93)

• Standard of Practice 16-10
REALTORS®, acting as agents of buyers or tenants, shall disclose that relationship to the seller/landlord's agent at first contact and shall provide written confirmation of that disclosure to the seller/landlord's agent not later than execution of a purchase agreement or lease. (Amended 1/93)

• Standard of Practice 16-11
On unlisted property, REALTORS® acting as buyer/tenant agents shall disclose that relationship to the seller/landlord at first contact for that client and shall provide written confirmation of such disclosure to the seller/landlord not later than execution of any purchase or lease agreement.

REALTORS® shall make any request for anticipated compensation from the seller/landlord at first contact. (Amended 1/93)

• Standard of Practice 16-12
REALTORS®, acting as agents of sellers/landlords or as subagents of listing brokers, shall disclose that relationship to buyers/tenants as soon as practicable and shall provide written confirmation of such disclosure to buyers/tenants not later than execution of any purchase or lease agreement. (Amended 1/93)

• Standard of Practice 16-13
All dealings concerning property exclusively listed, or with buyers/tenants who are exclusively represented shall be carried on with the client's agent, and not with the client, except with the consent of the client's agent or except where such dealings are initiated by the client. (Adopted 1/93, Amended 1/97)

• Standard of Practice 16-14
REALTORS® are free to enter into contractual relationships or to negotiate with sellers/landlords, buyers/tenants or others who are not represented by an exclusive agent but shall not knowingly obligate them to pay more than one commission except with their informed consent. (Amended 1/94)

• Standard of Practice 16-15
In cooperative transactions REALTORS® shall compensate cooperating REALTORS® (principal brokers) and shall not compensate, directly or indirectly, any of the sales licensees employed by or affiliated with other REALTORS® without the prior express knowledge and consent of the cooperating broker.

• Standard of Practice 16-16
REALTORS®, acting as subagents or buyer/tenant agents shall not use the terms of an offer to purchase/lease to attempt to modify the listing broker's offer of compensation to subagents or buyer's agents nor make the submission of an executed offer to purchase/lease contingent on the listing broker's agreement to modify the offer of compensation. (Amended 1/93)

• Standard of Practice 16-17
REALTORS® acting as subagents or as buyer/tenant agents, shall not attempt to extend a listing broker's offer of cooperation and/or compensation to other brokers without the consent of the listing broker. (Amended 1/93)

• Standard of Practice 16-18
REALTORS® shall not use information obtained by them from the listing broker, through offers to cooperate received through Multiple Listing Services or other sources authorized by the listing broker, for the purpose of creating a referral prospect to a third broker, or for creating a buyer/tenant prospect unless such use is authorized by the listing broker. (Amended 1/93)

• Standard of Practice 16-19
Signs giving notice of property for sale, rent, lease, or exchange shall not be placed on property without consent of the seller/landlord. (Amended 1/93)

Article 17

In the event of contractual disputes or specific non-contractual disputes as defined in Standard of Practice 17-4 between REALTORS® associated with different firms, arising out of their relationship as REALTORS®, the REALTORS® shall submit the dispute to arbitration in accordance with the regulations of their Board or Boards rather than litigate the matter.

In the event clients of REALTORS® wish to arbitrate contractual disputes arising out of real estate transactions, REALTORS® shall arbitrate those disputes in accordance with the regulations of their Board, provided the clients agree to be bound by the decision. (Amended 1/97)

• Standard of Practice 17-1
The filing of litigation and refusal to withdraw from it by REALTORS® in an arbitrable matter constitutes a refusal to arbitrate. (Adopted 2/86)

• Standard of Practice 17-2
Article 17 does not require REALTORS® to arbitrate in those circumstances when all parties to the dispute advise the Board in writing that they choose not to arbitrate before the Board. (Amended 1/93)

• Standard of Practice 17-3
REALTORS®, when acting solely as principals in a real estate transaction, are not obligated to arbitrate disputes with other REALTORS® absent a specific written agreement to the contrary. (Adopted 1/96)

• Standard of Practice 17-4
Specific non-contractual disputes that are subject to arbitration under Article 17 are:

1) Where a listing broker has compensated a cooperating broker and another cooperating broker subsequently claims to be the procuring cause of the sale or lease. In such cases the complainant may name the first cooperating broker as respondent and arbitration may proceed without the listing broker being named as a respondent. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first cooperating broker as a third-party respondent. In either instance the decision of the hearing panel as to procuring cause shall be conclusive with respect to all current or subsequent claims of the parties for compensation arising out of the underlying cooperative transaction. (Adopted 1/97)

2) Where a buyer or tenant representative is compensated by the seller or landlord, and not by the listing broker, and the listing broker, as a result, reduces the commission owed by the seller or landlord and, subsequent to such actions, another cooperating broker claims to be the procuring cause of the sale or lease. In such cases the complainant may name the first cooperating broker as respondent and arbitration may proceed without the listing broker being named as a respondent. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first cooperating broker as a third-party respondent. In either instance the decision of the hearing panel as to procuring cause shall be conclusive with respect to all current or subsequent claims of the parties for compensation arising out of the underlying cooperative transaction. (Adopted 1/97)

3) Where a buyer or tenant representative is compensated by the buyer or tenant and, as a result, the listing broker reduces the commission owed by the seller or landlord and, subsequent to such actions, another cooperating broker claims to be the procuring cause of sale or lease. In such cases, the complainant may name the first cooperating broker as respondent and arbitration may proceed without the listing broker being named as a respondent. Alternatively, if the complaint is brought against the listing broker, the listing broker may name the first cooperating broker as a third-party respondent. In either instance the decision of the hearing panel as to procuring cause shall be conclusive with respect to all current or subsequent claims of the parties for compensation arising out of the underlying cooperative transaction. (Adopted 1/97)

4) Where two or more listing brokers claim entitlement to compensation pursuant to open listings with a seller or landlord who agrees to participate in arbitration (or who requests arbitration) and who agrees to be bound by the decision. In cases where one of the listing brokers has been compensated by the seller or landlord, the other listing broker, as complainant, may name the first listing broker as respondent and arbitration may proceed between the brokers. (Adopted 1/97)

The Code of Ethics was adopted in 1913. Amended at the Annual Convention in 1924, 1928, 1950, 1951, 1952, 1955, 1956, 1961, 1962, 1974, 1982, 1986, 1987, 1989, 1990, 1991, 1992, 1993, 1994, 1995 and 1996.

Explanatory Notes

The reader should be aware of the following policies which have been approved by the Board of Directors of the National Association:

In filing a charge of an alleged violation of the Code of Ethics by a REALTOR®, the charge must read as an alleged violation of one or more Articles of the Code. Standards of Practice may be cited in support of the charge.

The Standards of Practice serve to clarify the ethical obligations imposed by the various Articles and supplement, and do not substitute for, the Case Interpretations in Interpretations of the Code of Ethics.

Modifications to existing Standards of Practice and additional new Standards of Practice are approved from time to time. Readers are cautioned to ensure that the most recent publications are utilized.

Sale of Real Estate - Commercial and Industrial Properties

Another area of specialization in real estate is the sale of commercial and industrial properties. Due to the nature of these types of properties, there are significant factors to consider:

• The purchase price of a commercial or industrial property will normally be far higher than the purchase price of the typical residence.

• While a 6% commission rate for selling a home is fairly common (although not a legal requirement), commission rates are normally lower for commercial and industrial properties.

• Even with the lower commission rates, given the higher purchase prices, the commission generated from the sale of the property will be much higher than the commission generated from the sale of a typical residence.

• Given the higher prices and specialized uses, it is usually much more difficult to find buyers and put transactions together, so that the licensee generally would expect to sell fewer commercial and industrial properties in a year than a residential salesperson might.

The bottom line is that those who sell commercial and industrial properties tend to go through cycles of "feast" and "famine." It is not uncommon for a large commercial transaction to take over a year to put together, and during that time the licensee must live off of his or her financial reserves. When the transaction closes, however, the licensee can reap a huge financial reward.

REAL ESTATE FINANCE

Another area of real estate practice is the area of finance, which involves helping people to get loans to purchase real estate, or to refinance existing loans. Some people who do this work for banks or savings and loan associations directly, as loan officers. Those who work directly for a bank or savings and loan association are not required to have a real estate license.

In the past twenty years, however, there has been explosive growth in the area of real estate finance. A major participant in this field is the category of mortgage companies. There are actually two types of mortgage companies:

• Mortgage brokers act as middlemen in a lending transaction. Mortgage brokers will maintain relationships with many different lenders, often all over the country. They will find people looking to borrow money against real estate, and match them up with lenders and charge a fee for arranging the loan. They will often service the loan, by collecting the monthly payments. They will charge separate fees for servicing these loans.

• Mortgage bankers will provide these same services, but they often will directly lend their own money to borrowers.

Those who work for either type of mortgage company must have a real estate license. Many real estate licensees focus all of their efforts in arranging loans against real property, rather than selling those properties. They will be paid commissions based on loans placed, rather than homes sold.

Of course not everyone who arranges loans will deal only in loans. Many real estate brokers will have a sales operation and also a mortgage company under the same ownership. Some salespeople might do work for both companies.

PROPERTY MANAGEMENT

Another area of real estate practice is property management. This often involves finding tenants for rental properties, collecting rents, and performing or supervising maintenance activities.

Licensees who engage in professional property management services earn income in two ways. There are generally commissions paid when a new tenant signs a lease. The commissions are generally some percentage of the total rent to be paid over the life of the lease, or the first year of the lease. The other income source is the fees charged for day-to-day management functions. These are generally a percentage of the rents collected on an ongoing basis.

There are of course specializations within the broad category of property management. Some will focus their efforts on managing commercial office buildings. Others will focus their efforts on managing large apartment complexes. Many residential real estate brokers will manage single-family residences which are being held as rental properties.

REAL ESTATE DEVELOPMENT

One of the most significant sectors of our economy is that of real estate development. Participants range from some of the largest companies in the nation who employ thousands of people to individual contractors who build one home at a time.

Real estate development itself does not require a real estate license, but it often involves using licensed people to sell the end product. Many real estate brokers will make arrangements to be the marketing arm of a homebuilder in the area, staffing the sales office and finding buyers for the homes.

There are of course many different types of real estate developers. Some will buy vacant land, put in the street improvements and offsite improvements, subdivide the land into smaller lots, and sell the vacant lots to other developers or individuals. Others will build homes on those lots. Still others will specialize in commercial or industrial developments. The field of real estate development will be discussed in more detail in later in this text.

BUSINESS OPPORTUNITIES

Almost everyone is aware of the fact that someone who wants to sell real estate needs a real estate license. Not everyone is aware of the fact, however, that the sale of an ongoing business also requires a real estate license. The field of business opportunity sales does not primarily involve selling the real estate out of which the business operates, although in some cases that is part of it. This field of practice involves selling the business itself, whether it is a donut shop, a computer store, a franchise operation, or a retail store.

The sale of business opportunities can require expertise in many different areas, depending upon the type of business being sold. It can involve knowing how to transfer and/or obtain a liquor license when dealing with liquor stores or bars. It often requires knowledge of laws and procedures regarding sales taxes. The person involved in selling businesses should of course be financially sophisticated enough to read financial statements and spot potential problem areas.

Because of the technical expertise involved in selling businesses, many licensees who sell businesses will specialize in particular types of businesses with which they may have specific expertise. A person who has owned a franchised donut shop, for instance, might specialize in the sale of that particular franchise operation.

Copyright © 2008 Real Estate Trainers, Inc.