The Code of Ethics - Breaking It Down #3

Before we begin on Article 3, find out how the adventure in Article 2 turned out here.

Article 3 is intriguing, especially in these times, because it deals with cooperation and compensation. For the record, cooperation is uniquely different than compensation and Article 3 defines them clearly.

Article 3 states: 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 commissions, fees, or to otherwise compensate another broker.

*Note: By becoming participants in the MLS, you have agreed to share data and to compensate cooperating brokers. The requirement to compensate arises from the shared membership in the MLS. MLS is a related, but separate entity from the REALTOR® Associations.

The Standards of Practice under Article 3 state:

*When you represent a seller exclusively, you will decide on the terms to cooperate. This may or may not include an offer to compensate. If you are a buyer's agent, determine the offer compensation prior to accepting the terms of cooperation. (If you submit an offer, you are agreeing to the terms of cooperation).

*UPDATED IN 2010 - To be effective, any change in compensation offered for cooperative services must be communicated to the other REALTOR® prior to the time that REALTOR® submits an offer to purchase/lease the property. (SOP 3-2). This is not a new SOP, but was clarified because the prior language was ambiguous.

*You can still change compensation after an offer has been made, but only through broker-to-broker negotiations.

*You must disclose if you have a variable rate commission. (The total amount of commission paid out is different if the listing agent is also the selling agent). You must disclose a variable rate commission situation as soon as practical to potential cooperating brokers.

*You must disclose the existence of accepted offers, even those with unresolved contigencies, to any broker seeking cooperation.

*When getting information about a property that is listed, you must disclose that you are a REALTOR® and whether your interest is personal or on behalf of a client.

*You will not misrepresent the availability of access to show or inspect a listed property.

*NEW IN 2010 - REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.

So, with all your new knowledge about Article 3, you can understand why it has been the topic of discussion for much of 2009 and already, much of 2010. Let's test your knowledge with a case study:

REALTOR® A listed Seller S's house and placed the listing in the local association's MLS. Within a matter of days, REALTOR® X procured a full price offer from Buyer B. The offer specified that Buyer B's offer was contingent on the sale of Buyer B's current home. Seller S, anxious to sell, accepted Buyer B's offer but instructed REALTOR® A to continue to marketing the property in hope that an offer that was not contingent on the sale of an existing home would be made.

A week later, REALTOR® A, another cooperating broker working with an out-of-state transferee on a company-paid visit, contacted REALTOR® A to arrange a showing of Seller S's house for Buyer T. REALTOR® A contacted Seller S to advise him of the showing and then called REALTOR® Q to confirm that he and Buyer T could visit the property that evening. REALTOR® A said nothing about the previously accepted purchase offer.

REALTOR® Q showed the property to Buyer T that evening and Buyer T signed a purchase offer for the full listed price. REALTOR® Q left the purchase offer at REALTOR® A's office.

REALTOR® A informed Seller S about this second offer. At Seller S's instruction, Buyer B was informed of the second offer, and Buyer B waived the contingency in his purchase offer. REALTOR® A then informed REALTOR® Q that Seller S and Buyer B intended to close on their contract and the property was not available for purchase by Buyer T.

REALTOR® Q, believing that REALTOR® A's failure to disclose the existence of the accepted offer between Seller S and Buyer B at the time REALTOR® Q contacted REALTOR® A was in violation of Article 3 of the Code of Ethics, as interpreted by Standard of Practice 3-6, filed an ethics complaint with the association of REALTORS®.

At the hearing called to consider the complaint, REALTOR® A defended his actions by noting that while Buyer B's offer had been accepted by Seller S, it had been contingent on the sale of Buyer B's current home. It was possible that Buyer B, if faced with a second offer, could have elected to withdraw from the contract. REALTOR® A argued that continuing to market the peroperty and not making other brokers aware that the property was under contracted promoted his client's best interestes by continuing to attract potential buyers.

So.... What do you think? Did a violation occur? Post in the comments below!

Susan Hansen
Director of Member Policy