Code of Ethics Case Study: Article 1 – Promotion of Client’s Interests

Following is a case study taken from the National Association of REALTORS pertaining to Article 1 of the Code of Ethics.  Read this case study, and decide whether you believe REALTOR Brian is in violation of Article 1.

Article 1 states:  When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS pledge themselves to protect and promote the interest of their client.  This obligation to the client 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.

Client Albert gave an exclusive listing on a house to REALTOR Brian, stating that he thought $132,500 would be a fair price for the property.  REALTOR Brian agreed and the house was listed at that price in a 90-day listing contract.  REALTOR Brian advertised the house without response, showing it to a few prospective buyers who lost interest when they learned of the price.  In a sales meeting in his office, REALTOR Brian discussed the property, advised his associates that it appeared to be overpriced, and that advertising and showing of the property had proved to be a waste of time and money.

After six weeks had gone by without a word from REALTOR Brian, Client Albert called REALTOR Brian’s office without identifying himself, described the property, and asked if the firm was still offering it for sale.  The response received from one of REALTOR Brian’s associates was:  “We still have the house listed, but there is little interest in it because, in our opinion, it is overpriced and not as attractive a value as other property we can show you”.

Client Albert wrote to the Board of REALTORS complaining of REALTOR Brian’s action. The complaint alleged a failure to promote and protect the client’s interest by REALTOR Brian’s failure to advise the client that, in his professional judgment, the price agreed upon in the listing contract was excessive, and further by REALTOR Brian’s failure to actively seek a buyer.

In the hearing on the complaint before a Hearing Panel of the Board’s Professional Standards Committee, REALTOR Brian’s response was that Client Albert had emphatically insisted that he wanted $132,500 for the property; that by advertising and showing the property he had made a diligent effort to attract a buyer at that price; that in receiving no response to this effort he was obliged to conclude the house would not sell at the listed price; that in view of the client’s attitude at the time of the listing, he felt it would be useless to attempt to get Client Albert’s agreement to lower the listed price; and that he had instructed his staff not to actively market the property at that price.

What do you think?  Would you find REALTOR Brian to be in violation or not in violation of Article 1?  Below, you can read what the hearing panel found.

The Hearing Panel concluded that REALTOR Brian was in violation of Article 1; that he had been unfaithful to his obligations by not advising his client of his conclusion that the property was overpriced, based on the response to his initial sales efforts; and by withholding his best efforts to bring about a sale of the property in the interests of his client.

As a side note, while this case highlights the importance of promoting and protecting your client’s best interest from the Code of Ethics standard, this situation could also describe a potential a breach of fiduciary duties promised to the seller when the agency relationship was established by (1) Brian and all agents in the office in dual agency office structure (2) by Brian and his broker in a designated agency structure.