Code of Ethics Case Study: Article 4

Article 4 of the Code of Ethics of the National Association of Realtors®,  covers the Realtors® responsibility, when buying or selling, to make their position in the transaction or interest known.  Specifically, Article 4 reads as follows:

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 any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. 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 1/00)

Following is case study taken from the Code of Ethics and Arbitration Manual, from an actual hearing.  Please read on to learn what the hearing panel in this matter found:

Case #4-1: Disclosure when Buying on Own Account

Client Adams consulted Realtor® Brown about the value of a lot zoned for commercial use, saying that he would soon be leaving town and would probably want to sell it. Realtor® Brown suggested an independent appraisal, which was arranged, and which resulted in a valuation of $130,000. The property was listed with Realtor® Brown at that price. Shortly thereafter, Realtor® Brown received an offer of $122,000 which he submitted to Client Adams, who rejected it. After the passage of four months, during which no further offers were received, Client Adams asked Realtor® Brown if he would be willing to buy the lot himself. Realtor® Brown on his own behalf, made an offer of $118,000, which the client accepted. Months later Client Adams, on a return visit to the city, discovered that Realtor® Brown had sold the lot for $125,000 only three weeks after he had purchased it for $118,000.

Client Adams complained to the Board of Realtors® charging that Realtor® Brown had taken advantage of him; that he had sought Realtor® Brown’s professional guidance and had depended on it; that he could not understand Realtor® Brown’s inability to obtain an offer of more than $122,000 during a period of four months, in view of his obvious ability to obtain one at $125,000 only three weeks after he became the owner of the lot; that possibly Realtor® Brown had the $125,000 offer at the time he bought the lot himself at $118,000.

At the hearing, Realtor® Brown introduced several letters from prospects that had been written while the property was listed with him, all expressing the opinion that the lot was overpriced. The buyer who purchased the lot for $125,000 appeared at the hearing as a witness and affirmed that he never met Realtor® Brown or discussed the lot with him prior to the date of Realtor® Brown’s purchase of the lot from Client Adams. Questioning by members of the Hearing Panel established that Realtor® Brown had made it clear that his offer of $118,000 in response to his client’s proposal, was entirely on his own account.

The panel concluded that since Realtor® Brown’s own purchase was clearly understood by the client to be a purchase on his own account, and since the client’s suspicions of duplicity were proven to be unfounded, Realtor® Brown had not violated Article 4 of the Code of Ethics.