Code of Ethics Case Study: Article 6

The Code of Ethics of the National Association of REALTORS is what sets you, as REALTOR, apart from real estate licensees.  By becoming a member, you have agreed to be bound by a higher standard of practice.  In this post, we’ll read case study about Article 6, which covers commission, rebate or profit from expenditures made for a client without a client’s knowledge.  Specifically, Article 6 reads as follows:

Article 6:  REALTORS shall not accept any commission, rebate, or profit on expenditures made for their client, without the client’s knowledge and consent.  When recommending real estate products or services (e.g., homeowner’s insurance, warranty programs, mortgage financing, title insurance, etc.), REALTORS shall disclose to the client or customer to whom the recommendation is made any financial benefits or fees, other than real estate referral fees, the REALTOR or REALTOR’s firm may receive as a direct result of such recommendation.  (Amended 1/99)

Case #6-6:  Disclose Affiliated Business Relationships Prior to Recommending Real Estate-Related Products or Services (Adopted November, 2006)

REALTOR Sanchez, a broker and sole proprietor, had invested considerable time, money, and energy into developing her website.  Seeking to recoup some of her costs, she approached virtually every provider of real estate-related products and services in her area, including financial institutions, title insurance companies, home inspectors, mortgage brokers, insurance agencies, appraisers, exterminators, decorators, landscapers, furniture and appliance dealers, rug and carpet dealers, moving companies, and others about advertising on her home page.  As a condition of having a link to their own sites appear on her home page, REALTOR Sanchez required that a fee be paid to her each time a consumer “clicked through” from her site to an advertiser’s.

Ads for providers of real estate-related products and services who agreed to REALTOR Sanchez’s terms appear on her home page under the heading “Preferred Providers”.  Immediately under that heading read: “These vendors provide quality goods and services.  Please patronize them.”

Buyer Alvarez frequented REALTOR Sanchez’s website seeking information about available properties.  Using that website, he became aware of a property on Elm Street that he made an offer on through REALTOR Sanchez, which was accepted by the seller.  The sale closed shortly afterward.

Buyer Alvarez was an avid remodeler and, using REALTOR Sanchez’s website, linked to the Real Rug company website, among others.  Interested by what he found there, he subsequently visited their showroom in person and purchased wall-to-wall carpeting and several expensive area rugs.

Given the size of Buyer Alvarez’s order, one of the owners of Real Rug came to oversee the delivery and installation.  In the course of conversation with Buyer Alvarez, he commented favorably on the amount of referral business received from REALTOR Sanchez’s website.  “And to think, I only pay a small fee for each customer who’s referred to me by REALTOR Sanchez,” he added.

Buyer Alvarez was somewhat surprised that REALTOR Sanchez would receive money for referring clients and customers to providers of real estate-related products and services and contacted the local Association of REALTORS.  The association provided him with a copy of the Code of Ethics.  Reading it carefully, Buyer Alvarez concluded that REALTOR Sanchez’s actions might have violated Article 6, and he filed an ethics complaint against REALTOR Sanchez.

At the hearing, REALTOR Sanchez defended herself and her website, stating that the advertisements for real estate-related products and services on her website were simply that, only advertisements and not recommendations or endorsements of the products and services found there.  She acknowledged she collected a fee each time a visitor to her website clicked on the links found under “Preferred Providers” but claimed that simply referring to those advertisers as “preferred” did not constitute a recommendation or endorsement of the products and/or services offered.

The hearing panel disagreed with REALTOR Sanchez’s reasoning, pointing out that a reasonable consumer would certainly conclude that referring to a provider of real estate-related products or services a being “preferred” by a REALTOR constituted a recommendation or endorsement.  Further, since REALTOR Sanchez received a fee each time a consumer “clicked through” to one of REALTOR Sanchez’s “Preferred Providers”, REALTOR Sanchez received a referral fee, and disclosure of that fee was required under Article 6.

REALTOR Sanchez was found in violation of Article 6.

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