Code of Ethics Case Study: Article 7

The Code of Ethics is what sets you, as a REALTOR, apart from real estate licensees.  By becoming a REALTOR you have agreed to uphold a higher standard of practice.  In this post, we’ll review Article 7 of the Code of Ethics.  Specifically, Article 7 says:

“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)

Let’s refer to a case interpretation from the Code of Ethics and Arbitration manual, which is based on an actual transaction.  What would you have done?  How would you find in this matter…in violation or not in violation?

Case #7-1: Acceptance of Compensation from Buyer and Seller

Buyer Abbot engaged Realtor® Bird to locate a small commercial property. Buyer Abbot explained his exact specifications indicating that he did not wish to compromise. They agreed that if Realtor® Bird could locate such a property within Buyer Abbot’s price range, he—the buyer—would pay a finder’s fee to Realtor® Bird.

Two weeks later, Realtor® Bird called Buyer Abbot to advise that Seller Carlisle had just listed a property with him that met all of Buyer Abbot’s specifications except that the listed price was a bit higher than Buyer Abbot wanted to pay. Buyer Abbot inspected the property and liked it, but said he would adhere to his original price range. Realtor® Bird called Buyer Abbot three days later to say that Seller Carlisle had agreed to sell at Buyer Abbot’s price. The sale was made and Realtor® Bird collected a commission from Seller Carlisle and a finder’s fee from Buyer Abbot which was not disclosed to Seller Carlisle, Realtor® Bird’s client.

Several weeks later, Seller Carlisle learned about the finder’s fee that Realtor® Bird had collected from Buyer Abbot and filed a complaint with the Board of Realtors® charging Realtor® Bird with duplicity and unprofessional conduct. The complaint specified that when Realtor® Bird had presented Buyer Abbot’s offer at less than the listed price, he, the seller, was reluctant to accept it, but Realtor® Bird had convinced him that the offer was a fair one and not likely to be improved upon in the current market; and that Realtor® Bird had dwelt at length on certain disadvantageous features of the property in an attempt to promote acceptance of the offer. The complaint charged that Realtor® Bird had actually been the agent of the buyer while holding himself out as the agent of the seller. Further, Seller Carlisle asserted that Realtor® Bird had never mentioned that he was representing the buyer or intended to be compensated by the buyer.

At the hearing, Realtor® Bird’s defense was that he had served both buyer and seller faithfully; that he had not accepted Seller Carlisle’s listing until after he had agreed to assist Buyer Abbot in locating a property; and that in his judgment the listed price was excessive and the price actually paid was a fair price.

A Hearing Panel of the Board’s Professional Standards Committee, which heard the complaint, concluded that Realtor® Bird had acted in violation of Article 7 of the Code of Ethics. His efforts to represent the buyer and the seller at the same time, and the fact that he intended to be compensated by both parties, should have been fully disclosed to all parties in advance.