The Right Direction
Friday, May 4, 2012
From the May/June 2012 issue
Pointing you down the straight and
narrow path of reducing risk
There is practically no end to the list of areas with the potential for putting real estate practitioners — agent and brokers alike — at risk of legal and ethical liability. But while the possibilities for problems run the gamut, issues related to disclosure, fair housing, the REALTOR® Code of Ethics, and antitrust always emerge at the top. Here’s how keep from straying off a path that's proven to reduce your risk.
Buyer beware? Not quite. It's the real estate practitioner who must be diligent about disclosing potential problems with a property. Although there are no national guidelines about what sellers and their real estate professionals must disclose, here are a few simple rules that can help you avoid legal trouble.
»Make all existing reports known to the buyer - If there’s an inspection report, no matter how old, disclose it. Not providing an old report can be damaging to you and the seller if a problem crops up later on.
»Disclose anything that can materially affect value or desirability - Deciding what affects the value is not judged subjectively, and it doesn’t matter if the particular item bothered the seller. A good example is church bells. Some people love them; some hate them.
»Don’t fill out the disclosure form for the seller - Many real estate sales associates make this mistake. Such a practice is a huge gift to any lawyer who decides to sue you. If there's a dispute, the seller could claim the sales associate filled out the paperwork improperly and thus was at fault. If the seller is physically or otherwise unable to complete the form, you may fill out the form by asking the seller questions from the form and writing in his or her answers, but be sure to document that the information that the information was provided by the seller, not you. If possible, have the seller initial or otherwise confirm that.
»Don’t make representations about permits - Real estate professionals, depending on what’s typical in their state, will sometimes pull the permit file from a city or county agency and include it in the disclosure packet. However, many permit files are incomplete or have errors. By pulling the file and including it in the packet without a disclaimer that you have not reviewed it, you’re opening yourself up to a legal allegation that you represented the complete and correct permit history.
»Make it clear that any estimates you provide are just that - If you don’t have the exact square-footage figures to enter into the MLS, be sure to make clear that the numbers are just estimates. If the exact square footage is important to a buyer, suggest that the buyer have the home measured.
»Don’t be someone you aren’t - You aren’t a building inspector, an appraiser, a lawyer, or a contractor. If a buyer or a seller asks you a question that another professional should answer, refer the buyer or seller in writing to the appropriate professional.
»Properly attribute information - Disclosed information often comes from private companies or governmental sources. Whether it’s the size of the lot, the property’s zoning, or use restrictions in a development, be sure that you and the seller properly attribute any such information to its source. As a buyer’s representative, recommend that your clients independently verify any information they consider important with the appropriate source.
»Know your local and brokerage disclosure rules - Different jurisdictions require sellers and real estate practitioners to complete different forms and provide different amounts of detail. In addition, some brokerages may have more stringent disclosure policies than others. You need to be well versed in the local requirements.
»Advise your client to get inspections - If a room with a six-foot ceiling is advertised as a bedroom (an unlikely use given the low height) or you notice water marks on a basement wall (suggesting water damage), advise the client in writing to get the appropriate additional inspections.
»When in doubt, disclose - If you’re working with the seller and your client asks, "Should I disclose...?" your answer should always be "Yes." If it’s important enough for your seller to ask the question, it’s important enough to disclose.
If you say "no," and there’s a problem later, you’ll be held responsible.If your clients don’t want to disclose after you advise them they should, you’re in a difficult position. You now know something that may be material. You have a choice to make: Stop working with the seller; disclose it yourself; or work with your manager and legal team to see if you can confirm, in writing, to the client that you advised the seller to disclose and the seller refused to do so.
This last option may not protect you if you end up in court, so it’s an issue to review with your management team.
Source: NAR’s REALTOR® Magazine; E. David Marks and Serena Patitucci Torvik, Miller Starr Regalia
You Don’t Say
One of the bedrock principles of antitrust compliance is that neither REALTORS® nor REALTOR® associations collectively set the price of services provided by real estate professionals. That decision is made independently by each brokerage firm, and the firm’s sales associates must take care to present pricing policies to prospective clients in a manner that is consistent with the fact that the fees or price3s are independently established. This means they should never respond to a question about fees by suggestion that all competitors in the market follow the same pricing practices or to a policy of the local REALTOR® association that supposedly prohibits or discourages price competition.
Never say things that could be understood to suggest a conspiracy or falsely disparate a competitor:
- "This is the rate every firm charges.”
- "I’d like to lower the commission, but no one else in the MLS will show your house unless the commission is X percent.”
- "I have to charge you this rate because this is the rate the REALTOR® association set for all real estate agents.”
- "Before you decide to list with XYZ Realty you should know that because they are ‘discount’ brokers, members of the association won’t show their listings.”
Instead, focus on the positive aspects of doing business with you and the services that distinguish your brokerage:
- "I have a marketing program that gets results. Let me explain my 60-day marketing plan and all it includes.”
- "Our company has been in the business for Y years and has serviced clients with the highest professionalism. We choose to charge X percent and our clients have chosen to pay X percent because of the service provided."
- "Yes, our company charges a commission of X percent and company B charges a commission of Y percent. When you are comparing commission rates, be sure to compare services in order to get an apples-to-apples analysis.”
- "I appreciate your comments regarding commission. My interest is in helping you meet your goals by getting the best price in the quickest amount of time with the least amount or problems. Let me show you how I will do that.”
- "I am proud of my company’s reputation for professionalism and for getting things done. Let me show you some of our sales statistics that prove we do what we claim.”
The obligations of a REALTOR® to the REALTOR® Code of Ethics also impose a higher standard with regard to statements made about competitors. Article 15 states that "REALTORS shall not knowingly or recklessly make false or misleading statements about competitors, their businesses, or their business practices.
The path to managing antitrust risk is to focus on the positive. By presenting it honestly, the potential risks posed by antitrust laws will be minimized and you will have avoided legal and ethical liability. And, you will probably elevate yourself and your firm in the eyes of the people who going to be selecting someone to represent them in the sale or purchase of their home.
When buyers ask you to recommend neighborhoods, be careful how you respond. It’s possible to inadvertently violate the Fair Housing Act by steering a customer to or from certain areas. Here’s how to help clients find their dream community without placing yourself at risk of a Fair Housing Act violation.
»Ask about hobbies - This approach will often elicit information that helps you determine properties in neighborhoods that will fit your clients’ lifestyles without having to ask questions about religion, ethnicity, or other sensitive matters.
»Offer school district resources - When buyers ask questions about schools, point them to the district’s web site and encourage them to schedule school visits. You can help them locate the district boundaries to ensure they’ll be purchasing within the school district they choose. Don’t say anything about the quality of the school.
»Direct them to the police - If buyers want to get a picture of the area’s crime rate, direct them to the police department or other sources of information. Don’t disclose crime statistics or say a neighborhood is a safe place to live even if you believe it to be true.
»Make a list of spiritual places - Develop a list of all houses of worship in the neighborhoods you serve and provide that as a resource to buyers.
»Get to know the Census Bureau - If buyers want to know the demographics of the area, refer them to the "fact finder” section of the U.S. Census Bureau website, where they can find racial, ethnic, and income breakdowns. If buyers want to dig deeper, refer them to city government or local nonprofit sources.
»Stick to the rules - If buyers persist in asking questions that could result in a charge of steering against you, be polite but firm by telling them: "I’m sorry, but I can’t provide that information." Fair housing laws prevent me from steering people away from or toward a certain neighborhood based on race, color, or other protected categories. Help buyers get their own information.
REALTOR® Code of Ethics
Up To Code
The National Association of REALTORS® is always adding enhancements to the REALTOR® Code of Ethics to ensure that the code remains up-to-date as REALTORS® confront new situations. Here are four changes you’ll want to make note of.
»Authorized use of property - The duty of fidelity to clients’ interests was advanced through a new Standard of Practice interpreting Article 1 as prohibiting members from accessing or using, or permitting others to access or use, listed or managed property on terms or conditions other than those authorized by the owner or seller.
»False statements against others - Article 15’s obligation to refrain from knowingly or recklessly making false or misleading statements was expanded to cover "other real estate professionals, their businesses, and their business practices.” These changes are also reflected in Standards of Practice 15-2 and 15-3.
»Mediating disputes - The dispute resolution scope of Article 17 was enhanced to include the duty to mediate otherwise-arbitratable disputes in cases where the association of REALTORS® has established a duty to mediate.
»Waiving mediation and arbitration - Standard of Practice 17-2 (which interprets and explains Article 17) was amended to make it clear that REALTORS® are not obligated to mediate or arbitrate in cases where all parties to the dispute choose not to have it mediated or arbitrated through the association.
Source: NAR’s REALTOR® Magazine; Robert Freedman