Editor’s Note: The Code of Ethics turns 100 in 2013, AAR will be celebrating the centennial with monthly articles published under the caption, Code Talk, in the Arizona REALTOR® Magazine, discussing the various ways the code governs professional conduct and interaction with the consumer in every day transactions.
This month, we’ll explore how the NAR Code of Ethics effects that first call you receive on a property.
Contributor: Carol Ann Warren
Angel, the REALTOR’s®, phone rings.
“Good morning, Angel. My name is Joe Buyer. My wife and I have been looking at houses to buy. I mentioned it to my neighbor, and he said to work with you. Would you like to be our REALTOR® and help us buy a house?”
Of course Angel is thrilled, but she also hears bells going off in the back of her mind. It rings of a possible Article 16 violation, and a possible procuring cause violation, all contained in Mr. Buyer’s statement that they’ve “been looking at houses to buy.”
Time to investigate the ringing.
Angel says, “That’s wonderful! I’m so glad that you’ve called. I’ll have to thank Mr. Neighbor, bless his heart!”
Angel proceeds to find out what sort of house they’re looking for: what area, what square footage, their price range, and have they been pre-qualified or will they be paying cash? Then she gets to the issue of the bells.
“Mr. Buyer, you mentioned that you and Mrs. Buyer have been looking at houses. Did you look at houses with a local REALTOR®?” says Angel.
“Yes, we’d been working with REALTOR® Smith until Mr. Neighbor turned us on to you.”
“Have you signed any paperwork with REALTOR® Smith? Especially anything that mentioned the words Buyer Broker Exclusive Employment Agreement?”
“No. We like him and we would’ve, but he never asked us to sign anything.”
Good. Now Angel doesn’t have to worry about violating another REALTORS®’ exclusive agreement and she knows that she isn’t putting the buyers into a position of having to pay a commission to REALTOR® Smith under a Buyer’s Broker agreement. There’s only the procuring cause possibility to deal with.
“Mr. Buyer, did you like any of the houses that REALTOR® Smith showed you?”
“Oh, yeah! We really loved 1234 Main Street. That’s the one that we want you to write an offer on.”
Angel asks, “Is there some reason that you don’t want to work with REALTOR® Smith?”
“No,” said Mr. Buyer. “REALTOR® Smith is great.”
“Has he kept in touch?”
“Oh, yes. As a matter of fact, that’s him on the other line, telling the wife that he’s got the offer all ready for signing. I called you because I’m trying to buy a ’67 Mustang from Mr. Neighbor, and it’s a smoking deal, and I want to keep him happy and he told me to use you.”
Well, now we have a fine procuring cause pickle. Angel is now aware that:
- REALTOR® Smith is the agent who caused Mr. and Mrs. Buyer to decide to offer on the property. That makes him procuring cause. Or does it?
- If she writes this offer, REALTOR® Smith could let her work it, taking it past close of escrow. Angel could spend hundreds of hours and take all of the liability, and then get hit with an arbitration request after close. With what we now know, REALTOR® Smith would prevail. Angel would have to write him a check for the entire commission.
“Mr. Buyer, it seems wrong to cut REALTOR® Smith out of writing this offer,” said Angel. “Please tell Mr. Neighbor that you talked to me and I refused. Call REALTOR® Smith back and secure that house!”
Good job, Angel!
AAR Weighs In
Angel was obviously excited to receive a buyer referred her to her by the neighbor. Still, in her exuberance to acquire a new client, she methodically questioned the buyer to assure her ethical compliance within the Code of Ethics. In Carol Anne’s scenario, Angel immediately asks the Buyer if he had entered into a Buyer Exclusive Employment Agreement (BBEEA) with REALTOR® Smith. The importance of that question was obvious, Article 16 of the NATIONAL ASSOCATION OF REALTORS® Code of Ethics states, “Realtors® shall not engage in any practice or take any action inconsistent with exclusive representation or exclusive brokerage relationship agreements that other REALTORS® have with clients” (Amended 1/04). A violation of Article 16 could also encompass a BBEEA, as it creates an exclusive representation between the Buyer and a REALTOR®.
Also addressed by Carol Anne is the possibility that if Angel had written an offer with the Buyer and closed escrow on the same property that REALTOR® Smith had previously shown him, there could be the possibility that REALTOR® Smith would file for arbitration against Angel under Article 17 of the Code of Ethics, alleging procuring cause. Procuring cause is at best confusing, and no single action alone answers the question of procuring cause. Multiple factors must be reviewed by a Hearing Panel in determining procuring cause award. The following list may assist you, as you read the article and apply the points to the scenario Carol Anne outlined:
1) Who originally introduced the buyer to the subject property?
2) Did the first REALTOR® maintain contact with the buyer?
3) Did the first REALTOR® provide adequate information to result in the buyer making a decision to make an offer?
4) What did each REALTOR® do directly related to the subject property and how did the efforts of each apply to the buyer’s decision to buy the subject property?
5) Did the first REALTOR® abandon the buyer?
6) Did the first REALTOR® estrange the buyer?
7) Did the second REALTOR® remove an impediment to the buyer?
8) If the buyer had never met one of the REALTORS®, which agent could you leave out of this picture and still have this sale go together?
9) Which REALTOR® shook the tree?
10) Which REALTOR® gathered the nuts?
I would like to leave you with this excerpt from the preamble:
“Realizing that cooperation with other real estate professionals promotes the best interests of those who utilize their services, REALTORS® urge exclusive representation of clients; do not attempt to gain any unfair advantage over their competitors; and they refrain from making unsolicited comments about other practitioners. Instances where their opinion is sought, or where REALTORS® believe that comment is necessary, their opinion is offered in an object professional manner, uninfluenced by any personal motivation or potential advantage or gain.”
About the author: Jan Steward brings a wealth of experience to the Arizona Association of REALTORS® as the Risk Management Specialist. She is a former title company manager and escrow officer with paralegal training. As a REALTOR® and broker, Jan served the Northern Arizona Association of REALTORS® (NAAR) as board president, vice-president, director, MLS chair, delegate to NAR’s national convention and a member of the Professional Standards and Grievance Committees. Jan was honored as REALTOR® of the Year by NAAR. She also has served on AAR’s Professional Standards Committee and a variety of ad hoc committees.