Code Talk: Wrap-Up

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Prospecting? Avoid These Danger Zones

Editor’s Note: The Code of Ethics turns 100 in 2013. AAR will be celebrating the code 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.

When it comes to obtaining new clients, real estate agents are at the top of their game. But, there are several commonly used prospecting tactics that can land agents in hot water. This month, we’ll take a look at some danger zones to avoid when it comes to prospecting and advertising and give you tips on the right and wrong ways to do it.

Zone 1: Giving It Away 

While prospecting for new clients, some agents consider using a game of chance (like a drawing for an iPad).  However, agents should make certain that they are not doing so in violation of Arizona law.  A.R.S. § 13-3301(4) defines gambling, in part, as “the act of risking or giving something of value for the opportunity to obtain a benefit from a game or contest of chance or skill.”  Giving business to an agent in exchange for entry into a drawing is likely considered “giving something of value for the opportunity to obtain a benefit.” Agents should therefore refrain from offering new clients entry into a game of chance in exchange for business.

In light of the above, the better practice is to offer the same benefit to all members of the public that attend the agent’s open house or respond to the agent’s advertisement. Jerome King, designated broker of Long Realty in Tucson, Ariz., offers this advice for erring on the side of caution, “If you’d like to offer a free Starbuck’s card at an open house, you should give a Starbuck’s card to everyone.” The giveaways must be without condition and universal across the board. Furthermore, keep in mind that Article 12, Standard of Practice 12-1 of the code of ethics states: “REALTORS® may use the term ‘free’ and similar terms in their advertising and in other representations provided that all terms governing availability of the offered product or service are clearly disclosed at the same time.”

Zone 2: The Claim Game 

“I’ve seen a lot of marketing attempts lately that focus on ‘the last five homes sold in this neighborhood’. And then it gives the addresses of five homes sold, but not necessarily the last five homes the agent himself sold,” said King. “It’s a great marketing tactic, but it has one flaw: If you weren’t involved in the transaction you can’t give the impression in your advertising that you sold these homes.” Article 12, Standard of Practice 12-7 states: “Only REALTORS® who participated in the transaction as the listing broker or cooperating broker (selling broker) may claim to have “sold” the property.” Armando Contla, GRI with Arizona Turquoise Realty in Lake Havasu City, Ariz. adds, “I’ve also seen people advertise a property that has already closed escrow” in an effort to gain prospective clients. This is also found when people ‘poach’ listings and post them to Craigslist or other internet sites.

If you’re looking to paint a picture of a specific neighborhood in your marketing collateral, you should leverage other data such as that on your MLS or from your local newspaper.

 Zone 3: Slippery Signs 

“Many REALTORS® are posting ‘For Sale’ or ‘For Lease’ signs in their own yards to gain the attention of potential buyers. The only problem is, the agent’s home isn’t really on the market. This is just a way to get prospects,” said King. Clever? Sure. Unethical? Definitely. Article 12 of the code of ethics strictly prohibits false advertising of any kind. King offers this solution, “If you want to post a sign in your yard attracting new clients, have it say something like ‘For information regarding real estate in this neighborhood, call …’.”

Contla said that he’s also seen For Sale By Owner (FSBO) signs popping up in agents’ yards, when the property is not for sale. “Appealing to unrepresented buyers with a FSBO sign is just another bait and switch tactic.”
Along those same lines, Contla says that many agents are putting “For Sale” signs in front of homes where the owner may not want it advertised. “We’re seeing this in rental properties where the owner may live out of state,” said Contla. “Agents think that a home won’t sell unless it has a ‘For Sale’ sign in front. But, you must make sure that you have the express consent of your owner to do so.”


Code Talk: Avoid These Common Code of Ethics Violations

Editor’s Note: The Code of Ethics turns 100 in 2013. AAR will be celebrating the code 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.

To date, AAR has received 42 ethics violation complaints this year. That’s a slight decrease from the 46 we had last year at this time, but we can do better. This month, AAR would like to share with you some common violations we’re seeing this year, along with ways to avoid them.

1.  Verbal Counter Offers. “We’re seeing a rise in offers being verbally countered,” said Jan Steward, manger, risk management, Arizona Association of REALTORS®. “Not putting contract terms in writing is a risky practice.” And, it could end up becoming a Code of Ethics violation. Article 9 of the Code of Ethics, Standard of Practice 9-1 states: “For the protection of all parties, REALTORS® shall use reasonable care to ensure that documents pertaining to the purchase, sale, or lease of real estate are kept current through the use of written extensions or amendments.”

Trudy Moore, designated broker with HomeSmart said, “The problem with verbal counteroffers is that they usually occur when there are multiple offers.” The seller’s agent may tell Agent A that their client will accept one price and then Agent B submits another offer at a higher price.

Marge Lindsay, director of training and associate broker with West USA Realty, Inc., adds that verbal counteroffers can catch clients off-guard especially when they think that because the offer has been accepted verbally it’s official. “Clients are emotionally involved in the transaction and truly believe when a verbal counter offer is accepted, it’s a done deal.”  When that turns out not to be the case, the client may seek to blame their agent for inadequately protecting their interests. Lindsay therefore counsels her students to inform clients that “noting can be enforced until it’s in writing.”

2.  Pre-Possession without Written Consent. “We’re seeing a rise in buyers’ agents giving their buyers the keys prior to close of escrow and without a written contract,” said Steward. This is not only a liability issue, since the seller is responsible for the home and all who occupy it prior to close of escrow, but also an ethics violation. Article 3, Standard of Practice 3-9 states: “REALTORS® shall not provide access to listed property on terms other than those established by the owner of the listing broker.” 

Marge Lindsay adds, “We added provisions for this into the contract because of the many legal issues that come up as a result. The comment I make to my students is: Don’t let this recommendation [to get keys early] come out of your mouth.” REALTORS® need to understand the liability they are exposing themselves to. “Ask you broker to share a few horror stories about this. You’ll see how bad things can get.”

3.  Agents Not Presenting All Offers. Trudy Moore said, “Agents must present all offers. Recently, I’ve seen listing agents get 15 offers and only present the one that they think is the best deal for their client.” And while agents might have their client’s best interests in mind, not presenting all offers is grounds for violation.  Furthermore, it is up to the seller, not their agent, to decide which offer is best. Article 1, Standard of Practice 1-6 states: “REALTORS® shall submit offers and counter-offers objectively and as quickly as possible.”  Equally important is Article 1, Standard of Practice 1-7, which requires REALTORS® to “submit to the seller/landlord all offers and counter-offers until closing or execution of a lease unless the seller/landlord has waived this obligation writing.”  You must therefore be certain to present all purchase offers up until close of escrow unless you have written instructions from your principal waiving this requirement.

AAR is here to help you resolve disputes

If you’re experiencing any of these issues, talk to your broker and get his advice.

AAR offers its members many benefits, one of which is assistance with dispute resolution. When dealing with money, things can get heated. Depending on the allegation or offense, AAR offers various processes to resolve disputes for members statewide, with the exception of the Southeast Valley Regional Association of REALTORS® (SEVRAR). If your dispute is with a SEVRAR member, contact their association at 480-833-7510 for assistance.

Read previous Code Talk articles:

The C.O.E Bells Ring During the First Phone Call

The Ethics of Property Management

Disclose Early and Often

Listing Agreements

The Case for Buyer-Broker Agreements

Five Tips for Adhering to Article 12

Fair Housing


Code Talk:The Ethics of Property Management

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Code Talk: Five Tips for Adhering to Article 12

To view the contents of this post, you must be authenticated and have the required access level.

Code Talk: Disclose Early and Often

Editor’s Note: The Code of Ethics turns 100 in 2013. AAR will be celebrating the code 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. 

Article 2 of the National Association of REALTORS® Code of Ethics states: “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.”

This seems straightforward enough. But with disclosure, come gray areas. Take the following NAR case interpretation:

Seller A came to REALTOR® B’s office explaining that his company was transferring him to another city and he wished to sell his home. In executing the listing contract, Seller A specified that the house had hardwood floors throughout and that the selling price would include the shutters and draperies that had been custom made for the house. Seller A said that he would like to continue to occupy the house for 90 days while his wife looked for another home at his new location, and agreed that REALTOR® B could show the house during this time without making a special appointment for each visit. Accordingly, REALTOR® B advertised the house, showed it to a number of prospective buyers, and obtained a purchase contract from Buyer C. Settlement was completed and at the expiration of the 90-day period from the date of listing, Seller A moved out and Buyer C moved in.

On the day that Buyer C moved in, seeing the house for the first time in its unfurnished condition, he quickly observed that hardwood flooring existed only on the outer rim of the floor in each room that had been visible beyond the edges of rugs when he inspected the house, and that the areas that had been previously covered by rugs in each room were of subflooring material. He complained that REALTOR® B, the listing broker, had misrepresented the house in his advertisements and in the description included in his listing form which had specified “hardwood floors throughout.” Buyer C complained to REALTOR® B, who immediately contacted Seller A. REALTOR® B pointed out that the house had been fully furnished when it was listed and Seller A had said that the house had hardwood floors throughout. Seller A acknowledged that he had so described the floors, but said the error was inadvertent since he had lived in the house for 10 years since it had been custom built for him. He explained that in discussing the plans and specifications with the contractor who had built the house, the contractor had pointed out various methods of reducing construction costs, including limiting the use of hardwood flooring to the outer rim of each room’s floor. Since Seller A had planned to use rugs in each room, he had agreed, and after 10 years of living in the house with the sub-flooring covered by rugs, he had “simply forgotten about it.”

REALTOR® B explained, however, that Seller A’s description, which he had accepted, had resulted in misrepresentation to the buyer. “But it’s a small point,” said Seller A. “He’ll probably use rugs too, so it really doesn’t make any difference.” After further pressure from REALTOR® B for some kind of adjustment for Buyer C, Seller A concluded, “It was an honest mistake. It’s not important. I’m not going to do anything about it. If Buyer C thinks this is a serious matter, let him sue me.”

REALTOR® B explained Seller A’s attitude to Buyer C, saying that he regretted it very much, but under the circumstances could do nothing more about it. It was at this point that Buyer C filed a complaint with REALTOR® B’s Board.

At the hearing before a Hearing Panel of the Professional Standards Committee of REALTOR® B’s Board, during which all of these facts were brought out, the panel found that REALTOR® B had acted in good faith in accepting Seller A’s description of the property. While Article 2 prohibits concealment of pertinent facts, exaggeration, and misrepresentation, REALTOR® B had faithfully represented to Buyer C information given to him by Seller A. There were no obvious reasons to suspect that hardwood floors were not present throughout as Seller A had advised. REALTOR® B was found not in violation of Article 2.

Case #2-3: Obligation to Disclose Defects | (Revised Case #9-9 May, 1988. Transferred to Article 2 November, 1994)

Advice from the Pros 

Echoing the example above, Frank Dickens, SRES, ABR, CRMS, a REALTOR® with Realty ONE Group in Phoenix offers a warning: “Agents can innocently get caught up in a lack of disclosure.” But, Dickens offers some sage advice, “You must encourage your seller to go deeper. Even the most minor repair can become a huge issue to a buyer that is disgruntled.” Dickens uses an example of a home with a newly- added roof. While nothing is wrong with the new roof per se, there must’ve been a reason for a new roof to be added. Ask your clients why they chose to make upgrades to the house and you’ll soon get the whole story. Much like a well-documented used car, Dickens says that buyers aren’t looking for a perfect house; they are looking for an honest seller.

When he encounters a seller that may be hesitant to disclose something, Dickens is straightforward with his clients saying, “I have a fiduciary obligation to sell your home for the most amount of money and the least amount of liability.” Dickens takes his job as an advisor seriously and helps his clients understand the ramifications of not disclosing. “In the lawsuits I’ve seen, typically the buyer is suing the seller’s agent. These cases go on for years and years. If you want to make sure that you’re protecting yourself and your clients, you have to get them to disclose and document everything.”

Disclosure Forms From Arizona Association of REALTORS®

When it comes to disclosure, agents should encourage their sellers to use the Seller Property Disclosure Statement (SPDS) form and be as thorough as possible. (Note: If you are using the AAR Residential Resale Real Estate Contract, you are contractually obligated to deliver a completed SPDS to the buyer within five days after contract acceptance.) This form allows the seller to list all known issues about the property. It is also a great way for sellers to identify any repairs made to the property. A sample of the SPDS is available here. AAR also provides a Vacant Land/Lot Seller SPDS.

A Comprehensive Loss Underwriting Exchange (CLUE) is a report from the seller providing a five-year insurance claim/inquiry history for a specific property address. More information on using CLUE Reports is here.

Tips for Buyers 

The AAR Buyer Advisory was created to help buyers identify some of the more common issues that a buyer should investigate and verify concerning a property purchase. Included is a list of:

  1. Common documents a buyer should review;
  2. Physical conditions in the property the buyer should investigate; and
  3. Conditions affecting the surrounding area that the buyer should investigate.

To receive automatic updates to the Buyer Advisory, sign up for the email feed. The Buyer Advisory is also available in Spanish.


Code Talk: Little Known Facts About the Code of Ethics

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