Code of Ethics Exam

Have you ever heard the term "mediation?" What do you think it means?

A voluntary process in which a trained neutral party (called a mediator) assists disputing parties to come to a mutually acceptable resolution of their dispute.

A request for arbitration is initially reviewed by:

the grievance committee.

The Code of Ethics is enforced primarily by:

the local Association of REALTORS®.

At the time the REALTOR® Code of Ethics was adopted

there were no real estate licensing laws.

REALTORS® are required to arbitrate:

those disputes specified by Article 17 of the Code of Ethics.

The REALTOR® Code of Ethics

The Code of Ethics was adopted in 1913. Before then, the real estate industry had a history of speculation, exploitation and disorder. There were no real estate licensing laws. Real estate practitioners, if licensed at all, were licensed as peddlers.

Preamble

The Code protects the buying and selling public. It also protects REALTORS®because following the Code results in higher professionalism and reduced legal liability. The Preamble cannot be cited as the basis for disciplinary action because it is aspirational and intentionally does not set objective standards.

Mediation is:

a process that can be required at local discretion in which a trained mediator assists the parties in coming to a mutually acceptable resolution of their dispute.

The phrase "Under all is the land"

all of the above

Articles of the Code are:

all of the above Cited when a REALTOR® is alleged to have violated the Code. b. broad statements of ethical principles. c. supported¸ interpreted and amplified by Standards of Practice.

These procuring cause guidelines were developed to assist in:

arbitration hearing panels in determining procuring cause in arbitration hearings.

The function of the Professional Standards Committee is to:

determine whether¸ after a due process hearing¸ the respondents were in violation of the Code by clear¸ strong and convincing evidence.

Alternative Dispute Resolution

has been mandated since the Code of Ethics was adopted (in the form of arbitration).

The Grievance Committee's role is to:

have a preliminary meeting to determine whether there was a possible violation of the Code.

Procuring Cause in Arbitration

he majority of arbitration claims involve a dispute between REALTORS® as to which REALTOR® is entitled to cooperative compensation in a transaction. Most disputes ordinarily involve the selling portion of a commission. In the REALTOR® arbitration system, "procuring cause" is generally used to decide these disputes.

Article 9 has two Standards of Practice

9-1: Use reasonable care to keep paperwork current by using written extensions and amendments. 9-2: Make reasonable efforts to explain to clients and customers the nature and specific terms of any contractual relationship being established electronically.

Procuring Cause

"The proximate cause; the cause originating a series of events which, without break in their continuity, result in the accomplishment of the prime object." "It's not the squirrel that gathers the nuts but the one who shakes the tree."

Preamble

"Under all is the land ..." These words clearly convey the immense and all-encompassing nature of real estate and the real estate calling. Land is the foundation of many aspects of society, both the basics of food and shelter, and the more sophisticated aspects of economy and prosperity. Truly, REALTORS® deal in one of society's most important commodities.

Ethics

- Standards of Conduct - Morals + Personal Beliefs - Honesty - Integrity - Doing the Right thing

The idea of "ethics" can mean:

- Standards of Conduct - Morals + Personal Beliefs - Honesty - Integrity - Doing the Right thing All of the above

Pathways to Professionalism

1) Respect for the Public. 2) Respect for Property. 3) Respect for Peers

Article 1 - Standard of Practice

1-1: REALTORS®, even when acting as principals in a transaction, must abide by the Code. 1-2: The Code applies to all real-estate related activites; applies to all brokerage relationships; and provides definitions of "client," "customer," "prospect," "agent," and "broker." 1-3: Do not deliberately mislead owners about market value of their property. 1-4: Do not mislead buyers about savings through buyer representation. 1-5: Dual representation can occur only with full disclosure and informed consent. 1-6: Submit all offers/counter-offers objectively and as quickly as possible. 1-7: Listing brokers submit all offers/counter-offers to sellers until closing. 1-8: Buyer brokers submit all offers/counter-offers to buyers until an offer or counter-offer is accepted. 1-9: The duty of confidentiality continues after agency and recognized non-agency relationships end. 1-10: Property managers competently manage clients' properties. 1-11: Property managers exercise due diligence and make reasonable efforts to safeguard clients' property. 1-12: Before taking listings, REALTORS® tell clients about cooperation and compensation of co-brokers, compensation of buyer brokers, and any potential for dual agency accepted. 1-13: Before entering buyer representation agreements, REALTORS® tell clients about cooperation, the amount of compensation paid by the client, and any potential for dual agency. 1-14: REALTORS® preparing valuations of property do not base their fee on the amount of the appraisal or other valuation. 1-15: If the seller gives permission, REALTORS® disclose the existence of offers on property, and whether offers were obtained within the listing firm or by a cooperating broker, to inquiring buyers and cooperating brokers. 1-16: REALTORS® shall control access and use of listed property as authorized by the seller/owner.

Key Factors of Procuring Cause

1. No predetermined rule of entitlement. Panels will consider all of the facts and circumstances to determine which REALTOR® was the procuring cause of the sale. Ex: A common misconception is that the party who first showed a property to the purchaser is automatically entitled to the commission. This is not the case. Similarly, writing the successful offer to purchase is not the sole deciding factor of procuring cause. The fact that a REALTOR® had a buyer agency agreement with the purchaser does not automatically entitle that REALTOR® to the commission.

Three major categories of the Code.

1. That first priority category is called "Duties to Clients and Customers." ( The most important set of duties we owe ) 2. "Duties to the Public." 3. "Duties to REALTORS®"

The Ethics Complaint Process

1. The first step is review of the complaint by the Grievance Committee. 2. If the Grievance Committee believes the complaint involves a potential violation, the second step is a hearing before a panel of the Professional Standards Committee.

Articles"of the Code. The seventeen Articles of the Code are divided into these three categories. Articles are broad statements of ethical principles which we, as REALTORS®, subscribe to.

1. The principle of protecting and promoting the interests of clients Standard of Practice 1-3 which states, "REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value." Clearly, if you mislead an owner about market value, you are not protecting and promoting that owner's interests. (Article 1)

There are several Standards of Practice explaining Article 12

12-1: Using "free" in advertising is acceptable if all "conditions" are also clearly stated. 12-2: Advertising services as "free" is acceptable if any compensation or potential benefit is also clearly disclosed at the same time. 12-3: Offering premiums or inducements is acceptable provided there is also disclosure of all terms and conditions. 12-4: Do not offer property for sale or lease without authority, and never quote a price different from the listed price. 12-5: All advertisements of listed property must include the name of your firm. 12-6: REALTORS® must disclose their status as owners or landlords and REALTORS® or real estate licensees when advertising unlisted property in which they have an ownership interest. 12-8: Your obligation to present a true picture includes information presented on your website. 12-9: Websites of REALTORS®, their firms, and all licensees affiliated with the firm must include the firm's name and the state of licensure and the licensee's state of licensure in a reasonable and readily apparent manner. 12-10: The duty to present a true picture in advertising and representations to the public includes URLs and domain names. 12-11: Selling or sharing consumer information gathered via the Internet must be disclosed in a reasonable and readily apparent manner. 12-12: Your URLs and domain names must present a true picture. Do not register URLs or domain names that would create an untrue picture if you would use them. 12-13: The true picture obligation permits REALTORS® to use only authorized designations and credentials. 12-7: REALTORS® who participate in a transaction, either as listing or cooperating broker, may claim to have "sold" the property.

Article 16: Standards of Practice

16-1: The Code does not prohibit aggressive or innovative business practices. Advertising solicitations 16-2: General announcements, mailings, and distributions to prospects are permissible even if some recipients are exclusively represented. Solicitation of other brokers' clients 16-3: Contacting clients of other brokers to offer to provide unrelated services or the same service for a different property is permitted. 16-4/16-5: Solicitation of exclusively represented sellers or buyer is prohibited except under specific circumstances. 16-6: Contacts and discussions with clients of other brokers are permitted if initiated by the client. 16-7: Prior exclusive relationships that a prospect had with another broker are not a bar to seeking such prospect's future business. 16-8: Solicitation of expired listings or agreements is permissible. Dealing with other brokers' clients 16-13: Dealings with other brokers' clients is prohibited unless permission is given or the client initiates the dealings. Obligations when entering into exclusive relationships 16-9: Use reasonable care to determine whether a prospect is already subject to an exclusive agreement. 16-14: Solicitation of and contact with clients under non-exclusive agreements is permitted if the client understands and consents to the possible obligation to pay more than one commission. Relationship disclosures 16-10: Buyer representatives or brokers must disclose that relationship to the seller or the landlord's agent or broker at first contact. 16-11: On unlisted property, buyer agents disclose that relationship to the seller or landlord, and ask for any expected compensation, at first contact. 16-12: Sellers' or landlords' representatives or brokers, and subagents must disclose that relationship to buyers and tenants as soon as practical. Compensation Issues 16-15: Compensate only cooperating brokers - not their salespersons. 16-16: Do not use offers to purchase to attempt to modify listing brokers' offers of compensation. 16-17: Do not extend listing brokers' offers of cooperation or compensation to other brokers without permission. Other Issues 16-18: Do not use MLS or other volunteered information to create referral or buyer prospects. 16-19: Do not place for sale/lease/rent signs without the seller or landlord's consent. 16-20: After ending your affiliation with a firm, do not induce that firm's clients to cancel their exclusive agreements.

Article 2: Standards of Practice

2-1: Discover and disclose adverse factors but only within areas required by the real estate licensing authority. 2-2/2-3: Renumbered as 1-12/1-13 in 1998. 2-4: Do not recite false consideration in documents (except when obviously nominal). 2-5: If state law defines a matter as "non-material" or not subject to disclosure, it is not "pertinent" under Article 2.

First Step: A contractual dispute or a non-contractual dispute as specified in Standard of Practice 17-4.

A contractual dispute can often be one between a listing broker and cooperating broker over the procuring cause of a sale. Standard of Practice 17-4 is very specific in detailing the non-contractual disputes which can be arbitrated. The primary focus of Standard of Practice 17-4 is arbitration between cooperating brokers with a commission dispute, even though no contract exists between them.

The second condition of arbitrability is that the dispute be between REALTORS® associated with different firms.

In this context, "REALTORS®" means principals in a firm - not salespersons or broker-associates. If a dispute is between REALTOR® principals in different firms, arbitration is mandatory if initiated by either of the parties. If the dispute is between REALTORS® in the same firm, arbitration is voluntary. This means that all parties must agree to arbitration.

Who can file an ethics complaint?

Anyone - whether a member of the public or a REALTOR®.

The two types of complaints typically resolved by local Associations are (check two):

Arbitration Claims Ethics Complaints

Article 12 - Truth in marketing and advertising!!

Article 12 says that REALTORS® must be honest and truthful in their real estate communications and must present a "true picture" in their advertising, marketing, and other representations. 2. Equires REALTORS® to make sure that the public is on notice and understands that all communications from a REALTOR®, including their advertising, marketing, and other representations are from a real estate professional. ( "REALTORS® shall ensure that their status as real estate professionals is readily apparent in their advertising, marketing, and other representations, and that the recipients of all real estate comunications are, or have been, notified that those communications are from a real estate professional." )

Article 9 can be summed up in four, short words: Get It in Writing!!!

Article 9 specifies what REALTORS® must do in every transaction: Assure, whenever possible, that agreements are in writing, In clear and understandable language, Expressing the specific terms, conditions, obligations and commitments of the parties, and Provide a copy of each agreement to each party upon their signing or initialing. Article 9 requires that a copy of each agreement be given UPON a party's signature or initialing. UPON does not mean: when the REALTOR® can find a copy machine. when the REALTOR® returns to the office. when it is practical for the REALTOR® to make the copy. in a "reasonable" time.

Enforcement of the Code of Ethics

As noted earlier, the Articles of the Code are objective standards by which REALTORS®' conduct is measured. This "measuring" process is known as enforcement of the Code of Ethics.

When is a "general" mailing an ethical practice?

At any time¸ so long as MLS or other similar data is not used to target properties currently listed.When the Code of Ethics was adopted

The Structure of the Code

Before leaving the structure of the Code, be aware that only Articles can be violated. Standards of Practice can only be cited in support of an alleged violation of an Article.

The three major categories of the Code are (mark the three correct ones

Duties to REALTORS®, Duties to Clients and Customers, Duties to the Public

Types of Discipline

Letter of Warning Letter of Reprimand Education Fine not to exceed $15,000 Probation for one year or less Suspension for not less than 30 days or more than one year Expulsion from membership for a period of one to three years Suspension or termination of MLS privileges Association can impose an administrative processing fee (not to exceed $500) on any REALTOR® found in violation of the Code.

Ethics Complaint

Ethics complaint. As you might suspect, ethics complaints deal with questions of whether a REALTOR® has violated one or more of the Articles of the Code. You might think of this type of complaint as a "conduct" complaint.

A member can be sanctioned for violating the Pathways to Professionalism.

False.

The third condition of arbitrability is that the dispute must arise out of the parties' relationship as REALTORS®.

Generally, this means that only real estate-related disputes are arbitrated.

Grievance Committee Process

In that determination, the Grievance Committee asks: "If the allegations in the complaint are taken as true on their face, is it possible that a violation of the Code of Ethics occurred?" If the answer is "yes,"then the complaint is forwarded to a hearing panel of Professional Standards Committee. Note that the Grievance Committee does NOT hold hearings, but simply conducts meetings in which complaints are reviewed on the basis of the written information provided. There are no personal appearances, witnesses or testimony at the Grievance Committee level.

A "due process" hearing includes which of the following (check all that apply):

Knowing the nature of the complaint in advance. An adequate opportunity to prepare a defense. The right to present evidence, testimony and witnesses. The right to cross-examine the complainant and complainant's witnesses. The right to legal counsel. An impartial peer panel. Access to an appeal process.

Ethic Hearing " Due Process "

Knowing the nature of the complaint in advance. An adequate opportunity to prepare a defense. The right to present evidence, testimony and witnesses. The right to cross-examine the complainant and complainant's witnesses. The right to legal counsel. An impartial peer panel. Access to an appeal process.

Preamble "Golden Rule "

Lastly, as amended in 2007, the last paragraph of the Preamble now clearly indicates that REALTORS® pledge themselves to the standards established in the Code for all of their activities "whether conducted personally, through associates or others, or via technological means*,..."

If a REALTOR® is found in violation of the Code, which of the following types of discipline may be imposed (check all that apply):

Letter of Reprimand Fine not to exceed $15¸000 Suspension of MLS privileges Education Letter of Warning

Ethics or Arbitration

One of the first things to understand about Code enforcement is there are two types of complaints which may come to an Association. (We'll use the word "Association"to mean any local Board or Association.)

Preamble's concepts focus on honesty, integrity, fairness, and moral conduct in business relations. Not only does the Preamble use these exact words, other principles including the call to "maintain and improve the standards of their calling"and to "strive to become and remain informed on issues affecting real estate"define and lend emphasis to these ideals.

Preamble

The Preamble's use of "widely allocated ownership"and "widest distribution of land ownership,"speaks to a fundamental premise upon which our country was founded. The founders were wary of a few persons accumulating vast quantities of land because, in England, land meant power. In their daily business, REALTORS®support the fundamental concept that many persons owning small parcels of land is vital to the efficient functioning of our democracy.

Preamble

The Concept of Procuring Cause

Procuring cause is a legal concept developed over many years by the courts. REALTORS®have adopted and adapted the concept of procuring cause to resolve contractual disputes between REALTORS®. The National Association of REALTORS® has established procuring cause guidelines for use in resolving arbitrable disputes. The procuring cause guidelines can be found in Appendix II to Part Ten of the Code of Ethics and Arbitration Manual of the National Association of REALTORS®.

Article 1

Protect and promote the interests of clients; The obligation to the clients' interests is primary; And, regardless of any relationship, REALTORS® treat all parties honestly.

Article 2 - Disclosure

REALTORS® must avoid exaggeration misrepresentation concealment of pertinent facts about property transactions. REALTORS® are not required to discover latent (hidden) defects, advise on matters outside the scope of their real estate license, or disclose facts which are confidential under agency or non-agency relationships.

To summarize Article 12:

REALTORS® must be honest and truthful in their real estate communications and must present a "true picture" in their advertising, marketing, and other representations. REALTORS® must ensure that their status as real estate professionals is readily apparent in advertising, marketing, and other representations. Recipients of all real estate communications must be notified that those communications are from a real estate professional.

The Arbitration Process

Remember that arbitration is about resolving a money claim, not a conduct claim. The arbitration hearing process is similar to the ethics hearing process. Like the ethics process, arbitration begins with the filing of a "complaint,"called a "request for arbitration." Unlike an ethics complaint though, an arbitration request can only be filed by certain members in certain circumstances. Arbitration is available under the circumstances established in Article 17 of the Code of Ethics. In many states, the arbitration process is grounded in a state law often called the "Uniform Arbitration Act." If a dispute is not resolved through mediation and the Grievance Committee finds the dispute arbitrable, a hearing panel decides which party is entitled to the disputed funds by conducting a full due process hearing. The focus of the arbitration hearing panel is to decide which party is entitled to an award, typically a disputed commission in a transaction. We will briefly review the standards for deciding the award in a few minutes.

The Arbitration Hearing

Remember that violations of the Code of Ethics have to be proven by "clear, strong and convincing"evidence. In an arbitration hearing, the prevailing party must prove they are entitled to the disputed funds by a "preponderance"of the evidence. This is a lower standard than used in ethics hearings and is the same standard used by courts in civil cases. It means the "greater weight of the evidence,"or "more likely than not." Once a hearing panel makes an arbitration award, that award becomes the legal basis for a court to enter judgment against the non-prevailing party. If a non-prevailing party fails to pay the award, the award can be enforced by the courts.

Discipline

Remember, when we talk about "discipline", we mean discipline of the REALTOR®'s membership only, not action against the individual's real estate license. No association of REALTORS®has jurisdiction over licensure by the state real estate licensing authority. Hearing Panels are authorized to recommend one or more types of discipline against a REALTOR®found in violation of the Code. Only authorized forms of discipline may be imposed.

Article 16's main concept is

Respect for exclusive relationships. Not engaging in any practice or Taking any action Inconsistent With the agency or other exclusive relationship recognized by law that other REALTORS®have with their clients.

The code of Ethics

The Code of Ethics establishes objective, enforceable ethical standards. It does not address issues of courtesy or etiquette. For these service criteria for the industry and to provide guidance in potential dealings with consumers and with other REALTORS®, NAR developed the Pathways to Professionalism.

In reviewing ethics complaints, the Grievance Committee looks to many procedural issues, such as whether the REALTOR® respondent is a member of the local Association and whether the complaint was filed in the established time limits. If the complaint is appropriately filed, the Grievance Committee next determines whether there was a possible Code of Ethics violation. An ethics complaint must be filed within 180 days of when the facts of the complaint could have been known by the complainant in the exercise of reasonable diligence or within 180 days after the conclusion of the transaction or event, whichever is later.

The Grievance Committee

The two committees which receive, review and resolve ethics complaints are (check two):

The Grievance Committee The Professional Standards Committee

Mediation

The parties determine the outcome...not the mediator. The mediator's role is to help the parties communicate. If the parties resolve their dispute through mediation, they sign an agreement, spelling out the terms of their settlement. When a dispute is successfully resolved through mediation, no arbitration hearing is necessary. Depending on the policy of your Association, mediation may be offered either before or after the Grievance Committee has reviewed an arbitration request. Mediation can also be offered without a request for arbitration being filed. Mediation is considered a "win/win" resolution since both parties have agreed to the terms and conditions of the agreement.

arbitration request

nder our membership agreements and Article 17 of the Code we, as REALTORS®, arbitrate monetary disputes with REALTORS® in different firms instead of litigating. So, this second type of complaint might be viewed as a "money"complaint.It should be noted here that REALTORS® are increasingly relying on mediation to resolve disputes that in the past would have been arbitrated.

Depending on the state, these non-agency relationships may be called by different names. Some of the names for non-agency relationships include:

Transaction broker Transaction licensee Facilitator Transaction coordinator Intermediary By using the phrase "other exclusive relationship recognized by law, "Article 16 encompasses all of these newer relationships regardless of their name. If state law allows an exclusive relationship to be created, whether it establishes an agency relationship or not, Article 16's provisions apply.

The Preamble to the Code of Ethics is an aspirational introduction to the Code which sets ideals that REALTORS® strive to meet.

True

Grievance Committee

When reviewing ethics complaints and arbitration requests, the Grievance Committee acts as an initial "screening" or "review" committee. The Grievance Committee is comprised of REALTORS® appointed by the Association President.

To summarize Article 9:

Whenever possible agreements should be reduced to writing, Using clear and understandable language, Expressing the specific terms, conditions, obligations and commitments of the parties, and A copy of each agreement furnished to each party upon their signing or initialing.

An arbitration panel will decide a dispute:

based on procuring cause

The Preamble:

cannot be used to discipline a REALTOR®.

The Professional Standards Committee

is also comprised of REALTORS®appointed by the Association President. The Professional Standards Committee holds hearings on complaints forwarded by the Grievance Committee. Through the hearing process, the Professional Standards Committee decides whether there has been a violation of the Code of Ethics.

Once a request for arbitration is filed

it is reviewed by the Grievance Committee similar to the way the Grievance Committee processes ethics complaints. The Grievance Committee must look at several procedural issues, such as making sure the dispute was filed on a timely basis. A request for arbitration must be filed within 180 days of the closing of the transaction or 180 days from when the facts of the request could have been known in the exercise of reasonable diligence, whichever is later. Grievance Committee asks: "If the allegations in the request for arbitration are taken as true on their face, is the dispute related to a real estate transaction and is it properly arbitrable, i.e. is there some basis on which an award could be based?" If the Grievance Committee decides there is a basis for arbitration, the case is forwarded to the Professional Standards Committee for hearing. If the Grievance Committee does not find a basis for arbitration, the request is dismissed.

When real estate licensing laws were established, state legislatures:

looked to the Code of Ethics as a source of standards for of the real estate industry

The Code of Ethics:

was adopted to establish standards of conduct for the industry.