section 20 unit 1: Real Estate Ethics

Meet George, a real estate licensee who's fairly new to the industry. In an attempt to build his business, he drove through neighborhoods, looking for homes listed for sale. After identifying a few, doing some research, and preparing comparative market analyses (CMAs), he contacted several sellers. He told the sellers he'd appraised their property at a higher value than their current listing agent. He offered the sellers a discount on the commission if they terminated their listing with their current agent and signed a contract with him. What three things did George do wrong?

1) Contacted sellers who were working with other agents 2) Contacted sellers for the purpose of asking them to break their contracts with their agents 3) Told sellers that he appraised their property

What's the purpose of the NAR Code of Ethics preamble?

To let all who read it know what the public, customers, clients, and other REALTORS® should expect from REALTORS®

Adopt a code of ethics offered by the industry. a. true b. false

a. true

As a licensee, the Golden Rule can help you behave ethically no matter the situation. a. true b. false

a. true

Because morality differs from person to person, laws are made with generally accepted ethics as their guiding principle. a. true b. false

a. true

Both ethics and laws are rules of conduct. a. true b. false

a. true

Ethics are dependent on a person's conscience and values. a. true b. false

a. true

You're a broker who's also a member of the National Association of REALTORS®. What does Article 3 of the Code of Ethics require you to do? a. Cooperate even when it's not in your client's best interests. b. Cooperate unless it's not in your client's best interest. c. Offer compensation to the cooperating broker. d. Post listings on the MLS even if the client refuses.

b. Cooperate unless it's not in your client's best interest.

Which of these actions is allowed but avoids the licensee illegally practicing law? a. Advising a landlord client of his legal rights and responsibilities b. Charging a $10 scrivener's fee for preparing transaction documents c. Filling in blanks on an association-approved purchase contract d. Striking provisions in a contract that don't apply to a transaction

c. Filling in blanks on an association-approved purchase contract Licensees are permitted to fill in the blanks on approved contract forms. Any other action noted here would be considered unauthorized practice of law.

What type of language should be used to write contracts? a. Boilerplate language b. Legal phrases in Latin where necessary c. plain language d. Precise real estate jargon

c. plain language

Which of the following is a useful tool in determining the most ethical course of action? a. Do whatever is easiest. b. do whatever works best for you c. flip a coin d. Follow the Golden Rule.

d. Follow the Golden Rule.

Which of the following actions concerning tenant rights should real estate licensees take? a. Advise landlords on their rights and responsibilities under law. b. Advise tenants on their rights and responsibilities under the law. c. ignore tenant rights d. Learn and understand tenant rights.

d. Learn and understand tenant rights.

Basis for laws

ethics

Review each scenario and identify whether it violates licensing law. a. Nathan and Cassie are friends. Cassie, a real estate licensee, recently provided some real estate services to Nathan's company. Now, Nathan is preparing to do some work-related travel overseas and wants to give his wife power of attorney (POA) in case anything comes up while he's gone. He asked Cassie to prepare the POA for him, and she agreed. Did Cassie violate her responsibilities as a real estate licensee? b. Tamron is the listing agent for Anthony's 25 acres of land. Carter would like to purchase the land and makes a full-price offer on the land. But now seller Anthony thinks he might get more for his property because the first offer has come in at full price, so he asks Tamron to counter-offer for a higher price. Carter, upset that they've countered his full price offer, mentions possibly contacting his lawyer to force the sale at the list price. Tamron persuades Carter otherwise by telling him that it would be a lengthy process, cost more money, and, in her opinion, would not go in Carter's favor. Based on what Tamron told him, Carter agrees to the counter-offer and the sale is completed. Afterward, Carter filed a complaint. What do you think? Does Carter have a valid complaint against Tamron?

they both violate licensing law

Donald owned a commercial property he wanted to sell, so he hired Marcus as his real estate agent. After the property sold, Donald was upset to learn that had he disposed of the property through a trade rather than through a sale, his tax position would have been more favorable. What two actions should Marcus have taken? a. Advise Donald that the sale of the property might lead to unfavorable tax consequences. b. Suggest that Donald contact an attorney to discuss tax consequences of the transaction. c. Predict the tax impact the transaction would have for Donald. d. Advise Donald to trade rather than sell the property.

a. Advise Donald that the sale of the property might lead to unfavorable tax consequences. b. Suggest that Donald contact an attorney to discuss tax consequences of the transaction. This was an actual case. The client filed a complaint that the agent should have advised him that trading instead of selling the property would be more advantageous. In this case, the agent advised the client that there might be undesirable consequences and to consult an attorney. The client, however, did not consult an attorney. The agent acted appropriately and was not in violation. He isn't responsible for providing legal advice.

Broker Manuel tells his associated licensees that they must abide by Article 3, which means they must cooperate with and compensate cooperating brokers. Is this true or false? a. False, because Article 3 doesn't require members to compensate cooperating agents. b. False, because Article 3 requires neither cooperation nor compensation. c. True, unless it's not in the client's best interest. d. True, whether it's in the client's best interest or not.

a. False, because Article 3 doesn't require members to compensate cooperating agents.

Marcus is a real estate licensee who works a lot with landlords and tenants. What should Marcus do to ensure he doesn't overstep into the unauthorized practice of law? a. Marcus should know and understand tenant rights. b. Marcus should advise clients on tenant/landlord rights and responsibilities.

a. Marcus should know and understand tenant rights.

Specify accepted ethical behaviors to safeguard citizens

laws

Varies from person to person (religious or cultural beliefs)

morality

What are three of the reasons that it's important for brokerage firms to have a code of ethics? a. To decrease legal liability and avoid costly penalties b. To help foster a collaborative and professional working environment c. To meet the real estate commission's requirement for brokerage firms to have a published code of ethics d. To create a standard of behavior and practices that will establish and reinforce the firm's reputation within its market

a. To decrease legal liability and avoid costly penalties b. To help foster a collaborative and professional working environment d. To create a standard of behavior and practices that will establish and reinforce the firm's reputation within its market Establishing a code of ethics for the firm strengthens the inner workings of the organization as well as the firm's reputation within the industry. Another benefit is the decreased legal liability.

Which of the following should real estate professionals do in accordance with the Code of Ethics preamble? a. assist regulatory bodies b. Refrain from professional gossip c. Remain quiet about others' misconduct d. mishandle client funds e. Stay informed about real estate markets

a. assist regulatory bodies b. Refrain from professional gossip d. Stay informed about real estate markets

It's not enough to just announce that your firm has a code of ethics. To be meaningful, the code must be institutionalized. What are five things brokerages can do to integrate the code of ethics into the organization? a. commit it to writing b. spread the word c. walk the walk d. Chastise violators at sales meetings e. enforce it f. reinforce it

a. commit it to writing b. spread the word c. walk the walk e. enforce it f. reinforce it

Article 3 of the NAR Code of Ethics requires brokers to perform which of the following actions in regard to other brokers? a. cooperate b. compete c. compensate d. maintain secrecy

a. cooperate Article 3 of the National Association of REALTORS® Code of Ethics and Standards of Practice presents the requirements for cooperation among brokers.

Explain clauses to your clients. a. do b. dont

a. do

Provide a qualified list of professionals to your clients. a. do b. dont

a. do

Recommend buyers obtain professional home inspections. a. do b. dont

a. do

Use existing forms that an attorney has reviewed. a. do b. dont

a. do

When listing a property, you cooperate with the buyer's agents. a. ethical b. not ethical

a. ethical

You treat all parties honestly, even customers. a. ethical b. not ethical

a. ethical

Ashton and his management team established their own written code of ethics, which they believe reflects the organization's values and commitment to the ethical practice of real estate. The firm's management regularly reinforces the importance of the code and reminds their affiliates to report suspected violations per their firm's documented process. a. good b. not good

a. good

Wesley's firm recently transferred the hard copy of its code of ethics to its intranet. In a few days' time, the management team will facilitate a series of training events focused on the code and the importance of applying the firm's values to all real estate transactions. The firm has had no issues with code violations, which management attributes to regular and consistent communication and training of the code of ethics as well as clearly stating the consequences for violating the code. a. good b. not good

a. good

Avery, the broker-owner of her own firm, adopted a code of ethics from one of the industry leaders but put her own stamp on the code by imposing higher standards of conduct. Through consistent messaging, training, and example, she continues to reinforce the importance of the code for the organization. a. good b. not good

a. good Avery is definitely on the right track and is doing a good job of institutionalizing her firm's code of ethics.

According to the NAR Code of Ethics and Standards of Practice preamble, national interest requires the appropriate use of ________. a. land b. money c. regulations d. sales techniques

a. land

A licensee's personal ethical standards interact with laws and morals every day. a. true b. false

a. true

For every broker who is a member of NAR, cooperation among REALTORS® is not optional. a. true b. false

a. true

Laws are legally enforced. a. true b. false

a. true

NAR requires REALTORS® to disclose accepted offers to other licensees. a. true b. false

a. true

The "right thing" is always ethical. a. true b. false

a. true

The easiest course of action isn't always the most ethical. a. true b. false

a. true

The government makes laws to safeguard the welfare of its citizens. a. true b. false

a. true

Build on an existing code of ethics available in the industry. a. true b. false

a. true A firm may want to impose higher standards of conduct, and one way to approach this is by building on an existing industry code of ethics.

Create its own set of ethical guidelines. a. true b. false

a. true Although it may be easier to start with existing industry codes of ethics, firms can create their own set of guiding principles.

Alert licensing boards and associations to any professional misconduct. a. yes b. no

a. yes

Eliminate practices that may result in public damage to the profession's reputation. a. yes b. no

a. yes

Refrain from making unsolicited comments about other professionals. a. yes b. no

a. yes

Share responsibility across the profession for integrity and honor. a. yes b. no

a. yes

REALTOR® Jack listed a house for a seller, Liz, and posted it in the local MLS. A few days later, REALTOR® Tracy presented a full-price offer from her client, Grizz. The offer, however, was contingent on Grizz selling his current home. Liz accepted the offer, but she asked Jack to keep marketing the property, looking for an offer without a contingency. REALTOR® Jack told the seller, Liz, about the new offer. Liz asked him to inform Grizz about the second offer, and in response Grizz agreed to waive his contingency. He was willing to purchase the home, even if his house didn't sell first. Jack then had to call Jenna and tell her that the house was no longer for sale because there had been a previous offer, and now that the first buyer had removed his contingency, Liz would sell the property to him. Jenna filed a complaint, claiming that Jack violated Article 3 when he failed to tell her that Liz had already accepted another offer with a contingency. At the hearing, Jack defended himself by saying he was acting in his client's best interest. There was no guarantee that Grizz would buy the house, so it was okay for him to pursue a second offer. Jack believed that by marketing the property and not telling other brokers about that first offer, he justifiably promoted his client's best interests by continuing to attract potential buyers. A week later, REALTOR® Jenna contacted Jack to set up a showing for her buyer client. Jack arranged the showing with Liz, but he didn't tell Jenna about the first offer. Jenna's client, Pete, loved the house and signed a purchase offer for the full listed price. Jenna left a copy of the offer at Jack's office. Now that you've read the scenario, which of the statements do you think is a correct interpretation of Article 3 of the Code of Ethics? a. Jack was right to keep the contingent offer confidential, because this was best for his client. b. Jenna was right to file the complaint, because Jack is required to disclose accepted offers to other licensees. c. Liz was wrong to accept an offer with a buyer's contingency and then ask Jack to continue marketing the property. d. Grizz wasn't allowed to change his original offer to remove his contingency, and this was a breach in contract.

b. Jenna was right to file the complaint, because Jack is required to disclose accepted offers to other licensees.

According to the NAR Code of Ethics, what responsibility do licensees have related to material facts? a. Accept all client statements concerning the property as material fact. b. Make a reasonable effort to ascertain all material facts concerning each property for which an agency is accepted. c. Make extraordinary efforts to ascertain all material facts concerning each property for which an agency is accepted. d. They don't have any responsibilities related to material facts.

b. Make a reasonable effort to ascertain all material facts concerning each property for which an agency is accepted. Licensees should make reasonable efforts to ensure material facts related to the property are accurate. This may include (but is not necessarily limited to) asking the client questions about the property and its condition or inspecting the property.

When implementing a code of ethics into a brokerage, it's likely to be more effective if ______. a. The brokerage provides monetary reinforcement for abiding by the code b. The code is enforced through consequences c. the code is memorized d. The code is posted on the brokerage's website

b. The code is enforced through consequences

What needs to happen for a code of ethics to be effective? a. Employees should be required to memorize the code. b. The code needs to be enforced through consequences. c. The code needs to have monetary reinforcement. d. The code should be posted on the firm's website.

b. The code needs to be enforced through consequences. For a code of ethics to function, it needs to be enforced through consequences for violating standards.

In accordance with Article 3 of the Code of Ethics, REALTORS® must cooperate with other licensees except ______________________. a. For transactions that are under $100,000 b. When doing so is not in the best interests of their client c. When there is a question of a shared commission d. If given permission by their client to do otherwise

b. When doing so is not in the best interests of their client

Create your own real estate forms. a. do b. dont

b. dont

Interpret legal consequences of specific actions. a. do b. dont

b. dont

Predict the amount that property taxes may increase due to a sale. a. do b. dont

b. dont

Recommend a specific professional. a. do b. dont

b. dont

Every broker is required to be a member of the National Association of REALTORS®. a. true b. false

b. false

Offers with unresolved contingencies are an exception to NAR's offer acceptance disclosure requirement. REALTORS® are not required to disclose these types of accepted offers. a. true b. false

b. false

Personal ethics have no impact on professional behavior. a. true b. false

b. false

Under Article 3 of the NAR Code of Ethics, the obligation to cooperate includes "the obligation to share commissions, fees, or to otherwise compensate another broker." a. true b. false

b. false Article 3 states, "The obligation to cooperate does not include the obligation to share commissions, fees, or to otherwise compensate another broker."

Ethics are legally enforced. a. true b. false

b. false Ethics are only legally enforceable if the ethical violation also violates a law.

Obey all client instructions, even if it means bending the law. a. yes b. no

b. no

Promote the competitive spirit by using every advantage possible to best other practitioners. a. yes b. no

b. no

You modify the suggested listing price of a property above market value in an effort to win the listing. a. ethical b. not ethical

b. not ethical

You offer advice on the condition of a property's roof. a. ethical b. not ethical

b. not ethical

You promote your own interests ahead of the client's. a. ethical b. not ethical

b. not ethical

You're the listing agent on your parents' property, but you keep this fact confidential from prospective buyers. a. ethical b. not ethical

b. not ethical

Molly announced that the firm was adopting NAR's Code of Ethics and that members were responsible for reviewing the code on their own time. She also announced that the management team was actively working on a process for reporting and investigating violations. Her firm had a reputation to uphold and because of that, there would be severe consequences for violating the code. a. good b. not good

b. not good

Kevin and his management team adopted NAR's Code of Ethics for their firm and emailed everyone in the organization to let them know. Because NAR's Code of Ethics is so well known, the management team has no plans to provide training or reinforce the code in other ways. a. good b. not good

b. not good Although Kevin and his management team have made a good decision in adopting NAR's Code of Ethics for the firm, they still need to enforce and reinforce adherence to the code.

Rylee's proud to say that her firm has its own code of ethics, which she helped to establish. Although she hasn't had a chance to put the code in writing, she's confident that the members of her organization understand the importance of adhering to the code. She's told them on more than one occasion how costly the penalties are for unethical behavior, as she herself knows from personal experience. a. good b. not good

b. not good Rylee's intentions might be good, but her attempts at integrating her firm's code of ethics leave much to be desired. First, Rylee needs to put the code in writing to prevent ambiguity, then she needs to have a more structured and consistent way of communicating and reinforcing the importance of the code. She also needs to pay attention to the message her own behavior and actions are sending to the members of the organization.

Nicholas is working with a buyer client who wants a special clause added to his purchase contract. How should Nicholas handle this? a. Ask the client to draft the clause, then insert it into the contract. b. Draft the clause himself and have the client run it by his attorney. c. Instruct the client to hire an attorney to draft the clause. d. Tell the client that he doesn't need that particular contract clause.

c. Instruct the client to hire an attorney to draft the clause.

What's meant by "minimum ethical standards"? a. Commission levels should not ethically rise above the minimum standards. b. Commissions set below these standards would be unethical. c. Licensees should strive to act at least at that level, and more if possible. d. Licensees should strive to do no more than the minimum required.

c. Licensees should strive to act at least at that level, and more if possible.

Samantha is a real estate licensee. She's showing her client a property. The client asks about some spots on the ceiling and wonders if they're an indication of a roof leak. What should Samantha do? a. Climb on the roof and perform an inspection. b. Hire a home inspector to physically inspect the property. c. Suggest that her client contact a roofing expert to make a determination. d. Tell her client that the spots indicate a roof leak.

c. Suggest that her client contact a roofing expert to make a determination.

Why might a brokerage firm choose to create its own set of ethical guidelines? a. To eliminate ethical guidelines altogether b. To impose looser guidelines than a national or state code c. To impose stricter guidelines than a national or state code d. To meet local business law requirements

c. To impose stricter guidelines than a national or state code Firms usually choose to create their own ethical standards when they want to hold their employees to a higher standard of conduct than the national or state code.

When a brokerage implements a code of ethics, who should be familiar with it? a. Administrative assistants b. Everyone at the brokerage c. licensees d. management

c. licensees

Sherman is a listing agent. At what point is he no longer obligated to present offers to his seller client? a. He has a signed contract. b. He has received his commission. c. his client ask him to stop d. The sale has closed.

d. The sale has closed.

The preamble to the NAR Code of Ethics and Standards of Practice notes that it's in both REALTORS®' and consumers' best interest when REALTORS® ______. a. avoid confrontation b. Compete aggressively c. dont cooperate d. Try to eliminate unfair business practices

d. Try to eliminate unfair business practices

Unauthorized practice of law and acting outside the scope of one's expertise are similar issues. Which of the following circumstances specifically relates to the unauthorized practice of law? a. Predicting a specific tax increase or decrease b. Predicting the return on investment for a rental property c. Recommending specific investments d. Writing contract addenda or additional provisions that cover unfamiliar circumstances

d. Writing contract addenda or additional provisions that cover unfamiliar circumstances