Real Estate Ethics Reviewed, Part 2
Real estate ethics certainly is not one of the more exciting dinner table topics, but an extremely important aspect to consider when hiring an agent to represent your interests when buying or selling real estate. Asking your proposed realtor how they intend to split a commission with other agents is a very important question. Obviously, if you are paying a six percent commission to lure buyers to your property but your agent only advertises a 2.5% commission to the selling realtor, keeping 3.5% for the listing agency, this can put your property at a distinct disadvantage compared to other listings. If your agent does not disclose this fact to you upfront and hides the uneven offering, it is a breach of ethics.
Most agents split commissions 50/50 in order to entice as much interest in their client’s listings as possible, hoping that other agents will show their listing in order to sell your property faster. Sometimes there are reasons for a higher split to the listing agent than the selling agent, such as short sales, bank owned or properties that require extensive investment from the realtor in order to market and sell the home. Yet, when any buyers agent sees a 2.25% commission offered to bring a buyer and knows that a 2.75% commission is being taken by the listing agent (for a 5% listing), it is only human nature to expect that the agent with the buyer will try and sell a home that compensates them equally with the listing agent.
Article four of the code requires realtors to disclose any involvement or ownership they have in a property prior to signing any contract or offering for sale any property. Article five requires realtors to disclose when offering any other services when they have an interest or contemplated interest in a property. Article six prevents realtors from accepting compensation for referring real estate products or services such as homeowners insurance, warranty programs, title work, or mortgage financing. Article seven requires that realtors may not accept compensation without disclosing to all parties and the compensation must be reported on a HUD-I settlement statement.
Article eight states that realtors are not allowed to comingle funds and must maintain in a separate account any monies coming into their possession for escrows, trust funds or clients monies. Most brokers send funds directly to a title company instead of holding funds in a broker account. Finally, article nine requires that all realtors adhere to the listing agreements, purchase contracts and leases and all MLS documents in order to handle a client’s property per the agreed upon documentation in the listing file. Basically, realtors cannot extend listing agreements, change pricing, operate without a valid contract or represent a client outside of the terms of an executed and enforceable contract. Failure to abide by these requirements is a breach of ethics. The realtor must also ensure that the client receives a copy of any and all documents relating to the agreement they formulate and should offer these immediately upon completion.
In the next writing we will cover realtor’s duties to the public including fair housing, advertising requirements, representation of areas they are not knowledgeable, broker price opinions and comparative market analysis’ and the code of ethics as it relates to real estate disciplines.
Nothing is more important than integrity in doing business. Fairness and community stewardship is an integral component of how each of us interacts with one another. Provident Partners Realty & Management has the distinction of being named a finalist of the Better Business Bureau Ethics Award as well as the Scottsdale Chamber of Commerce “Sterling Award.” This is a standard that has resulted in receiving an A+ rating with the Central and Northern Arizona BBB that has been maintained in excess of ten years. For more information, or if you need assistance buying or selling real estate, feel free to call me at 602-622-1196.