REALTOR® Outlook

Ethics and Revealing Prices

June 10, 2008

The NATIONAL ASSOCIATION OF REALTORS® recently revised three of its Standards of Practice and these changes require all buyers’ agents to inform clients that their offers might not be kept confidential.

While this revision is being construed as a change in the way real estate agents and brokers can ethically conduct business, it’s not, says June Barlow, CALIFORNIA ASSOCIATION OF REALTORS® vice president and general counsel. “Although most listing agents think it is unethical to share the price of another’s offer with someone else, there is nothing in the NAR Code of Ethics that prohibits it,” Barlow explains.

“The rules have always been that the seller has no obligation to keep any offer confidential unless you have a written agreement. What’s changed,” says Barlow, “is that NAR’s Code of Ethics explicitly requires a buyer’s agent to tell clients that their offers may not be kept confidential.”

That said, the whole issue of “shopping offers” has come into play, admits Barlow.

“In buying and selling businesses and other transactions, it’s very common to have a confidentiality agreement or nondisclosure agreement, which would be signed before ‘secrets’ are spilled. With real estate’s dynamics, buyers usually don’t get something signed by the seller—except for the agency disclosure form—before you present offers and put pen to paper on the purchase contract.”

For Barlow, the legal implications of NAR’s revisions have yet to fully manifest: Will buyers who are aware of NAR’s provision insist on a confidentiality agreement to protect them? “If they do that,” Barlow opines, “then we’re going to see confidentiality agreements and, once that starts, that will change the dynamic of our transactions. It would require a pre-agreement (the confidentiality agreement) before engaging in the real estate purchase offer interplay.

If it is signed, there would be other issues: How much subtle info do you give someone to work in your client’s best interest without going over the line and breaching the confidentiality agreement?” Barlow asks. “If confidentiality agreements become common, it will be a challenge for all the brokers, both in the terms of training and a human challenge in terms of changing behavior.”

We’ve provided some examples of how the current changes to the Code of Ethics impact the agent-client relationship.

Scenario #1 – A buyer’s agent working with a buyer presents a purchase offer to the seller through the listing broker. The listing broker takes the offer under consideration but doesn’t respond immediately.

Meanwhile, the listing broker has talked to the seller and other offers have come in. The seller advises the listing broker to reveal what the first offer is to see if subsequent buyers will beat it. Is it ethical for the listing broker to share the offering price with others?

Answer: There is nothing in the REALTOR® Code of Ethics to prohibit this. “It may not be the way that every listing agent would operate,” says Barlow, “and some would contend that could hurt the seller. That’s a marketing decision that the client, the seller, and the listing broker need to make.”

Scenario #2 – A broker is representing both the buyer and seller. During the transaction, the seller says, “I am OK at $450,000, but I might go as high as $470,000, and the buyer says I am going to offer $430,000 but I might go up to $450,000.” Can you share that information?

Answer: No. Under dual agency, this would clearly be against the listing broker’s own buyer’s interest in most instances to share this info with other competing buyers, because the listing agent also represents the buyer. Civil Code Section 2079.21 prohibits dual agents from disclosing that the buyer is willing to pay more than the offer price or that the seller will take less than the list price without the express written consent of that client.

Scenario #3 – Does the dual agency apply if there are two different sales agents in the same office representing a buyer and a seller?

Answer: Yes. The brokerage firm is the dual agent even though many offices use two different agents to give each client separate attention. The brokerage firm itself is the “agent.”

Scenario #4 – If you have a confidentiality agreement–which is very unusual–is it confined to only price or price and terms?

Answer: Because there is no standard confidentiality agreement, you would have to look at the scope of each one. Does it include terms? When does it expire? Are there exceptions? Does it include other agents in the form? If an agent has a confidentiality agreement, then agents will have to be very careful to comply with its precise terms. This includes communication with other agents. Once under such an agreement, hints that reveal the price may violate the agreement. Anything covered by the confidentiality agreement is off-limits.

In order to avoid an implied breach, you cannot provide hints or suggestions. According to Barlow, agents working under this scenario “would have to be extremely careful lest they violate that agreement. It’s not the open kind of communication that many are used to.”

C.A.R. Standard Forms Address Confidentiality

Four standard forms were revised to address the issues of confidentiality raised in this article and by the changes to the REALTOR® Code of Ethics: Buyer Broker Agreement (Form BBNN), Buyer Broker Agreement Exclusive (Right to Represent) (Form BBE), the Buyer Broker Agreement Non-Exclusive (Right to Represent) (Form BBNE) and Statewide Buyer and Seller Advisory (SBSA). These standard forms are available at http://www.car.org by selecting “Legal,” then “Standard Forms.

The Cons of Shopping Offers

  • Shopping offers may make buyers angry.
  • Disrupts relationships with other brokers.
  • Competing buyers might offer lower prices than they otherwise would have.

Code of Ethics Revisions*

Specifically, the revised Standard of Practice 1-13 reads: When entering into buyer/tenant agreements, REALTORS® must advise potential clients of the possibility that sellers or sellers’ representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties. (Adopted 1/93, Renumbered 1/98, Amended 1/06)

The revised Standard of Practice 1-15 reads:

REALTORS®, in response to inquiries from buyers or cooperating brokers, shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. (Adopted 1/03, Amended 1/06)

Kay Wilson-Bolton has been a REALTOR® in Ventura County Since 1976.

 

 

 

 

 

 

 

 

 

 

 

 

About Kay Wilson-Boltonhttp://www.kaywilsonbolton.netWith a full-time career in real estate, I can add to your bank of knowledge, not only in real estate but in many areas of life that deal with people and relationships and choices. My real estate career has taught me many lessons about planning ahead and looking forward. I believe in helping along the way so that they can be the best they can be in any situation. I serve as a Fire Department Chaplain and Coordinator for the Many Meals Project which serves homeless and hungry families in my community. The event is far more than many meals. I make pastoral visits to the inmates in the County Jail System and offer them what God says about "all things being new" and His remarkable plan for our lives. I have served my community as Mayor and in many volunteer capacities. I serve others by serving God first. My husband is involved in prison ministry and is a graphic artist. We live a simple life in Santa Paula with an office cat named Scout, three rescued poodles and two cats at home.

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