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Violating the Code of Ethics Can Get You Sued

Realtors who ignore the Code of Ethics do so at their own peril. Angry buyers & sellers who believe they suffered financial damages because of a real estate agent are quick to instigate lawsuits to recover their alleged losses. Lawsuits can be costly in time, money, and reputation, and are always emotionally stressful. But prudent Realtors who learn and then abide by our Code of Ethics can avoid the mistakes, pitfalls, and temptations that lead other licensees to litigation nightmares.

After we’ve been in the business a few years, most Realtors seem to forget that we once swore to be guided by the Realtors’ Code of Ethics. We don’t remember that the promise to do so is the heart of the oath we took when we first joined our local board.

Because our memories of Code specifics usually turn to dust, the NAR instituted a mandatory Ethics review that each of us must attend every four years in order to keep our membership alive.

The trouble is, not all Realtors take the Code seriously, and their failures to do so frequently result in miserable, nasty, expensive lawsuits as buyers, sellers, and other licensees become plaintiffs who claim financial injury and initiate actions at law.

You may ask how this is possible when the harshest punishments available to a board’s Professional Standards Committee are summary expulsion from the
board and/or a $1,000 fine.

On the surface, that seems like a good question, which I will answer with another. What makes you think that the injured parties are going to be content with simply filing an ethics complaint?

The fact is, lots of people never even bother with filing ethics complaints and go straight to attorneys, who are all too happy to advocate for them in a court of law. After all, that is what litigation attorneys do – they either sue or they defend those who are sued – at the rate of $200-$350 per hour.

As a Realtor called upon by attorneys to offer expert testimony in lawsuits involving Realtors, I have seen the good, the bad, and the loathsome. In case after case where the evidence supports the plaintiffs’ claims for damages, I have stated my opinion that the Realtors conduct violated one or more articles of the Code of Ethics. And that is just the half of it.

You see, each of those relevant Code violations also constitutes a breach of one or more duties imposed upon licensees by Florida Statute 475. It’s easy as pie for most experts to connect a violation of one to a breach of the other because 475.278 (2) (a) is both simple and crystal clear. Among other requirements, It declares that the duties of a Transaction Broker to buyers and sellers include (1) dealing honestly and fairly, and (3) using skill, care, and diligence in the transaction.

Now here’s the big news for most readers; the fact that you no longer have to disclose your status as a Transaction Broker does not relieve you of your lawful statutory duties.

When consulting to attorneys, I find that nearly all are ignorant of our Code of Ethics, and they are happy to add that fuel to their fire when focusing on a Realtor’s misdeeds. But sometimes, a Realtor’s adherence to the Code will let me come to an opinion that, in fact, the Realtor’s conduct is ethical and he or she is being unjustly accused by a disgruntled buyer or seller.

Some Examples

Case 1: Buyer sued the listing office that was handling sales at a large town home community, claiming substantial damages because the broker and salesperson did not inform him of the presence of a sewage lift station and a community trash compactor near the several units he had purchased. An examination of the evidence showed that the clearly visible lift station enclosure had been there for years, and that the huge compactor construction stood out like an elephant at both the buyer’s agent’s many inspections during construction and at the buyer’s walk-through.

Article 2 of The Code prohibits us from concealing pertinent facts, and our corresponding FREC duty requires us to disclose known but hidden defects in the property. Inasmuch as the two items were out in the open, I testified that there was no concealment on the part of the listing broker, and no requirement to disclose that which was clearly visible and obvious.

Case 2: Buyers sued a listing Realtor and the sellers for damages after their offer to purchase her listing at full price without an appraisal was not accepted, but a lower offer was. My examination of the evidence revealed that the agent had negotiated a secret agreement with the sellers providing for a lower commission if she also procured the buyers, which is exactly what happened. Dual or variable commission arrangements are not illegal, but according to Article 3 of the Code of Ethics, they must be indicated as such in the MLS and the details have to be disclosed immediately to any cooperating agent who plans to present an offer.

So, in my sworn deposition, I declared that this breach of the Code also led to a violation of the FREC requirement that licensees deal fairly and honestly. The sellers also lost thousands of dollars when they dropped the price to meet the lower appraisal, and they joined the buyers’ suit against the Realtor.

Case 3: Buyer sued Realtor for substantial damages (claiming lost potential profit) charging that the Realtor unfairly failed to inform him of better competing offers. This was an easy case. It turned out that the buyer neither asked if there were any competing offers, nor did the seller give the required permission for his Realtor to reveal their existence. Article 1 of the Code says that conduct is o.k., so I concluded that – insofar as meeting the standards of FREC -- the listing Realtor was both fair and honest.

Cases 4, 5, & 6: I will spare you the details, just be sure to have your Seller’s Disclosure forms signed by the buyers, get the signed forms back to sellers, and keep copies for both yourself and your broker. This will protect you from charges of violating Article 9 of our Code, and thus insulate you from FREC charges that you failed to exercise skill, care, and diligence in the transaction. More importantly, such taking care of business can also help shield you from nasty claims of “failure to disclose a hidden defect” (Article 2) if the seller itemized one in the disclosure, and a count that you were unfair and dishonest. We’re talking FREC here.

The Right Side

The Realtor Code of Ethics and our duties as spelled out by Chapter 475 do not dovetail in every respect. For example, FREC does not give a hoot if you recklessly make false or misleading statements about your competitor or former partner -- conduct that is outlawed by Code Article 15. But if a Realtor violates Code articles that relate to any type of real estate transactions from residential to commercial to leasing to management, there’s a chance that one or both of the principal parties might suffer financial loss and, just as bad, serious emotional distress.

That’s how lawsuits begin. And the next thing you know, an expert is hired who will tie the violations of the Code of Ethics to particular violations of Florida Statute 475, and then tell the jury all about it.

Believe me; I would much rather help your attorney defend you than help the plaintiff’s attorney prosecute you. Study the Code, conduct yourself accordingly, and you will be on the right side.

By Larry Lowenthal
Realtor at Century 21 Rose Realty West, Cooper City, Florida
© 2012 Larry Lowenthal. All rights reserved. More articles at www[dot]realwitness[dot]com

By Larry Lowenthal
Real Estate Expert Witness: Broker Conduct, Realtor Ethics, Standard of Care
ABOUT THE AUTHOR: Larry Lowenthal
Larry Lowenthal is Real Estate Expert Witness / Broker in Gainesville, Florida, home of the University of Florida. A native Chicagoan, his University of Chicago degree is in Economics.
Following a notable 1st career as a creative professional in the advertising agency business, Larry earned a broker license and later completed Coldwell-Banker's training course in Miami. He analyzed hundreds of complaints as Chair/member of his board of Realtors Grievance committee, and tried many as a hearing panelist. He is mostly retired from the brokerage business but stays current on the law.

Copyright Larry Lowenthal

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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