Complete disclosure is the key

What must you do to protect the interests of your seller when the buyer is a broker with your company?

This case study from the National Association of REALTORS® Ethics and Arbitration Manual concerns Article 1 of the Code of Ethics, which states: "When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly. (Amended 1/01)"

Mr. and Mrs. A visited REALTOR® B’s office in a suburb of a major city. They explained that they had owned a four-bedroom ranch house nearby for the past thirty years, but since all of their children were grown and Mr. A would soon be retiring, they intended to sell their home and spend several years touring the country in their motor home. REALTOR® B offered to perform a market analysis, but Mr. and Mrs. A declined, commenting that they knew of several recent sales in their neighborhood and felt confident that they knew what their home was worth.

REALTOR® B and Mr. and Mrs. A entered into an exclusive listing agreement that authorized REALTOR® B to publish the listing through the board’s multiple listing service. REALTOR® B conducted an open house, advertised in the local paper, and took other steps to actively promote the sale of the home.

Four weeks after the property went on the market, REALTOR® B received a telephone call from REALTOR® Z, a broker affiliated with the same firm who worked out of the firm’s principal office downtown. REALTOR® Z introduced herself to REALTOR® B–since they had never met–and explained that she had seen information regarding Mr. and Mrs. A’s home in the MLS. REALTOR® Z explained that she was interested in the property as an investment and indicated that she was sending an offer to purchase to REALTOR® B through the firm’s interoffice mail.

When REALTOR® B met with Mr. and Mrs. A to present REALTOR® Z’s offer, he carefully explained that REALTOR® Z was, in fact, a member of the same firm, although he was not personally acquainted with her. Mr. and Mrs. A, being satisfied with the terms and conditions of the purchase offer, signed it and requested that REALTOR® B take the necessary steps to close the sale. REALTOR® B made all of the necessary arrangements, and several weeks later, the sale closed and a commission was paid to REALTOR® B.

Several weeks later, REALTOR® B received a letter from Attorney T, representing Mr. and Mrs. A. Attorney T’s letter indicated that since REALTOR® Z had purchased the property and was a member of REALTOR® B’s firm, in Attorney T’s opinion, REALTOR® B’s firm could not have acted as their agent in the sale and that REALTOR® B was not entitled to any listing commission. The letter went on to demand that REALTOR® B refund the commission that had been paid by Mr. and Mrs. A.

REALTOR® B, after consulting with his attorney, responded that he did not believe that REALTOR® Z’s purchase of the property had rendered his firm incapable of representing the seller’s best interest in the transaction, and politely, but firmly, refused to refund the commission.

Mr. and Mrs. A, acting through their attorney, filed a complaint with the board of REALTORS® that included a statement of the facts and alleged that REALTOR® B’s refusal to refund the commission constituted a violation of Article 1 of the Code of Ethics.

REALTOR® B, in his response, agreed with the facts as stated in Mr. and Mrs. A’s complaint but indicated that he did not believe that he had failed to represent the best interests of his client (Mr. and Mrs. A) and, consequently, had no obligation to refund the commission that he had been paid.

After careful review of the complaint and response, the Grievance Committee concluded that a hearing would be necessary and the matter was referred to the hearing panel selected from the board’s Professional Standards Committee.

At the hearing, Mr. and Mrs. A repeated the facts as set forth in their written complaint and, in response to REALTOR® B’s cross-examination, admitted that REALTOR® Z had no influence in their decision to list the property with REALTOR® B or their decision as to the asking price; that REALTOR® B had carefully disclosed to them that REALTOR® Z was a member of the same firm; and that REALTOR® B had represented their best interests throughout the transaction.

Their only disagreement with REALTOR® B, they stated, was that since their home had been purchased by another member of REALTOR® B’s firm, they felt that REALTOR® B’s firm could not have acted as their agent in the transaction.

How do you think the hearing panel ruled?

Ruling: The hearing panel, after giving careful consideration to all of the evidence and testimony, concluded that REALTOR® B had satisfied his fiduciary duties to Mr. and Mrs. A; had carefully disclosed the fact that REALTOR® Z was a member of the same firm; and that REALTOR® Z had played no part in Mr. and Mrs. A’s decision to list with REALTOR® B nor their decision as to the price they desired for their property. Consequently, in the opinion of the hearing panel, REALTOR® B had performed his obligation under the listing contract; had observed the principles of Article 1 to "promote the best interest of his client" in the transaction; and his refusal to refund commission paid to him by Mr. and Mrs. A did not constitute a violation of Article 1.

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