It's the Rule

by: President & CEO Terese (Terry) Penza, CAE, RCE, e-Pro

NAR case interpretation related to Articles 1 and 12:

Seller T, a widowed elementary school teacher in the Midwest inherited a choice parcel of waterfront property on one of the Hawaiian islands from a distant relative. Having limited financial resources, and her children’s’ college education to pay for, she concluded that she would likely never have the means to build on or otherwise enjoy the property. Consequently, she decided to sell it and use the proceeds to pay tuition and fund her retirement.

Seller T corresponded via the Internet with several real estate brokers, including REALTOR® Q whose website prominently featured his real estate auction services. An exchange of email followed. REALTOR® Q proposed an absolute auction as the best way of attracting qualified buyers and ensuring the highest possible price for Seller T. Seller T found the concept had certain appeal but she also had reservations. “How do I know the property will sell for a good price?” she emailed REALTOR® Q. REALTOR® Q responded “You have a choice piece of beachfront. They aren’t making anymore of that, you know. It will easily bring at least a million, five hundred thousand dollars.” Seller T acquiesced and REALTOR® Q sent her the necessary contracts which Seller T executed and returned.

Several days prior to the scheduled auction, Seller T decided to take her children to Hawaii on vacation. The trip would also afford her the chance to view the auction and see, firsthand, her future financial security being realized.

On the morning of the auction only a handful of people were present. Seller T chatted with them and, in casual conversation, learned that the only two potential bidders felt the property would likely sell for far less than the $1,500,000 REALTOR® Q had assured her it would bring. One potential buyer disclosed he planned to bid no more than $250,000. The other buyer wouldn’t disclose an exact limit but said he was expecting a “fire sale”.

Seller T panicked. She rushed to REALTOR® Q seeking reassurance that her property would sell for $1,500,000. REALTOR® Q responded, “This is an auction. The high bidder gets the property.” Faced with this dire prospect Seller T insisted that the auction be cancelled. REALTOR® Q reluctantly agreed and advised the sparse audience that the seller had cancelled the auction.

Within days, two ethics complaints were filed against REALTOR® Q. Seller T’s complaint alleged that REALTOR® Q had misled her by repeatedly assuring her – essentially guaranteeing her – that her property would sell for at least $1,500,000. By convincing her she would realize that price – and by not clearly explaining that if the auction had proceeded the high bidder – at whatever price – would take the property, Seller T claimed her interests had not been adequately protected, and she had been lied to. This, Seller T concluded, violated Article 1.

The second complaint, from Buyer B, related to REALTOR® Q’s pre-auction advertising. REALTOR® Q’s ad specifically stated “Absolute Auction on July 1”. Nowhere in the ad did it mention that the auction could be cancelled or the property sold beforehand. “I came to bid at an auction,” wrote Buyer B, “and there was no auction nor any mention that it could be cancelled.” This advertising, Buyer B’s complaint concluded, violated Article 12’s “true picture” requirement.

Both complaints were forwarded by the Grievance Committee for hearing. At the hearing, REALTOR® Q defended his actions by noting that comparable sales supported his conclusion that Seller T’s property was worth $1,500,000. “That price was reasonable and realistic when we entered the auction contract, and it’s still reasonable today. I never used the word ‘guarantee’; rather I told her the chances of getting a bid of $1,500,000 or more were very good.” “But everyone knows,” he added, “that anything can happen at an auction.” If Seller T was concerned about realizing a minimum net return from the sale, she could have asked that a reserve price be established.

Turning to Buyer B’s claim of deceptive advertising, REALTOR® Q argued that his ad had been clear and accurate. There was, he stated, an auction scheduled for July 1 and it was intended to be an absolute auction. “The fact that it was advertised as ‘absolute’ doesn’t mean the property can’t be sold beforehand – or that the seller can choose not to sell and cancel the auction. Ads can’t discuss every possibility. It might have rained that day. Should my ad have cautioned bidders to bring umbrellas?” he asked rhetorically.

The hearing panel concluded that while REALTOR® Q had not expressly guaranteed Seller T her property would sell for $1,500,000, his statements had led her to that conclusion and after realizing Seller T was under that impression, REALTOR® Q had done nothing to disabuse her of that misperception. Moreover, REALTOR® Q had taken no steps to explain the auction process to Seller T, including making her aware that at an absolute auction the high bidder – regardless of the bid – would take the property. REALTOR® Q’s actions and statements had clearly not protected his client’s interests and, in the opinion of the hearing panel, violated Article 1.

Turning to the ad, the hearing panel agreed with REALTOR Q’s position. There had been an absolute auction scheduled – as REALTOR® Q had advertised – and there was no question but that REALTOR® Q had no choice but to cancel the auction when he had been instructed to do so by his client. Consequently, the panel concluded REALTOR® Q had not violated Article 12.

Do Not Call Enforcement
The Federal Communications Commission (FCC) issued a forfeiture notice to Dynasty Mortgage, LLC in the amount of $770,000 for 70 phone calls made by Dynasty to 50 consumers who were listed on the Federal Do Not Call List

What Is a Deeded Parking Spot?
What exactly is Deeded Parking, and what makes it different from any other parking space? In a deeded parking situation, the owner of the space has fee simple ownership of the parking space. Deeded parking is bought and sold like a property - it even has it’s own property category in MLSNI (Property Type 7), and its own distinct, different listing input sheet. In addition, the owner of a deeded parking space pays taxes on the space, like he/she would on any other property. Since most deeded parking spaces are tied to condo or townhouse developments, there are often restrictions on ownership. In many cases, the owner of the deeded parking space must have ownership of a unit within the development. However, in some cases, the space may be conveyed by the owner to a person who does not own a residential unit in the association (association regulations should indicate whether or not deeded parking may be owned by non-residents). Please be aware that, when buying or selling units in highrise buildings (especially in Chicago), parking spaces are not always included, and may indeed require the additional transaction of a deeded parking space in order to insure on-site parking.

They're my clients!
Code of Ethics Standard of Practice 16-7 "The fact that a prospect has retained a REALTOR® as an exclusive representative or exclusive broker in one or more past transactions does not preclude other REALTORS® from seeking such prospect’s future business. "(Amended 1/04).

Exclusive Agreements
Standard of Practice 16-13 All dealings concerning property exclusively listed, or with buyer/tenants who are subject to an exclusive agreement shall be carried on with the client’s representative or broker, and not with the client, except with the consent of the client’s representative or broker or except where such dealings are initiated by the client. Before providing substantive services (such as writing a purchase offer or presenting a CMA) to prospects, REALTORS® shall ask prospects whether they are a party to any exclusive representation agreement. REALTORS® shall not knowingly provide substantive services concerning a prospective transaction to prospects who are parties to exclusive representation agreements, except with the consent of the prospects’ exclusive representatives or at the direction of prospects. (Adopted 1/93, Amended 1/04)

Dealings Initiated by Another Broker’s Client
REALTOR® A, a residential broker, had recently listed a home. REALTOR® A’s marketing campaign included “open houses” on several consecutive weekends. One Sunday afternoon Buyer B came to the open house. REALTOR® A introduced herself to Buyer B and asked whether Buyer B was working with another broker. Buyer B responded that he was, in fact, exclusively represented but went on to add that he was quite familiar with the property as it had been previously owned by a close personal friend. REALTOR® A told Buyer B that she would be happy to show Buyer B through the home but reminded Buyer B that she represented the seller and not Buyer B. After viewing the home, Buyer B indicated that he had pressing business travel plans, was seriously interested in the property, and requested REALTOR® A’s assistance in preparing a purchase offer. REALTOR® A assisted Buyer B in filling out a standard form purchase contract and later that day presented the offer to the seller who accepted it. REALTOR® A was subsequently charged with violating Article 16 for dealing and negotiating with a party who had an exclusive relationship with another REALTOR®. At the hearing, REALTOR® A defended her actions noting that she had told Buyer B that she was the seller’s exclusive agent and, as such, would not and could not represent Buyer B’s interests. She pointed out that it was only after Buyer B had insisted on writing a purchase offer without the assistance of his exclusive representative that REALTOR® A had agreed to do so. She concluded her defense noting that Standard of Practice. 16-13 authorizes dealings with the client of another broker in cases where those dealings are initiated by the client. The Hearing Panel agreed with REALTOR® A that she was the seller’s exclusive representative and had not represented the buyer and concluded that her conduct had not violated Article 16, as interpreted by Standard of Practice 16-13.

Liability at the Open House
California court case found the listing office liable as well as the home owner for visitors accident with injuries. "When a real estate broker is showing a house in the regular course of business, he or she has possession and is exercising dominion. Accordingly, he or she is under a duty of care to repair or warn viewers of concealed dangers of which he or she is aware, or could discover with he exercise of reasonable care." The visitor tripped over a brick in a walk way in the back yard.

Zero Compensation Listings
Any MLSNI listing that shows “0” or less in the Cooperative Compensation field be removed from the system and that an automatic fine of initially $100 be issued to the Listing Agent, and that the fine will be a cumulative fine similar to those issued for Market Time infringements.

FEMA Updates Flood Plain Maps
NAR met with several Federal Emergency Management Agency representatives to hear about progress on the agency's map modernization initiative. FEMA officials said 80 million people will be receiving either preliminary or final revised flood maps by September. The agency has also said its goal to remap every community that needs a new map in five years may not be possible. Inaccurate flood maps make it difficult to determine whether a home is located in a floodplain and can lead homeowners to have inadequate flood insurance.

Identity Theft Guide Updated
Keep your identity and personal information safe at home and at work with the resources in the updated Field Guide to Identity Theft. Read about the importance of keeping client information secure and learn what to do and who to contact if you are a victim of identity theft. Go to http://www.realtor.org/libweb.nsf/pages/fg909 for more information.