It's the Rule - October 2006 by: President & CEO Terese (Terry) Penza, CAE, RCE, e-Pro Commercial Net listing: Case #1-3: Net Listing (Originally Case #7-3. Revised May, 1988. Transferred to Article 1 November, 1994.) Client A called REALTOR® B to list a small commercial property, explaining that he wanted to net at least $170,000 from its sale. He inquired about the brokerage commission and other selling costs. REALTOR® B’s response was: “You have indicated that $170,000 net to you from the sale will be satisfactory. Suppose we just leave it at that and take all of the selling costs from the proceeds of the sale above $170,000.” Client A agreed. The property was sold to Buyer C for $220,000. After settlement, in which it was apparent that $50,000 would go to REALTOR® B as commission, Client A and Buyer C both complained to the Board of REALTORS® about REALTOR® B’s conduct in the matter, and a hearing was scheduled before the Board’s Professional Standards Committee. REALTOR® B’s defense was that he had performed the service that Client A engaged him for precisely in conformance with their agreement. Buyer C had considered the property a good buy at $220,000 and was happy with the transaction until he learned the amount of the commission. The Hearing Panel found REALTOR® B in violation of Article 1 of the Code. The panel concluded that REALTOR® B had departed completely from his obligation to render a professional service in fidelity to his client’s interest; that he had, in fact, been a speculator in his client’s property; and that he had not dealt honestly with either party to the
transaction. Client A contacted REALTOR® B to list a vacant lot. Client A said he had heard that similar lots in the vicinity had sold for about $50,000 and thought he should be able to get a similar price. REALTOR® B stressed some minor disadvantages in location and grade of the lot, and said that the market for vacant lots was sluggish. He suggested listing at a price of $32,500 and the client agreed. In two weeks, REALTOR® B came to Client A with an offer at the listed price of $32,500. The client raised some questions about it, pointing out that the offer had come in just two weeks after the property had been placed on the market which could be an indication that the lot was worth closer to $50,000 than $32,500. REALTOR® B strongly urged him to accept the offer, stating that because of the sluggish market, another offer might not develop for months and that the offer in hand simply vindicated REALTOR® B’s own judgment as to pricing the lot. Client A finally agreed and the sale was made to Buyer C. Two months later, Client A discovered the lot was no longer owned by Buyer C, but had been purchased by Buyer D at $55,000. He investigated and found that Buyer C was a brother-in-law of REALTOR® B, and that Buyer C had acted on behalf of REALTOR® B in buying the property for $32,500. Client A outlined the facts in a complaint to the Board of REALTORS®, charging REALTOR® B with collusion in betrayal of a client’s confidence and interests, and with failing to disclose that he was buying the property on his own behalf. At a hearing before a panel of the Board’s Professional Standards Committee, REALTOR® B’s defense was that in his observation of real estate transactions there can be two legitimate prices of property—the price that a seller is willing to take in order to liquidate his investment, and the price that a buyer is willing to pay to acquire a property in which he is particularly interested. His position was that he saw no harm in bringing about a transaction to his own advantage in which the seller received a price that he was willing to take and the buyer paid a price that he was willing to pay. The Hearing Panel concluded that REALTOR® B had deceitfully used the guise of rendering professional service to a client in acting as a speculator; that he had been unfaithful to the most basic principles of agency and allegiance to his client’s interest; and that he had violated Articles 1 and 4 of the Code of Ethics.
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