Real Estate Ethics: Importance & General Concepts

Instructor: Deborah Miller

Deborah is a licensed Real Estate Broker. She has a Post Master's Certificate in college teaching with all but the dissertation of her doctorate in philosophy complete.

What are ethics and why are they important in real estate practice? This lesson provides an overview of ethical standards in the work of real estate professionals as well as penalties for unethical behavior.

Ethical Standards in Real Estate

The real estate industry encourages the highest level of ethics in business practice to promote and preserve the right to own, use, exchange and transfer real property. It is imperative that practitioners within the industry know ethical standards, understand why they are important, and abide by them. It is essential that practitioners avoid discrimination in real estate transactions as well as any act of misrepresentation, exaggeration or intentional act of deception, also known as fraud. Unethical practice is prohibited in all aspects of real estate practice including advertising, property disclosure, listing agreements, inducements, the holding of earnest money and contract facilitation.

Code of Ethics

The legal duty of the REALTOR and licensed real estate practitioner is to promote and protect the rights and interests of the buying and selling public. Agency laws also mandate respect for agency relationships; a practitioner has duties that discourage unscrupulous and corrupt practices that dishonor the real estate profession or create unfair advantage over competitors.

In a time when there were no license laws, buyers, sellers and real estate professionals were unprotected from speculation, exploitation and disorder. In 1913, the National Association of REALTORS (NAR) Code of Ethics was adopted in the U.S. to establish a professional standard of conduct in the real estate industry. The Code of Ethics, which is updated on a regular basis, continues to form the model of ethical practice today. Each state in the union has its own real estate association with an unique canon of ethics which adopts many of the same professional standards of the NAR Code of Ethics. All real estate professionals should abide by the most current version of the Code, the canon of ethics in the states in which they work, as well as any agency regulations and relevant state and federal laws.

Code of Ethics Violations

The Code of Ethics includes Articles and Standards of Practice. Articles are broad statements of ethical principles, whereas Standards of Practice interpret and support the Articles. A violation of the Articles of the Code of Ethics is determined by the National Association of REALTORS. Local real estate association canon of ethics violations are determined by the local association or investigators of the state licensing authority.

Although many real estate professionals have initial training and continuing education in ethics, many practitioners sadly learn from trial and error. For example, is it a violation of Article 1, Standard of Practice 1-5 of of the NAR Code of Ethics when a seller's agent acts as the buyer's agent in the same real estate transaction without disclosing such to both parties. As this can be considered a conflict of interest, dual agency was at one time a debatable issue that ultimately generated complaints, which led to rules regarding the practice in the Code.

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