Amendment to REALTOR® Code of Ethics Reflects Changes In Business Practices

The class of persons about whom Realtors® should not knowingly or recklessly make false or misleading statements has recently been expanded. An examination of what this means and how it came to pass may be of interest.

First, we note that this discussion of what Realtors® should and should not do is centered around the National Association of Realtors® (NAR) Code of Ethics. Thus it applies to members of NAR. Real estate licensees who are not members of the Realtor® organization are not bound by the Code of Ethics.

Provisions of the Code of Ethics may or may not be reflective of what is found in the law and/or what we might call "everyday ethical principles". They will not contradict the law or those principles, but they may go beyond them.

In the present case we are discussing an amendment (effective Jan. 1, 2012) to the NAR Code of Ethics. First formulated and adopted in 1913, the Code is not viewed, as are some religious documents, as being immutable and forever beyond any need for change. The Code is not treated as if it were carved in stone. To be sure, its principles remain unchanged; but it continually undergoes amendments and/or additions that reflect and address the on-going changes in law, business practices, and technology. In recent years, for example, numerous amendments have made it clear how provisions of the Code extend to activity on the internet and within social media.

The recent amendment to Article 15 of the Code of Ethics is reflective of changes in business practices rather than changes in technology. Article 15 appears in a section of the Code identified as "Duties to Realtors®". (The other two sections are "Duties to the Public" and "Duties to Clients and Customers".) Here is what the amended version says (Strikethrough represents a word removed, underlined words are ones that have been added.): Realtors® shall not knowingly or recklessly make false or misleading statements about competitors other real estate professionals, their businesses, or their business practices.

Why the need for change? Well, as some people noticed, not all Realtors® who are acting in a professional real estate capacity are necessarily competitors with other Realtors®. Persons who are duly licensed and who have joined the Realtor® organization may be fully engaged in activity that is wholly involved with real estate, but that does not compete with those who represent buyers and sellers in transactions. A Realtor® operating an escrow or mortgage company is not competing with one who does sales exclusively.

The phenomenon of Realtors® practicing outside the sales arena grows larger in conditions such as the current economy. For example, finding the income from sales to be insufficient and/or unsteady, a Realtor® might decide to migrate his business into appraisal.

Now, as we all know, there have been lots of disparaging and unkind remarks made about appraisers and their business practices the past few years. Frequently, such remarks have been made by Realtors® who were not competitors with the appraisers, but who were in the sales part of the business. Shouldn't a Realtor® appraiser (or mortgage broker) be afforded the same "protection", so to speak, of Article 15 as a competitor? The amendment says "yes".

Inevitably, the change will raise more questions than answers. One of them will have to do with the Realtor®/non-Realtor® issue. Article 15 occurs in the Duties to Realtors® section, but the article itself doesn't specifically refer to Realtors®. Would it/should it apply to Realtors® only? Even more questions will be raised by the "real estate professional" terminology. Does that apply to termite inspectors or title company representatives?

And, finally, the persistent question will be raised: We shouldn't knowingly or recklessly make false or misleading statements about anyone, so why do we have this specific code provision?