✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home sellers.
The real estate industry has been rampant with unfair practices like proposing unjust property prices, no transaction transparency, etc. To tackle these issues, the National Association of Realtors (NAR) adopted the Code of Ethics in 1913.
The Code serves as a vital framework to guide real estate professionals. It ensures that the Realtors adhere to high standards of honesty, fairness, and professionalism. Additionally, this ensures consumer trust in the real estate industry remains intact.
Quick Facts About NAR Code of Ethics
- The National Association of REALTORS® represents a total of 1.5 million REALTORS®.
- In 2013, the Realtor® magazine called the NAR’s Code of Ethics a ‘golden thread‘.
- In case of an ethics violation, Realtors are bound to pay a fine upto $15000, usually within 60 days of its citation date.
What Is the NAR’s Code of Ethics?
The NAR Code of Ethics is a set of 17 articles that outlines the responsibilities, guidelines, and principles for Realtors. It is meant to regulate their conduct with consumers, public and other Realtors. This ensures that they work together to serve their clients’ best interests.
Real estate professionals who have earned the “Realtor®” designation from the NAR must adhere to the Realtor ethics code. The state and local organization associated with NAR are also bound to follow it.
What Is the Importance of Ethics in Real Estate?
The Realtor Code of Ethics enhances the reputation of real estate professionals. It helps build trust, and foster long-term relationships between real estate agents and their clients.
It ensures honest representation of property conditions and truthful marketing. This makes real estate transactions transparent and prevents legal issues like misrepresentation, fraud, and contractual disputes. As a result, this may attract more clients and foster repeat business.
Who Does the NAR’s Code of Ethics Protect?
The Code of Ethics protects the interests of public, clients, and other members of the NAR. Moreover, it mandates that the Realtors act with honesty and integrity, and provide accurate information to their clients. They must also refrain from misrepresenting facts about a property.
The Realtor Code of Ethics is meant to ensure that there is no dispute among the professionals. Consequently, these measures collectively uphold the reputation and reliability of the real estate profession.
How Does It Protect Clients?
The real estate Code of Ethics protects clients and ensures that Realtors:
- Safeguard their clients’ confidential information.
- Disclose all known facts about the property.
- Conduct all transactions with honesty and fairness.
- Do not discriminate against any individual on the basis of race, religion, sex, national origin, etc.
- Ensure all the advertising and marketing materials they use are truthful and accurate.
What Is the Realtor Code of Ethics Preamble?
The Preamble mandates that the Realtors understand that the nation’s land be used efficiently and effectively. It also ensures that there is the largest possible distribution of land ownership. Additionally, the code requires that Realtors advertising clearly identify their professional status and firm name.
- Keep up with the latest real estate news and events.
- Avoid practices that may affect the real estate industry’s reputation.
- Give opinions uninfluenced by personal gain.
- Adhere to the Golden Rule, “Whatsoever ye would that others should do to you, do ye even so to them”.
The NAR Preamble states that Realtors must treat others with the same consideration they wish to receive.
Sections of Realtor Code of Ethics
The Code of Ethics has three major sections. To conduct their businesses, the Realtor must abide by the terms mentioned below:
A) Duties to Clients and Customers
Article 1
Prioritize and protect the best interests of their client. They remain obligated to treat all parties honestly.
| Sr. No. | Standards Of Practice |
|---|---|
| 1 | Whenever a Realtor is acting as a principal in the real estate transaction, then they must be obliged to the duties imposed by the Code of Ethics. |
| 2 | The real estate Code of Ethics imposes obligations on all real estate-related operations and transactions, whether they are performed in person, electronically, or in any other way. |
| 3 | In order to secure a listing, REALTORS® should not intentionally mislead the owner about market value. |
| 4 | When applying to be a buyer/tenant representative, REALTORS® must not mislead buyers or renters about potential savings or other benefits. |
| 5 | REALTORS® may represent both the seller/landlord and the buyer/tenant in the same transaction only if both parties have received full disclosure and given their informed consent. |
| 6 | REALTORS® shall submit offers and counter-offers objectively and as quickly as possible. |
| 7 | When working as listing brokers, REALTORS® must continue to submit all offers and counter-offers to the seller/landlord until the sale or lease is completed. |
| 8 | REALTORS® operating as agents or brokers for buyers/tenants must present all offers and counter-offers to buyers/tenants until they are accepted. |
| 9 | REALTORS® have a legal obligation to maintain confidential information provided by their clients during any agency relationship or non-agency relationship recognized by law. This obligation continues after the agency relationship or non-agency connection is terminated. |
| 10 | REALTORS® must adhere to the rules and conditions of their real estate licence as well as the terms and conditions of their property management agreement. |
| 11 | REALTORS® who are employed to maintain or manage a client’s property shall exercise due diligence and make reasonable efforts to protect it against reasonably foreseeable contingencies and losses. |
| 12 | When entering into listing contracts, REALTORS® must advise sellers/landlords of company policies, facts, and any potential for listing brokers to act as disclosed dual agents. |
| 13 | When entering into buyer/tenant agreements, REALTORS® must advise potential clients of REALTOR®’s company policies, amount of compensation, potential for additional or offsetting compensation, etc. |
| 14 | Fees for preparing appraisals or other valuations shall not be contingent upon the amount of the appraisal or valuation. |
| 15 | REALTORS® must disclose offers when asked by buyers or brokers, with the sellers' consent. |
| 16 | REALTORS® are prohibited from accessing, using, allowing, enabling anyone to access or use, listed or managed property on terms or conditions that are not allowed by the owner or seller. |
Article 2
Avoid exaggeration, misrepresentation, or concealment of facts related to the property.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | REALTORS® are only required to find and disclose unfavorable aspects that are reasonably obvious to someone with experience in the areas that their real estate licensing authority requires. |
| 2 | Unless it is the name of an obviously nominal consideration, REALTORS® shall not be parties to the naming of a false consideration in any document. |
| 3 | Factors defined as “non-material” or are expressly referenced in law or regulation as not being subject to disclosure are considered not “pertinent”. |
Article 3
Work cooperatively with other brokers unless it’s in the client’s best interests.
| Sr. No. | Standard of Practice |
|---|---|
| 1 | The terms and conditions of cooperative offers are established by REALTORS® acting as exclusive agents or brokers for sellers/landlords. |
| 2 | Any change in compensation offered for cooperative services must be communicated to the other REALTOR® prior to the time that REALTOR® submits an offer to purchase/lease the property. |
| 3 | Standard of Practice 3-2 does not preclude the listing broker and cooperating broker from entering into an agreement to change cooperative compensation. |
| 4 | When working as listing brokers, REALTORS® are required to declare the existence of dual or variable rate compensation arrangements. |
| 5 | It is the obligation of subagents to promptly disclose all pertinent facts to the principal’s agent prior to as well as after a purchase or lease agreement is executed. |
| 6 | REALTORS® shall disclose the existence of accepted offers, including offers with unresolved contingencies, to any broker seeking cooperation. |
| 7 | REALTORS® must reveal their REALTOR® status and whether their interest is personal or on behalf of a client when requesting information from another REALTOR® about property under a management or listing arrangement. |
| 8 | REALTORS® shall not misrepresent the availability of access to show or inspect a listed property. |
| 9 | REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker. |
| 10 | When it is in the best interests of sellers/landlords, the responsibility to cooperate defined in Article 3 refers to the requirement to share information about listed property with other brokers and to make property available to other brokers for showing to possible purchasers/tenants. |
| 11 | REALTORS® may not refuse to cooperate on the basis of a broker’s race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. |
Article 4-5
Disclose any personal interest in a property.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | For the protection of all parties, the disclosures required by Article 4 shall be in writing and provided by REALTORS® prior to the signing of any contract. |
Article 6-7
No recommending services for a kickback or collecting money under the table.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | REALTORS® shall not recommend or suggest to a client or a customer the use of services of another organization or business entity in which they have a direct interest without disclosing such interest at the time of the recommendation or suggestion. |
Article 8
Keep clients fund separate from your funds.
Article 9
Present all documents for the transaction in a clear and understandable language.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | For the protection of all parties, REALTORS® shall use reasonable care to ensure that documents pertaining to the purchase, sale, or lease of real estate are kept current through the use of written extensions or amendments. |
| 2 | REALTORS® must make reasonable efforts to explain the nature and disclose the precise terms when supporting or enabling a client or customer in forming a contractual relationship electronically. |
B) Duties to the Public
Article 10
Shall not deny services for reasons of race, color, religion, sex, disability, familial status, national origin, sexual orientation, or gender identity.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | When involved in the sale or lease of a residence, REALTORS® shall not volunteer information regarding the racial, religious or ethnic composition of any neighborhood nor shall they engage in any activity which may result in panic selling. |
| 2 | When not involved in the sale or lease of a residence, REALTORS® may provide demographic information related to a property. |
| 3 | REALTORS® are prohibited from printing, displaying, or distributing any statement or advertisement in connection with the sale or rental of a property that expresses any preference, limitation, or discrimination based on race, colour, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. |
| 4 | Real estate employment practices relates to employees and independent contractors providing real estate-related services and the administrative and clerical staff directly supporting those individuals. |
| 5 | REALTORS® must not use harassing speech, hate speech, epithets, or slurs based on race, color, religion, sex, handicap, familial status, national origin, sexual orientation, or gender identity. |
Article 11
Provide services that conform to the standards of practice and competence.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | When REALTORS® prepare opinions of real property value or price they must be knowledgeable, have access to and be familiar with the information. |
| 2 | In real estate disciplines other than assessment, the real estate Code of Ethics responsibilities must be understood and applied in accordance with the norms of competence. |
| 3 | When REALTORS® provide fee-based consultative services to customers that include advise or counsel, the guidance must be objective. |
| 4 | Article 11 specifies the competency required for services contracted between REALTORS® and their clients or customers, as well as the duties expressly imposed by the Code of Ethics and those imposed by law or regulation. |
Article 12
No false or misleading advertising.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | REALTORS® may not represent to a client or customer that their brokerage services are free or available at no cost to them. |
| 2 | Offering rewards, prizes, merchandise discounts, or other incentives to list, sell, purchase, or lease through the REALTOR® making the offer is not inherently unethical, even if receiving the benefit depends on the transaction. |
| 3 | REALTORS® shall not offer for sale/lease or advertise property without authority. |
| 4 | REALTORS® shall not market real estate services or listed property in any medium without disclosing the name of the REALTOR's firm who is advertising them. |
| 5 | REALTORS®, when advertising unlisted real property for sale/ lease in which they have an ownership interest, shall disclose their status as both owners/landlords and as REALTORS® or real estate licensees. |
| 6 | Only REALTORS® who were involved in the transaction as the listing broker or collaborating broker are allowed to claim that the property as "sold." |
| 7 | Information published, provided, or displayed on the REALTORS® websites is part of the obligation to present a true picture in public representations. |
| 8 | Websites for REALTOR® firms must display the firm's name and state(s) of licensure in a reasonable and visible manner. |
| 9 | The responsibility of REALTORS® is to offer a true picture in their listings, public announcements and representations. |
| 10 | REALTORS® intending to share or sell consumer information gathered via the Internet shall disclose that possibility in a reasonable and readily apparent manner. |
| 11 | REALTORS® must not: 1) use URLs or domain names that give a false impression, or 2) register URLs or domain names that, if utilised, would give a false impression. |
| 12 | The obligation to present a true picture in advertising, marketing, and representations allows REALTORS® to use and display only professional designations, certifications, and other credentials to which they are legitimately entitled. |
Article 13
Should not engage in any unlawful practice of law.
Article 14
Shall not disrupt or obstruct the board’s investigations if charged with a violation.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | REALTORS® shall not be subject to disciplinary proceedings in more than one Board of REALTORS. |
| 2 | REALTORS® are prohibited from disclosing or spreading the allegations in any way that is not allowed. |
| 3 | REALTORS® are not permitted to obstruct the Board's investigative or professional standards proceedings by filing a lawsuit. |
| 4 | REALTORS® must not file several ethical complaints based on the same event or transaction in order to obstruct the Board's investigation or disciplinary processes. |
C) Duties to the Realtors
Article 15
Shall not make false or misleading statements about other real estate professionals, their businesses, or their business practices.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | REALTORS® shall not knowingly or recklessly file false or unfounded ethics complaints. |
| 2 | The obligation to refrain from making false or misleading statements about other real estate professionals, their businesses, and their business practices includes the duty to not knowingly or recklessly publish, repeat, retransmit, or republish false or misleading statements made by others. |
| 3 | Realtors must clarify or remove false or misleading statements made by others on their controlled electronic media once they become aware of them. |
Article 16
Shall not solicit clients who have already signed an exclusive listing agreement with another Realtor.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | Article 16 is not intended to prohibit aggressive or innovative business practices. |
| 2 | Article 16 does not preclude REALTORS® from making general announcements to prospects describing their services and the terms of their availability even though some recipients may have entered into agency agreements or other exclusive relationships with another REALTOR®. |
| 3 | Article 16 does not prohibit REALTORS® from contacting a client of another broker with the intent of providing or entering into a contract to provide a different type of real estate service than the one already being offered. |
| 4 | REALTORS® shall not solicit a listing which is currently listed exclusively with another broker. |
| 5 | REALTORS® shall not solicit buyer/tenant agreements from buyers/tenants who are subject to exclusive buyer/tenant agreements. |
| 6 | If another REALTOR®'s client contacts them about forming an exclusive relationship without any initiation from them, they can discuss future terms or agree to an arrangement effective after the current exclusive agreement expires. |
| 7 | The fact that a prospect used a REALTOR® as an exclusive agent in one or more previous transactions does not bar other REALTORS® from pursuing the prospect's business in the future. |
| 8 | The fact that an exclusive agreement has been entered into with a REALTOR® shall not preclude or inhibit any other REALTOR® from entering into a similar agreement after the expiration of the prior agreement. |
| 9 | REALTORS®, prior to entering into a representation agreement, have an affirmative obligation to make reasonable efforts to determine whether the prospect is subject to a current, valid exclusive agreement to provide the same type of real estate service. |
| 10 | At the time of first contact, REALTORS® serving as buyer or tenant representatives or brokers must declare their relationship to the seller/representative landlord's or broker. |
| 11 | REALTORS® operating as buyer/tenant representatives or brokers on unlisted property must first reveal their relationship to the seller/landlord. |
| 12 | When operating as a representative or broker for a seller/landlord or as a subagent of a listing broker, REALTORS® must first disclose the relationship to buyers/tenants. |
| 13 | Except with the client's representative or broker's consent or where such dealings are initiated by the client, all dealings concerning exclusively listed property or with buyers/tenants who are subject to an exclusive agreement shall be conducted with the client's representative or broker, and not with the client. |
| 14 | REALTORS® are free to enter into contractual relationships or to negotiate with sellers/landlords, buyers/tenants or others who are not subject to an exclusive agreement. |
| 15 | REALTORS® must compensate cooperating REALTORS® in cooperative transactions. They must not compensate or offer to compensate any sales licensees employed by or affiliated with other REALTORS® without the prior express knowledge and consent of the cooperating broker. |
| 16 | As subagents or buyer/tenant representatives, REALTORS® or brokers, shall not rely on the terms of a purchase/lease offer to make an attempt to change the listing broker's compensation offer. |
| 17 | REALTORS®, acting as subagents or as buyer/tenant representatives or brokers, shall not attempt to extend a listing broker’s offer of cooperation and/or compensation to other brokers without the consent of the listing broker. |
| 18 | REALTORS® are prohibited from using information gained from listing brokers as a result of cooperative offers made through multiple listing services. |
| 19 | Signs giving notice of property for sale, rent, lease, or exchange shall not be placed on property without consent of the seller/ landlord. |
| 20 | REALTORS®, prior to or after their relationship with their current firm is terminated, shall not induce clients of their current firm to cancel exclusive contractual agreements between the client and that firm |
Article 17
Shall mediate a dispute, if any, if the Board requires its members to mediate.
| Sr. No. | Standards of Practice |
|---|---|
| 1 | The filing of litigation and refusal to withdraw from it by REALTORS® in an arbitrable matter constitutes a refusal to arbitrate. |
| 2 | Article 17 does not require REALTORS® to mediate in those circumstances when all parties to the dispute advise the Board in writing that they choose not to mediate through the Board’s facilities. |
| 3 | REALTORS®, when acting solely as principals in a real estate transaction, are not obligated to arbitrate disputes with other REALTORS® absent a specific written agreement to the contrary. |
| 4 | Specific non-contractual disputes are covered under this standard of practice. |
| 5 | The obligation to arbitrate established in Article 17 includes disputes between REALTORS® (principals) in different states. |
What if a Realtor Violates the Code of Ethics?
Consumers can file an ethics complaint if a Realtor violates one or more real estate ethics. Additionally, this can be done through the Board of Realtors.
The sanctions for the real estate agent Code of Ethics violation may include:
- A fine not to exceed $15,000
- Suspension from the board or association
- A letter of reprimand
- Requirement to enroll for specific set of educational courses
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✍️ Important Note: There were lawsuits filed against NAR for engaging in practices that inflated home-selling commission rates. However, it has been settled resulting in sellers not taking the whole brunt of paying the real estate agent fees.
Will the NAR Lawsuit Benefit Home Sellers?
The recent tsunami of antitrust class action lawsuits against NAR has forced it to settle for $418 million. It has also led to a series of changes that could potentially reduce the burden of buyer agent commission on the seller.
Here are the settlement terms:
- NAR will not create rules that mandate listing agents to set compensation for buyer brokers. There will now be room for independent negotiation between buyers and their agents, potentially reducing the seller’s overall commission burden.
- NAR will create a rule to ensure compensation offers aren’t displayed on the MLS listings. This could encourage transparent and competitive commission discussions.
Are you curious about NAR’s recent year of trouble? Watch our detailed analysis.
Conclusion
The NAR Code of Ethics serves as a foundational framework that defines the integrity and professionalism within the real estate industry. Moreover, it remains a vital guide for upholding ethical standards and fostering client trust.
Frequently Asked Questions
What is the NAR Code of Ethics?
It's an ethical framework that outlines the professional responsibilities of Realtors. The code was developed to protect the interests of clients, public, and the real estate professionals associated with NAR.
What are the 3 major categories of NAR Code of Ethics?
The 3 major categories of people the Code of Ethics protects are:
1. Duties to Clients and Customers
2. Duties to the Public
3. Duties to Realtors
What are some examples of Realtor ethics violations?
Some examples of Realtor ethics violation are:
1. Revealing private or confidential information related to real estate transactions.
2. Exaggeration of qualities or features of a property.
3. Collection of an extra commission from a client.
Such ethical violations have serial consequences.
How many articles are in the Code of Ethics?
The Realtor Code of Ethics has 17 articles. These articles outline the ethical standards and practices that Realtors must follow.
