Realtor Ethics, Dilemmas and Screw-ups

by Steve Crossland, REALTOR in Austin TX on July 26, 2006 · 4 comments

When representing a Buyer or a Seller in a real estate transaction, REALTORS® must, among other things, abide by the Realtor Code of Ethics and Standards of Practice. Article I of the code begins with:

“When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly.”

A common challenge we have as agents is deciding what to do when we know that the agent on the other side of the deal is committing a screw-up that might cost the other agent’s client money, but doesn’t necessarily jeapordize the deal. This happens quite often in fact. Agents we’ve dealt with in transactions often misinterpret the language of the contract, don’t fully understand what their client is agreeing to, miscount the days in an Option Period, and, in general, commit errors or omissions in their representation of the other party that benefit our client.

Does Article I of the Code of Ethics say that we have to point these things out to the other agent? No. Article I says we have to treat all parties honestly, but we do not have to educate and train the other agent on how to best represent their client, nor do we have to ask if they understand what they are doing, or determine if they are competent. Sometimes, however, the lines become very difficult to draw. Let me give you some examples.

Paying for Surveys
Many agents, as well as Title Company employees, do not understand the language in paragraph 6C-1 of the Texas Association of Realtors “1-4 Family Residential Contract”. That paragraph was revised in Feb 2006 to add clarity, but many agents are still confused.

If a Seller checks box 1 of paragraph 6, she becomes obligated to furnish an existing survey to the buyer, along with a “Residential Real Property Affidavit”, within the specified number of days. Another sentence in part 1 of paragraph 6 states “if the existing survey or affidavit is not acceptable to Title Company or Buyer’s lender, Buyer shall obtain a new survey at [ ] Seller’s [ ] Buyer’s expense no later than 3 days prior to the Closing Date.”

Every contract I’ve seen has “Buyer” checked in the previous sentence, though it is negotiable like everything else. The next sentence states “If Seller fails to furnish the existing survey or Affidavit within the time prescribed, Buyer shall obtain a new survey at Seller’s expense no later than 3 days prior to Closing Date”.

That last sentence is straight forward and clear to me, but for reasons I can’t explain, many agents believe that by checking the “Buyer” box in paragraph 6C-1, that ANY new survey will be at the Buyer’s expense – including if the Seller simply cannot find the existing survey. But that is not how the contract reads. We’ve had at least 5 or 6 Buyers this year receive new surveys paid for by a surprised Seller (or their agent) because the other agent and Seller did not understand what they were agreeing to in the survey language of paragraph 6.

In one case earlier this year, the other agent had posted a “survey” in the MLS listing, in the documents section (not seen by the public). When I printed out and reviewed the survey, it was clear to me it wasn’t a “survey” but was a “plot plan” from the original builder. It even had printed on it at the bottom “this is not a survey”.

My buyer wanted the house and we made an offer which was accepted with paragraph 6C-1 checked, and the “Buyer” box in that paragraph checked. The Seller accepted the offer as written, and in doing so, agreed to furnish an existing survey to the buyer within 3 days. When the Title Company called me to say the “survey” provided by the Seller was not acceptable, and that my Buyer would need to pay for a new one, I asked to see a copy of the survey that was provided by the Seller.

Upon review, it was the same document I had seen in the MLS listing, which was not a survey. I pointed out to the Title Company that the Seller had in fact NOT provided a survey, but instead had provided a “plot plan”, and thus the last sentence in paragraph 6C-1 controlled, and the Seller was obligated to pay for the new survey, not the Buyer.

The Title agent, who was cozy with the Seller’s agent, argued the point, saying “Buyers always pay for new surveys when they are needed”. To which I said (in a nice way) “No, Buyers and Sellers pay what they agree to pay in the contract. If you’re saying this isn’t a survey, that means the Seller has failed to deliver an existing survey. Your instructions are clearly spelled out in the contract with regard to who will pay for a new survey.”

The Title Company consulted its attorney who confirmed that the Seller had indeed, just as the contract stated, agreed to furnish an existing survey and had apparently failed to do so. A new survey was obtained and was paid for by the Seller at closing.

In this example above, was it my obligation to point out to the Seller’s agent that the document he was calling a “survey” in the MLS docs was indeed not a survey? The “nice guy” in me says yes, but in fact that isn’t my duty or obligation as an agent representing my Buyer.

Everything my Buyer wanted was communicated in writing via a written offer. The Seller and other agent are responsible for determining which terms and conditions they are willing to accept. It is not my place to speculate as to whether the Seller may or may not actually have a survey, or to make inquiries to the Seller’s agent regarding whether or not they fully understand what they are agreeing to in paragraph 6 the contract. I represent the intrests of my Buyer and try to obtain for my Buyer the best terms and conditions we can. The Seller and other agent can consult an attorney of their choosing if they are not clear about what the terms and conditions of the contract mean.

Option Periods
As a listing agent, it’s happened more than once that a Buyer and his agent missed the Option Period deadline, leaving the Buyer to take the home as-is without the benefit of repair negotiations.

The most memorable of these for me was many years ago. The Buyer’s agent for one of my listings called 3 days after the Option Period had ended to tell me she was faxing over the inspection and repair requests from the Buyer. I pointed out the Option Period had ended three days earlier, and that by not terminating or attempting repair negotiations before then, the buyer was taking the property as-is.

That agent became enraged, saying “you knew we were still getting bids. You knew we would be asking for repairs. You could have called me. I thought it was a 10 day Option Period and forgot it was changed to 7 days in the counter-offer.”

She yelled and cursed at me, fully unwilling to accept responsibility for her failure to competently represent her Buyer. She ended up eating the cost of the repairs that the Buyer asked for, more than $800, with the amount coming out of her commission at closing.

Do listing agents have an obligation to call Buyer’s agents on the last day of the Option Period to remind them about the Option Period deadline and ask if they are aware of it? Of course not. The right to terminate during an Option Period belongs to the Buyer alone, and the Seller or Seller’s agent has no responsibility to make sure the Buyer doesn’t miscount the days or forget the deadline.

Verbal Discussions that Don’t Make it to the Final Contract
In another recent deal, an agent submitted an offer for one of our listings that contained terms and conditions different from those discussed verbally. We presented the offer to the Seller as it was received, and the Seller signed the offer as written. In this case, we expected the buyer to be asking for $3,000 in closing costs to be paid by the Seller, but there was no amount written into that section of the contract (paragraph 12A-1-B.)

We wondered why the amount was not present, but made no inquiry to the other agent about it. The transaction continued through the inspection, at which time a repair allowance and other items was requested by the Buyer, but still no mention by the Buyer’s agent of the Seller paying closing costs.

It was not until closing day, upon review of the settlement statement, that the Buyer’s agent called and said “I forgot to write in the $3,000 in closing costs on the contract – we need to add that in!”

Our Seller, in addition to the terms and conditions agreed to in the signed contract, had subsequently agreed to give a refrigerator, washer and dryer ($1,000 value), an existing survey that was found but had not been agreed to ($450 value), and $1,,000 in repair allowance during negotiations that followed the inspection.

The Seller stated that she would not have been as generous with these concessions on top of a $3,000 closing costs allowance had that amount been present in the original contract. After some discussion, the seller agreed to pay $2,000 in Buyer’s closing costs. She was legally obligated to pay nothing. The Buyer’s agent had to cough up the other $1,000 from her commission at closing. In this instance, the Buyer actually came out much better because of the other agent’s mistake.

Did Sylvia or I have an ethical obligation to this other agent to point out that the offer she submitted was different than what she discussed submitting? No. We do not represent the other agent or her Buyer, we represent the Seller. Again, it is not our place to speculate or wonder as to why certain terms and conditions exist or don’t exist in the written offers presented to us.

Did the Buyer have an obligation to carefully review the offer before signing, and take note of anything different than what they wanted to offer? Absolutely. In this case, both Buyers and their agent – three people – had opportunity to review the offer before signing and submitting it.

When an offer is received that is fully executed by the buyers, with initials on each page, the duty of the listing agent is to present that offer to the Seller as it is received. The only appropriate assumption to make is that the offer, as written, represents what the Buyer wants. It would be inappropriate for the listing agent to call back the Buyer’s agent and do or say things that might result in a less attractive offer for our Seller.

Summary
Increasingly, we see other agents blame their screw-ups on other people. Often, they blame the people whom they believe should have noticed and made mention of the screw-up to them. Certainly, there are instances when clarification of terms and conditions is appropriate. If an agent writes in a closing date three days away, we figure they are off by a month and will get that clarified. Administrative errors, such as misspelled street names, misspelled names of the parties, etc. are also appropriate matters to clear up, but these things do not affect the bottom line of the deal for either side.

I draw the line where my actions, no matter how considerate, courteous or well intended, might diminish the bottom line for the client I represent, and thus call into question whether I am acting properly in my fiduciary role as the client’s agent.

In the end, we are not going to let a deal come unraveled or fall apart over the cost of a survey, or minor amounts of repair costs. But first and foremost, it is the maker of the errors that bear responsibility for fixing the outcome or absorbing the cost of those errors.

The Realtor Code of Ethics does not impose upon any agent the duty to supervise and provide on-the-job training for the agent on the other side of the deal. Common courtesy, and the desire for a deal to run smoothly, will sometimes necessitate some form of helping the other agent along when it makes sense to do so, but we do this when it benefits our client and the deal in general, not to save the other party from incurring unexpected expenses.

{ 4 comments… read them below or add one }

1 Michael Francis July 26, 2006 at 3:41 pm

Well said.

~Michael

2 bill July 26, 2006 at 9:20 pm

Steve,

Good writing. Thanks!

3 Jim July 28, 2006 at 10:34 am

It amazes me how many incompetent agents there are, and they give all agents a bad reputation. No wonder people hate realtors. There should be some kind of mandatory apprentice period for all new agents, just like for inspectors and appraisers.

4 Steve Crossland July 28, 2006 at 11:14 pm

BTW – another of our Buyers received a free Survey today. Amazing.

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