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How to Overcome Common Ethical Dilemmas in Real Estate
November 30, 2021

How to Overcome Common Ethical Dilemmas in Real Estate

by The CE Shop Team

These Five Everyday Scenarios Could Land Real Estate Agents in Hot Water

Did you know that some agents violate the National Association of REALTORSⓇ (NAR) Code of Ethics every day, often inadvertently? Whether you’re a brand new agent or a seasoned vet, chances are you’ll come across an ethical dilemma at least once in your career. From succumbing to a buyer’s love letter to employing questionable marketing materials, these are five of the most common ethical dilemmas you may face as an agent, as well as some advice on how to conduct yourself ethically.

1. Mishandling Offers

In today’s red-hot real estate market, it appears that nearly anything goes. After all, buyers across the nation are waiving home inspections, paying $1 million over asking price, and even pledging to name their first-born child after the seller. With so many horses in the race, there is certainly the potential for unethical behavior, including the submission of bad-faith offers.

Thomas Satas, founder and CEO of Chicago-based Windy City Homebuyer, recently worked with a couple in the market for a $469,000 home. Upon learning that other offers were on the table, these clients pushed Satas to offer a $525,000 cash deal with 30-day closing, although they had no intention of actually following through. 

“All he wanted to do was clear out the other buyers and get into due diligence when he believed the real negotiating would happen,” Satas said in an interview with Inman. “I told him that I cannot make a bad-faith offer, and we need to put together a reasonable package. After some back and forth with him insisting that I make the offer as is, he became extremely argumentative, and you could see his wife growing very uncomfortable. Ultimately, I reached the conclusion that this client was not worth damaging my reputation or the $9,000 commission check.”

He was forced to fire them as clients, which can be an awkward experience but may be an ethical agent’s only option when faced with a similar situation. 

“They were able to make the offer with a different agent,” Satas said. “Sometimes the best deal is the one you didn’t make!”

2. Engaging in Shady Marketing Practices

Open and honest communication isn’t limited to in-person interactions. Agents must conduct themselves professionally on billboards, via flyers, and, yes, even on Facebook.

“Some members don’t understand that Article 12,” which covers open and honest communication, “applies to communications on social media,” said Kate Lawton, director of professional standards and financial administration at the National Association of REALTORS®, in an interview with The Residential Specialist.

While advertising yourself as the “best in town” might not ruffle any feathers, misleading claims, inaccurate photos, or indicating a preference for one client's identity over another in any marketing materials is nothing short of unacceptable. To take your branding a step further, seek to market yourself as an ethical agent instead.

3. Prioritizing Commissions

Of course, real estate agents want to make a decent living while on the job. Money shouldn’t come at the expense of your ethical compass, though. 

Judie Seitz, an Ohio-based agent, found herself at one such potentially lucrative ethical crossroads earlier in her career. After listing a home, she received a call from a local doctor who offered to bypass his agent and purchase through her if she would show him the property before the open house. 

“The added 3% commission for the sale would have been more than $20,000, which, given financial challenges I had at the time, would have helped me quite a bit,” said Seitz. “However, in my heart, I knew that I had vowed to myself to lead my life and business based on ethics… I told him that no one would see it before the open house. Well, he came to the open house with his agent right at the start time, and he purchased the house. While I missed out on the additional $20,000, I felt good that I had stuck to my ethical standards.”

How to Overcome Common Ethical Dilemmas in Real Estate

4. Failing to Disclose Property Defects

Termites, mold, and structural issues, oh my! Did you know that property disclosure disputes are often among the most common complaints filed by consumers?

If you work as a listing agent, failing to disclose certain property defects is not only unethical but potentially illegal. According to the South Carolina Association of REALTORSⓇ, “Your ethics and license law will require you to disclose even if the seller does not disclose and tries to direct you illegally and unethically to conceal your knowledge of the property defect from future purchasers.”

The good news? There are steps you can take to overcome a bad home inspection before it gets to this point. Whether encouraging the seller to hire a professional prior to listing or lowering the price, property defects don’t have to compete with your ethical excellence.

5. Encouraging or Accepting Love Letters

Personal cover letters, often affectionately referred to as love letters, have long been a questionable real estate practice. In 2018, Redfin found that personalized letters from potential buyers could increase the odds of winning a bidding war by a staggering 52%. What’s more, the company stopped tracking these stats shortly thereafter due to concerns that the results might encourage their use, potentially leading to increased fair housing violations.

“Sellers can use them to discriminate conditionally or unintentionally," said Khari Washington, an Oregon-based Broker in an interview with Vox. "Buyers now can compete on the merits of their deal." 

And she’s not alone in her thinking. States are now beginning to outlaw homebuyer love letters, and NAR has recently taken a public stance against them.

To solidify your position as an ethical agent, steer clients away from creating or accepting love letters. Instead, focus on building a competitive offer and finding the right property for the client’s unique needs and situation. Get creative! If you’re representing the sellers, remind them that decisions cannot be made based on the identity of potential buyers.

Building an Above-Board Real Estate Business

As you work to understand, implement, and uphold the REALTORSⓇ Code of Ethics, education will be your best friend. Luckily, we offer a multitude of courses aimed at building your knowledge of real estate Ethics and meeting your Code of Ethics training requirement. We’ve highlighted four of our most popular courses below, though your state’s course catalog may have more from which to choose:

Ethics at Work

Feel empowered to recognize and respond to ethical dilemmas after taking this course, and you’ll inspire consumer confidence. Course content also looks at several NAR Code of Ethics articles and draws from real-life ethical scenarios.

Ethical Excellence: Raising the Bar

This course arms agents with the knowledge they need to help raise the bar and improve the reputation of the industry. Students will also reference the Code of Ethics and work through engaging real-world applications.

The Code of Ethics in Action: Real-Life Applications

As a real estate professional, you likely encounter unexpected ethical dilemmas as you go about your daily business. This course will cover NAR’s regularly updated Code of Ethics and Standards of Practice so you’re always prepared.

Code of Ethics: Good for Your Clients and Your Business

This course focuses on mediation, tips for applying the Code of Ethics’ principles and guidelines to your practice, and various activities and examples to illustrate the practical application of this new information and frame it in an everyday context. 

Offerings will depend on your market and license type, and each state may also have its own requirements when it comes to Ethics courses. Learn more about these industry-leading courses by clicking here.

Note that all Ethics course completions are reported to the state for CE credit within the required time frame (where applicable). The CE Shop does not report Ethics course completions to NAR. Reporting Ethics courses to NAR is the responsibility of the local association, and you should check with your association if you have any questions.

Ready to Get Started With The CE Shop?

Whether you’re a new agent looking to start award-winning Pre-Licensing education or an experienced veteran wanting to finish your Continuing Education, we’ve got a 100% online curriculum that’s one of the most diverse and groundbreaking in the industry. And if you want to network with your peers, join our Facebook group and get connected!