6: Ethics in Real Estate
Like a doctor takes the Hippocratic oath, a realtor takes the oath of the Code of Ethics.
About This Episode
Members of the National Association of REALTORS are required to take Code of Ethics training every two years, and the next deadline is coming up at the end of 2018.
This episode discusses the importance of ethics in the business of real estate, why NAR has designated ethics as important enough for ongoing training, and the history of that training. Industry experts Michael McAllister, Eden Elder, Linda Nystrom, and Joe Sinnona weigh in with advice and insights.
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JON: From Google to Yelp to Facebook and Amazon, reviews are everywhere and depended on by thousands of people every day. Though we may not even know who wrote the review, we love seeing positive feedback about the businesses and people we choose to work with, and a single bad review can completely change someone’s mind. We like to know who we’re doing business with, and being assured that they’re trustworthy is a big part of reading a review - particularly when you’re looking for a real estate agent.
JON: Ethics are key to business, an inescapable constant that’s integral to the very nature of one person doing any kind of transaction with another, and real estate is a huge and complicated industry that most people only engage in once every few years. There’s a clear line from being ethical to receiving good reviews, and an even clearer line between good reviews and a thriving business.
JON: Welcome to Shop Talk: The Real Estate Show. I’m Jon Forisha, and this week we explore the topic of ethics in real estate, and why having no ethics means having no business.
JON: To start us off, Michael McAllister, Founder and Co-CEO of online education provider The CE Shop, gives us a rundown of why we should care about ethics.
MICHAEL: Ethics are at the foundation of what business is all about. So basically business is the exchange of goods and services, that's foundationally what it is, and there has to be an ethical field, accepted behavior within that exchange of goods and services. Otherwise it won't work.
JON: Ethics are the reason you would care that your plumber is a felon despite his otherwise stellar reputation. We define ourselves by the company we keep, which includes those we choose to do business with. For most people, real estate transactions are the largest financial decisions they’ll make in their lives, and part of being a real estate agent is the ability to wear many hats throughout a given transaction. You’ll likely function as your client’s counselor in some capacity, and doing so ethically is essential to the very nature of real estate.
JON: To draw some context from a non-real estate example, The Better Business Bureau is a non-profit with consumer protection at its core, and it exists to ensure that businesses remain ethical. When businesses adhere to the Better Business Bureau’s standards, they gain an important endorsement that essentially tells consumers that they’re trustworthy and have a good track record. If a business deals unethically, consumers can report them to the Better Business Bureau.
JON: The Better Business Bureau was founded in 1912 as a result of inaccurate and misleading advertising at the turn of the century. 1911 saw the creation of the Ten Commandments of Advertising, which sought to clean up the advertising industry from the top down so consumers would stop falling victim to false medical statements about the products they bought.
JON: The wave of reform that led to the founding of the Better Business Bureau became even more widespread, and eventually contributed to the creation of child labor laws, the FDA, and eventually prohibition. This sense of improving our social and business practices eventually made its way to the real estate industry with the creation of the National Association of Realtors’ Code of Ethics, first adopted in 1913 and still used today.
JON: Here’s Michael McAllister again to give some background on NAR’s Code of Ethics:
MICHAEL: The National Association of REALTORS was founded in 1908, and it was basically at that time a group of men who got together and wanted to put an end to the devious, bad business practices that were happening out there, and in 1913 they enacted the code of ethics. So essentially they said, alright, you scoundrels out there, you go do what you want to do, but you're not a realtor and if you're a realtor, you're going to subscribe to our code of ethics, which was basically founded under the golden rule. Do unto others as you would have them do unto you. So it's critical. I mean it's the thing that separates the licensed professional from the licensed realtor. Professional code of ethics is critical. It's a great document. It's a great piece of work that continues to evolve and get adapted and adopted all the time.
JON: Business ethics can mean different things depending on which industry you’re in, but in real estate it generally means remaining truthful and up-front with your clients and fellow agents. Conducting business ethically could mean the difference between getting a referral or not.
JON: A study of 1000 recent homebuyers and sellers conducted by The CE Shop, Real Trends, and The California Association of Realtors found that 90% of respondents used a real estate agent in their transaction. 32% of those respondents said they thought the process of buying a home was difficult to understand. These stats show that consumers still overwhelmingly use real estate agents, and that almost a third of them find the process confusing. It’s essential to stay ethical as you guide clients through what might be a foggy and stressful transaction.
JON: For some agents, the ability to work how you want, and to always keep ethics at the heart of your business, was the very reason they decided to get into the industry in the first place.
JON: Eden Elder immigrated to the US from the Netherlands and worked as an HR executive before she got burned out by the lack of humanity in corporate America. Working today as a broker for Equity Colorado Real Estate, she had this to say:
EDEN: I think ethics are the main part in business for me at least. Right. Without going into too much detail, it's actually the lack of ethics that drove me away from working for other people and working for the big corporations. When I started working and I started for myself as a realtor, I kind of had this whole life behind me and then I totally reinvented myself and became a realtor. I was actually super happy that I could only hold myself accountable for any actions I will take. And being ethical is my number one core value in my business. I've encountered clients who are not drawing a clear line where ethics are concerned and I've walked away from them. I've encountered other industry colleagues and peers who are not drawing a clear line and I take them on.
EDEN: As a realtor, I think it's my duty to represent my clients to the best of my ability, right? But as a human being, I see it as my duty to do it ethically. To me, ethics equals trust and it also equals being able to sleep at night, but you know what? Not everybody feels the same way and that's fine. That's their thing. But to me, my whole business and recreating this new career for myself, and reinventing myself was truly a reaction to the lack of ethics that I've experienced before. When I started my business, I wrote a business plan and as part of this plan I created a vision and a mission statement and objectives. And I also created lower level deliverables, right? To meet those objectives. But every single one of them was in service of that vision and that mission statement I created.
EDEN: So my vision is to have a lot of fun helping people with their real estate needs as a meaningful way for me to stay engaged during my retirement years. And my mission is to do this ethically and with the highest level of integrity. Those are literally my vision and mission statements. I can show you my plan and that's what it says. So every month I kind of have a meeting with myself. It's a strange concept, but I do it and it's kind of a check and balances meeting to ensure that I'm on track when compared to my plan. So I don't just check numbers, the water of my business, right? I track the how as well. So they're equally important to me. If how I go about my business fits with my vision and my mission, then my business will thrive even during what they call the bad markets, right? Or the bad years in real estate.
EDEN: But I think if my How falters, I absolutely believe that my business will not survive in the long run. And I wouldn't be able to look myself at myself in the mirror or feel like I would be setting a good example for my children. So yeah, continuously checking my actions against my vision and my mission statements is what ensures that I remain ethical.
JON: Members of the National Association of REALTORS must complete their Code of Ethics training every two years, and that training must consist of at least 2 hours and 30 minutes of instruction by an accredited education provider such as The CE Shop. Today’s Code of Ethics is broken into three sections. The first deals with agents’ duties to clients and customers, the second outlines agents’ duties to the public, and the last section covers agents’ duties to other realtors.
JON: Because real estate agents work on commission, some people tend to view them as self-serving, slimy salespeople, like a used car salesmen, just looking to make a buck. The Code of Ethics specifically aims to eliminate that unsavory image, and to replace it with one of stalwart professionalism.
JON: NAR hopes to stop situations such as buying a house and then learning it had a flood or a fire that you didn’t even know about, or agents saying they have an offer for you just to solicit a listing. So much of the real estate process is left up to trusting the agent, and the code of ethics attempts to push ethics to the forefront of every agent’s mind, to make agents as trustworthy as the public would hope they are.
JON: Linda Nystrom is a broker with Envision Realty, where she works all around Colorado solely by referral. Given her business model, staying ethical in every decision is crucial to her ability to get referrals, and thus for her business to succeed. She had this to say:
LINDA: If you don't have ethics, you don't have a business. You have to be really, really good with your ethics and stay true to yourself and start to stay true to others. I mean that's the ground rule when it comes down to it. Use common sense is good. Again, it goes back to you. You should take the ethics class, especially if you're a new agent and you haven't done real estate, you should take the ethics class and learn the basics of it. Ethics when it comes to working together. When it comes to realtors, we are always working together in order to get a good solution for our clients. And a lot of people are, a lot of realtors don't realize that, that our job is to be ethical towards the other realtors as well in order to get the best results for their clients.
JON: Even if you’ve been in real estate for a long time, the required code of ethics training is a nice refresher of the basics and a good reminder of what you should and shouldn’t be doing. Recent innovations like digital advertising and social media have complicated the equation with their plethora of options for communication, but up-to-date code of ethics courses can better prepare you for those changes.
JON: Joe Sinnona has been a realtor in Long Island for 30 years and travels the country giving seminars on specific real estate topics. One of his favorite topics to speak about is ethics, which he says are absolutely crucial to a successful real estate business. Here’s Joe:
JON: You’ve spoken a lot on the subject of ethics. Why?
JOE: Because like I said, it goes back to the beginning. It teaches us the basics of our real estate industry, the acronym of OLDCAR stands for obedience, loyalty, disclosure, confidentiality, accountability and reasonable care. And that is the root of our ethics. That's if you will, our mantra, our code, our oath when we take office of really becoming a realtor. Like a doctor takes the hippocratic oath, the realtor takes the oath of the code of ethics and should really take it to the next level. And that is, digest the code of ethics. Know when somebody is being unethical toward you and if you find yourself violating the code of ethics just to stop, look, listen, and just keep spreading the message that people have to work with that highest level of integrity. I chose to teach it because it teaches all of us to go back to the beginning of our one on one classes that people forget.
JOE: They could be at an open house talking bad about another realtor, which violates the code of ethics. They could also be out there knocking on doors of current listings that they're not supposed to be talking to, a current homeowner, to solicit their listing. That's just an example of a violation of the code of ethics. So when I see an unethical broker out there, I first remind them of their violation. And then we thank God that we have an arbitration and a panel that looks into these unscrupulous people and can get them out of the business or fine them.
JON: Whether you remain ethical by sticking to your common sense, adhering to The Golden Rule, or by taking every course on the subject that you can find, ethics are a fundamental part of working in real estate, and one that will never go away.
JON: Completing NAR’s mandatory training every two years is a start, but walking the walk is the ultimate goal. In order to make the sleazy salesman real estate agent a thing of the past, it’s up to each of us to remain ethical in every decision we make.
JON: That’s it for this episode of Shop Talk, thanks for listening! You can subscribe to us on iTunes or wherever you get your podcasts, and while you’re there, leave us a review! It’s simple but it goes a long way toward helping other people discover the real estate stories we share here.
JON: Join us next time as I sit down with Jill Malloy, National Real Estate Expert at The CE Shop, to talk about what constitutes expertise in real e state, and why education is more important than ever.
JON: Shop Talk is a production of The CE Shop.