The Code of Ethics of the National Associate of Realtors® (NAR) establishes a public and professional consensus against which the practice and conduct of Realtors and Realtor-Associates may be judged.
Each month we will provide Case Interpretations directly from NAR®. The case interpretations offer examples of the practical application of the Code in professional standards enforcement and help Realtors understand the ethical obligations created by the Code of Ethics.
Case #1-15: Obligation to Advise Client on Market Value
(Originally Case #2-1. Revised and transferred to Article 7 as Case #7-19 May, 1988. Transferred to Article 1 November, 1994.)
Client A went from his hotel to REALTOR® B’s office and advised that he formerly lived in the community, and had kept his home as an income property after he moved away. The house had been vacant for several months and he had decided to sell it. He asked if REALTOR® B could drive him to look at it. As they inspected it, Client A stated that he would be happy to get $80,000 for it. REALTOR® B listed it at that price and after a few days it was sold to Buyer C.
Six months later, Client A was in town again. Hoping to recover a box of old photographs he had left in the attic, he called on Buyer C, whom he had met at settlement. When he arrived he found that Buyer D then lived in the house. He expressed some surprise that Buyer C had sold it so soon, and learned that Buyer D paid $140,000 for it. Astonished, Client A then made some inquiries as to market values and learned that he had grossly under priced his house when listing it with REALTOR® B. He went to the Board of REALTORS® office and filed a complaint against REALTOR® B charging him with unethical conduct in not having advised him as to the property’s fair market value.
At the hearing, REALTOR® B’s defense was that he had not been asked to put a price on the house, but had accepted agency on the basis of a price set by the client; that the client had stated he “would be happy” to get $80,000 for it; that he was glad to get a listing that would move quickly in the market; that he had done nothing unethical since he had not bought it himself; and that while he had honestly pointed out to the buyer that the house was a bargain, he had made no effort to induce relatives or business associates to buy it.
On questioning, he conceded that after looking at the house with Client A, he realized the property was being listed at about half its fair market value, but insisted that was his client’s business; that different owners have different reasons for selling and pricing their property, but acknowledged that Client A had not indicated that he needed a quick sale or that he would make any price concession.
The Hearing Panel pointed out that brokers have no hesitation in advising clients that properties are overpriced when this is the case, and they are obligated to be equally candid in providing their best judgment to clients when properties being offered for sale are obviously under-priced.
The panel concluded that in view of the wide discrepancy between the owner’s asking price and the property’s market value, which REALTOR® B conceded was apparent to him, it was REALTOR® B’s obligation as an agent to advise his client that the house was worth considerably more, especially since it was apparent that Client A had been away from the community for years and was out of touch with local values. The Hearing Panel found REALTOR® B in violation of Article 1.