Real Estate Code of Ethics: What It Is and Who Is Bound by It

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Real estate is a complex industry that requires the utmost professionalism and integrity. However, did you know that only 2% of individuals surveyed in a 2018 Gallup poll rated their trust in real estate agents as “very high” for honesty and ethics?

The National Association of Realtors (NAR) established a Code of Ethics to ensure that agents and brokers maintain high ethical standards. The code outlines the principles real estate professionals should adhere to when working with clients, customers, and other industry professionals.

Understanding the NAR’s Code of Ethics is essential for maintaining trust and professionalism in real estate. In this post, we’ll explore what exactly is in the code and who must follow it.  

What Is the Code of Ethics in Real Estate? 

The real estate Code of Ethics is a set of guidelines and principles established by the National Association of Realtors (NAR) to regulate the behavior and conduct of real estate professionals. 

The code is designed to promote the highest standards of professionalism and integrity in the real estate industry and to ensure that real estate agents and brokers provide fair and ethical service to their clients. It also addresses a range of topics related to real estate transactions.

The code consists of 17 articles that cover a wide range of ethical considerations, including: 

  1. Duties to Clients and Customers
  2. Duties to the Public
  3. Duties to Realtors 

The 17 articles mentioned in the NAR Code of Ethics outline the responsibilities and obligations of real estate professionals. Below is a summary of the 17 articles.

Duties to Clients and Customers 

Article 1: Prioritize the best interests of their clients in all transactions. 

Article 2: No misrepresentation, exaggeration, or concealment of facts related to the property. 

Article 3: Cooperate between real estate professionals, except when such cooperation is not in the client’s best interests. 

Articles 4-5: Disclose any personal interest in a property. 

Article 6-7: No recommending services for a kickback or collecting money under the table.

Article 8: Separate client funds from your funds. 

Article 9: Present all transaction documents in a clear and understandable format.

Duties to the Public 

Article 10: No discrimination is allowed when providing services. 

Article 11: Provide services within your professional scope of competency. 

Article 12: No false or misleading advertising 

Article 13: Comply with all laws and regulations. 

Article 14: Cooperate with investigations by the Realtor board if charged with any violation.

Duties to Realtors  

Article 15: No false or misleading statements about other real estate professionals, Article 16: No soliciting clients who have already signed an exclusive listing agreement with another Realtor. 

Article 17: Resolve any contractual disputes through mediation or arbitration by the Realtor Board. 

The 2023 PWC trends research states that professionals need to focus on trust among significant changes in real estate and the economy. The report highlights that trust can improve business outcomes and industry relationships. 

What Concept Is the Real Estate Code of Ethics Based On? 

The Code of Ethics in real estate is based on professionalism and ethical behavior in the real estate industry. The National Association of Realtors (NAR) developed the code to promote high standards of conduct among its members and to establish guidelines for fair and honest business practices.

The code is based on several fundamental principles, including the duty to: 

  • Treat all parties honestly and fairly 
  • Avoid misrepresentation and deception 
  • Maintain the confidentiality of client information 
  • Put client interest ahead of your own 
  • Avoid conflicts of interest 

By upholding these principles, the Code of Ethics helps build trust and confidence between real estate professionals and their clients and professionals within the industry.

It also helps to promote a positive reputation for the industry by ensuring that real estate professionals conduct themselves with integrity and professionalism. 

Who Does the Real Estate Code of Ethics Protect? 

The Code of Ethics in real estate is designed to protect a variety of parties in the real estate industry, including: 

  • Clients 
  • Customers 
  • Realtors 
  • The public 

Clients and Customers 

First and foremost, the code is intended to protect clients who rely on the expertise and guidance of their real estate agents or brokers when buying, selling, or leasing property. The code requires real estate professionals to act in their client’s best interests, to provide accurate and truthful information, and to maintain confidentiality concerning their client’s personal and financial information.

The code also protects customers who are not represented by a real estate agent or broker but are still involved in a real estate transaction. Real estate professionals must treat customers fairly and honestly and provide accurate information about properties and the transaction process. 

The Public

The Code of Ethics protects the public by promoting fair and honest business practices in the real estate industry. By upholding high ethical standards, real estate professionals help to maintain the public’s trust in the industry and ensure that real estate transactions are conducted transparently and ethically. 

Realtors

In addition, the Code of Ethics protects other real estate professionals by promoting cooperation and respect between agents and brokers. Real estate professionals must cooperate with other professionals in their clients’ best interests and refrain from making false or misleading statements about other professionals. 

Who Is Bound by the NAR’s Code of Ethics? 

The Code of Ethics is not just a set of guidelines; it is a binding agreement that all NAR members must adhere to to maintain their membership. This means that real estate agents and brokers who are members of the NAR must follow the Code of Ethics in their professional dealings and can face disciplinary action if they are found to have violated the code. 

The NAR requires all its members to abide by the Code of Ethics. This includes real estate agents, brokers, appraisers, property managers, and other professionals who are members of the association.

However, it’s important to note that not all real estate professionals are members of the NAR, and therefore not all are bound by the Code of Ethics. This means that if you’re not a NAR member, you’re not bound by the Code of Ethics as you’re yet to become a REALTOR®. 

While membership in the NAR is not mandatory for real estate professionals, it does provide many benefits, such as: 

  • Access to education and training 
  • Networking opportunities 
  • Advocacy on behalf of the industry 

Even if you are not affiliated with the NAR, following the Realtor Code of Ethics as a benchmark for conducting your business can prove advantageous in the future, particularly when collaborating with other real estate professionals who abide by the official Code of Ethics as a guide for their business operations. 

Failure to adhere to the Code of Ethics can result in disciplinary action for those who are members of the NAR. Per the Code of Ethics and Arbitration Manual, sanctions for a violation may include the following:

  • A fine not to exceed $15,000
  • Suspension from the board or association
  • A letter of reprimand
  • Required education courses 

Additionally, code violations can damage a real estate professional’s reputation and credibility, making it challenging to build and maintain a successful career in real estate

Are you working in real estate? By taking our Ethics and Professional Practice Course, you don’t violate real estate ethics, especially those outlined in the NAR Code of Ethics.

Written and Published by: VanEd

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