The State of California doesn’t have a Code of Ethics…..
This article is Part Two of a series arguing for the reinstatement of the Department of Real Estate (DRE)’s code of ethics. If you haven’t already, take a look at Part One, which provides context for the current vacuum in California ethical standards.
Why a code of ethics?
Every public-facing industry, especially one as complex as the real estate industry, is in need of common standards of practice. Presently, the code providing those standards for California real estate agents is far from an ideal set of rules governing an agent’s conduct in service of the public.
The code in question is a generic product of the National Association of Realtors® (NAR), which NAR’s state-level manifestation, the California Association of Realtors® (CAR), has commandeered as its own.
Real estate practice is rooted in state codes, cases and regulations aimed at protecting residents of that state, and as a result, this national code of ethics is frequently ill-fit to the unique marketplace of California. NAR has next to nothing to do with California, where principals might have little to no personal knowledge of the agent representing them (especially in urban population centers), and have no choice but to operate under a general set of expectations for licensee conduct.
Further, the Department of Real Estate (DRE) has continuously pushed the NAR code as an acceptable standard for those California licensees who also happen to be Realtors®. As we discussed recently, the state nixed the DRE’s code of ethics in 1996, and California has consequently been left without a California code of ethics for the real estate industry — a situation the DRE could rectify.
But before we can argue for the reinstatement of the DRE code of ethics, we need to understand what’s in it. What are we arguing for? And maybe more critically, what are we arguing against?
For an industry that has been stagnant and mostly unaffected by disintermediation/disruption over the last couple of decades, you get the feeling that change might be afoot now.
It’s asking a lot, but what we really need is transparency.
We are at the fork-in-the-road where agents and consumers alike want and need to choose between the traditional model of selling homes, or one of the newfangled disrupter ways.
But the services being offered are blurry. The disrupters call themselves realtors, and say they provide the same full service. Big teams say because they’ve sold so many homes that their way is the best. Individual agents get caught in the middle somewhere.
If every agent described exactly what they do to earn their fee, then at least the consumers might be able to compare apples-to-apples.
Every agent has their 100-point marketing plan, a fabulous support team, and is in the Top 1%. Let’s go beyond those basics.
To make it easier for consumers, let’s boil it down to the most important part of the equation – what is the one critical question to ask an agent?
‘Who and where are you at the point of sale?’
The frenzy has simmered down, and we’re back to the regular hand-to-hand real estate combat in the streets. This is when buyers and sellers need real and effective guidance on when to make the deal.
If you choose a discounter, inexperienced agent, or get stuck with an assistant, you will get a tepid response. Their lack of experience at guiding you to make the right decision when everything is on the line will cause them to be conservative, and not commit. You will be left to your own devices.
When you choose a great agent, he delivers facts and opinions for you to use to make the right decision on the spot – that is real guidance.
This is where consumers need the real help, but the industry fails miserably because when you need us most, we’re not there. We don’t insist on having top-quality help in place at crunchtime.
It hasn’t mattered in the full-blown frenzy – buyers just pay the price or higher, and everyone is happy. You don’t need much help then.
But now that sales are receeding, and more homes are lying around not selling, real help is needed to figure out what to do.
Sellers are always prone to add a little mustard to their price, and without proper guidance on when to accept a lower offer or when to reduce their price, they can miss the selling window and chase the market down. Buyers can pay too much and regret it later, or not enough and miss out on a good match.
The standard knee-jerk response about pocket listings is to insist that some sellers don’t want to be on the open market for personal reasons, and that’s fine. In reality, those should be limited to major Hollywood icons who are unsure of how much their star-power adds to the price of a home, AND those who are flat-out bamboozling the buyer – like these sellers, who just sold this property off-market for $11,000,000. The buyer’s agent has been in the business for two years and this is his only sale ever on his Zillow profile!
Eight months ago, the sellers paid $7,195,000 for it after 1+ years on market:
If the sellers are fully aware that they are engaging in an off-market deal, then fine. But most are being duped into thinking they are on the open market, but then all of a sudden – whiz, bang, boom, whoosh – and there is an offer on the table that is good enough to get them on their way.
It moves so fast that they never realize they weren’t on the open market.
What never gets mentioned is that every realtor has signed an agreement to share their listings with one another. This is how realtors are destroying the industry from within – because we foster the illusion of having a cooperative MLS but are happy to deprive our own sellers of open-market exposure in hopes of making two commissions.
The practice is so common that I don’t think realtors give a second thought to upholding their fiduciary duty to their own client, the seller:
Pacific Union International, California’s second-largest residential real estate broker by volume, is launching a new service this week that will give the public a peek at its “off-MLS listings,” meaning homes for sale that aren’t on a Multiple Listing Service.
It’s the latest in a growing number of ways home sellers can test the market — and maybe get an offer — before embarking on a full-on marketing campaign.
Putting a home on the MLS is usually the best way to get top dollar because it provides the greatest possible exposure. But in a red-hot market, some sellers figure they can bypass the MLS — and the real estate websites that repost their listings for the whole world to see.
Currently, agents circulate these “off-MLS” or “pocket” listings inside their firm and with other agents through Facebook groups or email lists. Some share them with groups such as Top Agent Network or Marin Platinum, which restrict their membership to high-volume agents.
Instead of holding a public open house — with strangers and neighbors traipsing through — agents arrange private showings.
Pacific Union estimates that 20 percent of its home sales in the Bay Area and 30 percent in Los Angeles last year closed without appearing on the MLS.
Mark McLaughlin, Pacific Union CEO, says Private View will help buyers and sellers by giving greater access to his firm’s off-MLS listings: “We are taking secrets in our filing cabinet and exposing them to the public.” He agreed that the MLS provides “maximum exposure,” but for clients who don’t want that, this is “an incredible” alternative.
“Once we get critical mass, I think more sellers will be part of this,” Segal said.
In a market starved for inventory, that may not be welcome news.
Pocket listings have always been used, mainly by celebrities and people selling extravagant homes that only a few could afford. But their use in California has grown since 2013, as the housing market rebounded and bidding wars broke out.
“As inventory goes down, off-MLS practices go up,” said Jim Harrison, president and CEO of MLSListings, the listing service for Santa Clara, San Mateo, Santa Cruz, Monterey and San Benito counties.
He estimates that 21.6 percent of all homes sold in those counties in the first quarter did not hit the MLS before they closed. That compares with 12.6 percent in the first quarter of 2012. (Many agents enter a sale into the MLS after it has closed to help establish comparable prices for an area).
The California Association of Realtors discourages pocket listings. In a 2013 press release, it said most sellers want the highest possible price from a well-qualified buyer, and the best way to get that, the association said, is to put the home into the MLS.
Most Multiple Listing Services are owned by local Realtors associations. Agents who join an MLS generally must post homes on the MLS within a few days of signing a listing agreement, unless the seller signs a waiver.
Every member of an MLS has access to those listings. They also go out to real estate websites such as Zillow and Redfin.
Pocket listings can lead to ethical, antitrust and fair-housing issues, the state Realtors association said in 2013.
Sellers typically pay a commission to their agent, who shares the commission with the buyer’s agent. In pocket listings, it’s easier for agents to keep the entire commission to themselves, or within their brokerage firm or a small network of outside agents.
Agents say there are many reasons to keep a home off the MLS, at least temporarily.
“My preferred way is to market heavily off-market for a week or two, and then go onto the MLS,” said Cathy Youngling, an agent with Paragon Real Estate Group of San Francisco. That way “I have built a level of excitement and enthusiasm” before the “time on market” clock starts ticking.
Our contracts are ten pages of legalese designed specifically to protect realtors from lawsuits. Would the outcome have been different if the plaintiff sued his own agent too?
From the OCR:
A Coldwell Banker real estate agent at the center of a dispute that went to the California Supreme Court did not breach a fiduciary duty to the buyer of a Malibu mansion, a Superior Court jury ruled Thursday at a retrial of the case.
Nor did the agent intentionally or negligently misrepresent the property, the jury found.
The Supreme Court ruled in November 2016 that a real estate agent owes a fiduciary duty to the buyer – not just the seller – when one brokerage represents both sides of a deal. The case then went back to the trial court.
The dispute began after Hong Kong multimillionaire Hiroshi Horiike bought a Tuscan-style Malibu mansion overlooking the Pacific Ocean for $12.25 million in cash in 2007. The listing agent, Chris Cortazzo, gave him a flier that said the home had 15,000 square feet of living space as well as an MLS listing that did not specify the square footage.
But a building permit indicated there was a total of 11,050 square feet, including a guest house and a garage, while the tax assessor’s records showed it was less than 9,500 square feet.
The square footage question is complicated because Malibu uses a different metric than elsewhere, extending the measurements to garages and other spaces beyond the primary residence.
Horiike, who signed an advisory saying the broker was not responsible for verifying square footage, bought the property without further investigating its size, according to court records.
A couple of years later, seeking a permit to remodel a room, he found out the house wasn’t as large as he thought.
Both Horiike’s agent and Cortazzo worked for Coldwell Banker, so the firm was the dual agent for the buyer and seller. In 2010, Horiike sued Cortazzo and Coldwell Banker, stating they violated their fiduciary duty to him.
The defense argued at the first trial that Cortazzo was the exclusive agent of the seller and didn’t have a fiduciary duty to Horiike. The first judge agreed and dismissed Cortazzo from the case. A jury then ruled in Coldwell Banker’s favor.
The case was appealed, then went to the Supreme Court. While the court ruled there was a fiduciary duty, it did not rule on the merits of the case.
The retrial began on March 19. Horiike sought $4 million in damages plus interest, bringing the total to $7.5 to $8 million. Jurors got the case the afternoon of Wednesday, April 4. The verdict came back roughly a day later.
Cortazzo issued a written statement through Coldwell Banker.
“I am pleased with the court’s decision. I operate with integrity and strive to uphold the highest of ethical standards. As always, I remain completely committed to my clients and bringing them a premier level of service,” he said.
Horiike was not in court for the verdict. Zachary Shorr, his attorney, said Horiike may appeal.
“I wouldn’t hesitate to if I were him,” Shorr said.
If he signed an agreement to represent both parties, he’s got some explaining to do (H/T daytrip):
The owners of a historic Hollywood Hills home have sued “Million Dollar Listing” star agent Josh Altman for fraud and breach of contract for allegedly duping them into a deal to sell the home at a steep discount to one of his friends.
The sale never went through, but the homeowners, Gigi and Paul Shepherd, contend that Altman conspired with his friend, Nicholas Keros, with whom he has worked on previous real estate deals.
Keros filed his own lawsuit against the Shepherds, which the homeowners say has left them “hundreds of thousands of dollars” in debt and forced to declare bankruptcy, according to their suit, filed in LA County Superior Court last month.
Named as defendants are Altman and Douglas Elliman, where he is an agent. Keros is not a named defendant.
The Shepherds inherited the Richard Neutra-designed home on Sunset Plaza Drive from Gigi’s aunt, Josephine, in the mid-2000s. It was was listed for $10.5 million last fall. The property is 1.2 acres and marketed as “a truly unique development opportunity.”
They met with Altman to list the home early last year, and agreed that he would represent both parties if he was able to bring a seller to the table.
A few weeks later, Altman introduced Keros to the Shepherds as a potential buyer, but the suit claims he did not disclose Keros was a close friend.
Shortly after, Altman called the Shepherds and said Keros was a serious buyer, but would walk away if they didn’t meet with him immediately. The Shepherds agreed and met without their lawyers present.
The Shepherds claim that during the meeting Altman “did absolutely no negotiations” on their behalf and instead “forced terms desired by [Keros]” on them. Altman and Keros presented the Shepherds with what they called a “draft” agreement that the couple continually “marked-up and revised” over the course of the meeting. Keros again said he would walk away if they didn’t sign, so they did, the Shepherds claim in the suit.
The couple also claim Altman ignored their requests for copies of the documents and then altered the papers after securing their signatures. At that point, Altman and Keros contend the so-called draft documents were binding.
The Shepherds also signed a “contingency” document with Keros regarding an easement dispute the couple had with their neighbor. The couple say that Altman and Keros misrepresented that document, which Keros later used to sue them.
Altman did not return a request for comment. A spokesperson for Elliman said that the firm does not comment on pending litigation.
Representatives for the Shepherds could not be reached for comment.
Another reason for the industry to commit to full transparency and the auction method of selling homes – our Code of Ethics doesn’t help much:
Q: I submitted an offer for a buyer client that was near the full listing price and asked the listing broker if any other offers existed. The listing broker said no. The next day the broker called me and told me the property sold to a different buyer. Shouldn’t the broker have told us that there were multiple offers when the other offer came in and given my client the opportunity to modify the offer?
A: This is one of many misconceptions about handling multiple offers. The primary provision in the Code of Ethics related to multiple offers is Standard of Practice 1-15, which says “REALTORS®, in response to inquiries from buyers or cooperating brokers, shall, with the sellers’ approval, disclose the existence of offers on the property.” You asked if there were any existing offers at the time you submitted and the answer was, apparently, no. Nothing in Standard of Practice 1-15 or any other part of the Code requires the listing broker to go back to any or all other buyers who made an offer should one or more additional offers come in after your offer was submitted.
While it might seem that listing brokers should be required to go back to all those other buyers if other offers come in, a seller may choose not to take that action and may choose another direction to negotiate a sale. It may also seem that going back to previous offers would always be in the best interest of a seller. But, from the seller’s perspective, there might be both price and non-price terms of the other offers that are more attractive. The seller might not want to risk that the later, better offer may be withdrawn in the time it could take to reinform the other buyers and allow them to change their offers.
One tip for cooperating brokers in multiple-offer situations is to ask the listing broker about other offers on more than one occasion during the negotiations. It’s no guarantee that you will hit the right time, but it might give you more information for your buyer client in the negotiation on high-demand properties.
Our San Diego MLS quietly removed our complaint button recently. I’m sure they had heavy volume, but they aren’t the realtor police – nobody is. Hat tip to SM for sending this in:
VANCOUVER – The province is hoping to make it easier for you to report suspected misconduct in the local real estate market by launching a new tool.
A new anonymous tipline has been launched by the Real Estate Council of BC, as part of, what it describes, a way to protect potential homeowners.
“This is a way for people who have information about potential misconduct of real estate agents, that perhaps they’re uncomfortable identifying themselves, they have this as a tool to report information to the council anonymously,” explains Executive Officer Erin Seeley.
The tipline is one of the recommendations made by an Independent Advisory Group two years ago. “The council set up this group as a way to report on the improvements the Real Estate Council can make in overseeing licensees and in protecting the public.”
This new tool allows people to report things like a conflict of interest, failure to disclose information, or even the mishandling of money.
There is a complaints process already in place and Seeley adds the new tool is part of the process currently available to the public.
“It’s anonymous, it’s more accessible with the 1-800 number, and it’s a secure forum,” she says. “And it allows people, regardless of whether they’re a real estate licensee or a consumer, they can use this to report misconduct and not have a fear of reprisal.”
Seeley says just like the current process, all complaints are investigated and reviewed to determine whether a full investigation is required. “If there [are] grounds for misconduct and evidence, we’ll take action as appropriate through the channels of investigating. We have administrative fairness and natural justice as key parts of our process.”
Processes to resolve complaints are available, and if a case warrants it, Seeley says hearings can be held by a tribunal.
“We have financial penalties, significant penalties up to $250,000 for licensees per infraction under the Real Estate Services Act.”
According to Seeley, the council receives a number of complaints and has investigated claims of significant misconduct in the past.
The only recourse around here is to file a complaint with the Association of Realtors, and have the Ethics panel hear your case.
I did file a complaint recently, which meant I had to compile and submit six copies of the evidence. The agent was found guilty, and received the maximum penalty for a first-time offender – a letter in their file for 12 months.
This is the fourth installment of my essay on the future of real estate sales. I’ll send this along to Brad Inman, who is gathering thoughts for a leadership conference at the end of March, so they have my perspective from the street.
The unconscious desperation among agents is ripping apart the formal agreement between brokers to share listings. The environment is going the way of commercial brokers, where exposing listings to other agents is a last resort.
We see it happening – there is the occasional article – but without vigorous intervention by realtors themselves, the MLS will slowly disintegrate and be picked apart by outsiders.
Sadly, the sharing of listings is what is best for sellers, buyers, AND realtors, but the greed and desperation among agents gets in the way.
What Can Be Done? What Are The Choices?
Individual agents can adopt a full-transparency program, starting with publicly describing the specific services they offer, and their commission rates. If consumers took the time to educate themselves about the differences between agents, at least they would make better decisions than they do now. It’s unlikely that this will happen, because agents are lazy and won’t bother, unless forced to do so.
We can hope that N.A.R., C.A.R., big brokerages and other industry titans will address this specific problem, and implement changes to save the MLS and broker cooperation out of a commitment of doing what’s best for consumers. Probably the least likely of these five to actually happen.
We can have big leadership conferences where outsiders will speculate how the disrupters will pick us apart, piece by piece.
We can wait for the government to intervene.
We can do nothing, and watch the broker cooperation via the MLS – which is the best thing for everyone involved – die a slow but certain death.
We can hope that somebody will find an answer. But it would have to include ways to eliminate agent shenanigans, invigorate consumers, and be a forward-thinking solution that benefits all.
The inquiry might start with creating a national MLS, or electing a real estate czar, or encouraging agents to keep their word and quit cheating their own customers out of what’s best.
But what if a thing was the answer?
The solution is LIVE AUCTIONS.
We can easily incorporate them into our regular business as the process to select the winning bidder. All other selection processes used today are subject to the listing agent tilting the table – with a live auction, all participants will be watching, and able to determine the actual winning bidder.
Could there be shill bidders who run up the price? Yes, but let’s insist that every buyer is represented by a realtor – that way, at least the agent’s reputation is on the line.
Live auctions would keep listing agents and buyer-agents employed, though the fee structure may be in flux. But our commissions are already under attack, so let’s take a chance that consumers will agree to pay a reasonable fee for these live auctions, and the other additional benefits provided by realtors.
A live auction doesn’t have to be a showy, champagne-filled soiree with a fast-talking auctioneer. They can be as simple as gathering the buyers around the living room, in a rather informal setting.
I am offering the live-auction strategy to my sellers as the fairest and most effective way to select a buyer, and let the full transparency be the best way to reach top-dollar.
Here’s an example – catch the winning agent’s comments at the 9-minute mark:
Typically, if you want to know what a realtor does to sell your house, you have them over to make a listing presentation in person. Because of antitrust laws that ‘promote fair competition for the benefit of consumers’, the commission rates charged by realtors are rarely seen in public.
Until the discounters came to town.
They advertise their rate because they want to appeal to the price-shoppers. Consumers who shop for the lowest rate are attracted to this ploy, and don’t ask enough questions about what they get for the money.
Because the real estate industry refuses to publish any minimum standards, the discounters can get away with statements like, ‘full service for less’. Today, you can ‘hire’ a realtor for $100 or less – but what do you get, and is it what you want and need?
Let’s start by outlining the levels of service available.
The Different Types of Realtor Service
Full Service – Expert
This is where you get a long-time veteran realtor – a full-timer who has closed hundreds of sales – to handle every aspect of your transaction. Any assistants involved have a similar level of experience, and together they produce a smooth, seamless sale at the absolute highest price possible.
Full Service – Trainee
Every agent learns on-the-job. Consumers deserve to know the differences, but because of the lack of transparency, there is no qualifying of how helpful an agent will be – you are taking a chance. Agents can claim to be in the Top 1%, and say their assistants are ‘experts’, but there are no official standards. As a result, team leaders are prone to hiring lower-cost employees with less experience to fill the gaps. Because it is a fast-paced and complicated business, the trainees struggle to deliver the same results as the real experts.
This is one service that is clearly defined here, because of everything the realtor doesn’t do for you. It is primarily for MLS entry only, where the realtors cash your check, input your listing onto the MLS system and hope you can figure out the rest on your own.
Consumers – and realtors themselves – would be well-served if the real estate industry had a definition of the services provided, and then had every agent publish the specifics of what they do to serve clients.
Zillow does allow agents to list their sales history, but there is no instruction for consumers to properly use the information. Their agent profiles are full of fluff, with at least half of them promising to deliver your ‘dreams’.
If every realtor published their actual services provided (with fees) and a detailed profile of every team member’s experience, then consumers could make an educated decision about who they are hiring.
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
by Ann Romanello
"Jim educated us, helped us find the perfect house, and then negotiated us a great deal. I would hate to be sitting across the negotiating table from ... more "
"Jim is thorough and will be brutally honest about the homes he shows you. He provides great service and follows through until the very end and even ... more "
"I highly recommend Jim as a buyer’s agent. Working with Jim, we closed this week on a San Diego condo. Jim prepared a list of comparable sales to ... more "