Understanding The Real Estate Code Of Ethics: A Guide For New Brokers
The National Association of REALTORS® (NAR) has over 1.5 million members across the U.S., and they’re all required to follow a code of ethics.
If you’re a new broker or real estate licensee, it’s crucial that you understand the Realtor code of ethics, as you can face serious consequences if you don’t adhere to it.
Not following the code of ethics can lead to reputational damage, loss of clients, and even losing your job. You may also have to pay a fine of up to $15,000.
However, the NAR code of ethics is complex and can be difficult for brokers and other real estate professionals to understand. This is especially true if you’re new to the industry or you’ve just started a real estate business.
In this article, we’ll guide you through the real estate code of ethics so that you can familiarize yourself with it. We’ll also share some ways that real estate brokers can ensure their teams follow the code of ethics to avoid serious consequences.
What Is the Real Estate Code of Ethics?
The real estate code of ethics was established by the National Association of REALTORS® in 1913. It’s a set of guidelines and principles designed to ensure that real estate professionals conduct their business with the highest standards of integrity, fairness, and professionalism.
The code outlines how real estate professionals should behave and act when working with clients, customers, and other industry professionals. It also addresses a range of topics related to how each real estate transaction should be handled.
With 17 articles in total, the NAR code covers a wide range of ethics, including:
- Duties to clients and customers.
- Duties to the public.
- Duties to other Realtors.
The code of ethics is a living document that is regularly updated to reflect changes in the real estate industry. You can access the full code of ethics on the National Association of REALTORS® website.
The code of ethics isn’t the law. Instead, its authority comes from the NAR being the largest membership association in U.S. real estate. However, the code does reflect the law, and following it will mean that you comply with state and federal regulations.
Who is Required to Follow the Code of Ethics?
The NAR requires every licensed real estate professional who is a member to follow its code of ethics.
Here’s a list of people in the real estate profession that must follow the code of ethics:
Members of state and local Realtor associations
Members of any state-level Realtor associations, which are part of the larger NAR organization, must follow the code of ethics. Additionally, members of local associations that operate under the umbrella of state associations and the NAR should adhere to the code.
Real estate brokerages
Real estate brokerage firms that are members of the NAR or whose brokers are members must ensure that their agents adhere to the code of ethics.
Real estate teams
Teams of real estate professionals operating within a brokerage that is a member of the NAR are required to follow the code. This includes team leaders and all team members who are Realtors. Realtor is a designation that NAR members can use as their job title.
Participants in multiple listing service (MLS) systems
Many multiple listing service (MLS) platforms require agents to be members of the NAR or a local Realtor association, which means they must adhere to the code of ethics.
What Happens if You Don’t Follow the Code of Ethics?
If real estate brokers and their team members don’t follow the code of ethics, they can face various consequences depending on the severity of the violation. Here are some of the penalties you may face if you don’t follow the code:
❌ Letter of warning: This is a formal letter indicating that the Realtor has been found in violation of the code of ethics. It serves as a warning against future violations.
❌ Letter of reprimand: This is also a formal letter indicating a more serious violation, often accompanied by a requirement to take additional training or education.
❌ Fines: Realtors who don’t follow the code can be fined up to $15,000.
❌ Education and training: The NAR may require a Realtor to complete specific courses or educational programs related to ethics and professionalism if they violate the code.
❌ Probation: The NAR may place a Realtor on probation, monitoring their conduct for a period of time. Any further violations during this time can result in more severe consequences, like suspension or expulsion.
❌ Suspension: The Realtor’s membership to the NAR can be suspended for a certain period. During this time, they lose access to member benefits, including using “Realtor” as their job title.
❌ Expulsion: In severe cases, the NAR can expel Realtors from both the national and local associations, permanently losing their membership and the ability to use the “Realtor” designation as their professional job title.
One example of a violation of the code of ethics was when an agent in Denver removed Black Lives Matter signs from the yards of neighbors where they lived and sold homes. The agent was found to be in violation of Article 10 of the code, which speaks to members’ behavior. The agent was fired as a result of their actions.
Another case involved a real estate agent who failed to disclose information about termites in a home despite evidence of pest infestations. When the buyer discovered the termite damage, a court held the agent accountable. The agent faced a fine for this ethical violation.
How Is the Code of Ethics Enforced?
Clients, customers, members of the public, and other Realtors can file formal written complaints with the NAR. The next step is a preliminary review, where the Realtor’s Association Grievance Committee reviews the complaint to determine whether the allegations violate the code.
Next, a Professional Standards Committee hears evidence and calls witnesses.
The Realtor can present their defense against the accusations,, and both sides can demonstrate evidence and call witnesses.
If the outcome of the complaint is that the Realtor has violated the code of ethics, they could face any of the consequences we’ve outlined above.
What Are the Specifics of the Code of Ethics?
As mentioned earlier, the NAR code of ethics is complex, and it can be difficult to understand.
Here is a basic summary of the main points of the code of ethics that are crucial for you to understand:
Preamble
- The preamble emphasizes the importance of professionalism and the ethical duty of Realtors to serve their clients and the public.
- It highlights the fundamental principles of honesty, integrity, and fairness. It also discusses the responsibility of Realtors to maintain and improve their professional standards.
Duties to clients and customers
- Under this section, the code of ethics states that Realtors must protect and promote the interests of their clients while treating everyone honestly. This includes maintaining confidentiality and disclosing potential conflicts of interest to clients.
- Realtors are also required to disclose any pertinent details about properties and real estate transactions that may affect a client’s decision to buy or sell a property. This includes not using any false or misleading statements.
- Realtors must ensure that all agreements are in writing and are clear to all parties involved.
Duties to the public
- This section states that Realtors must provide equal professional services and can’t deny services or discriminate against any person based on their:
🚫 Race.
🚫 Color.
🚫 Religion.
🚫 Sex.
🚫 Handicap.
🚫 Familial status.
🚫 National origin.
🚫 Sexual orientation.
🚫 Gender identity.
- It also states that Realtors must provide competent services only within their areas of expertise and must not engage in any authorized practice of the law.
Duties to Realtors
- This part of the code says that Realtors can’t make false or misleading statements about other real estate professionals and emphasizes professional interactions with other Realtors.
- Realtors must also not engage in any activities that comprise the exclusive relationships that other realtors have with their clients.
How Brokers Can Ensure Their Teams Follow Ethical Practices
One of your responsibilities as a broker is to ensure that your real estate team follows the NAR ethics code.
A recent poll found that only 4% of respondents had “very high” trust in the honesty and ethics of real estate agents. This is problematic and highlights the need for brokers to provide agents with ethical guidance.
As a new broker, you may be wondering how to ensure that everyone adheres to the code. Here are some tips to implement to maintain ethical standards:
➡️ Familiarize yourself with the code of ethics first
Before you can start providing your team with guidance on the code of ethics, you need to understand it yourself.
To become a member of the NAR, you must take an ethics course that covers the code. Start thinking about ways you can motivate and incentivize your team to follow the guidelines closely.
➡️ Train new real estate agents
New real estate agents who have only recently become licensed may not be familiar with the code of ethics. When onboarding new agents, ensure that you provide them with training on it.
Be specific about the behavior you expect from them, and make it clear that you won’t tolerate any violations of the code.
You could also start a mentorship program where experienced agents guide newer team members on ethical practices through real-life examples and guidance.
➡️ Hold regular coaching sessions
You should provide your new and other real estate agents with comprehensive coaching that covers the code of ethics. This coaching may include case studies, scenarios, and discussions to help your team understand and apply ethical practices.
You can also give your team members the opportunity to attend ongoing training and education sessions about the code. These may include workshops and seminars to keep them updated on changes and new interpretations of the code of ethics.
➡️ Lead by example
Leaders and senior team members within your business should model the code of ethics in everything they do. This sets an ethical standard for the rest of your team to follow.
➡️ Provide education courses
As a part of their professional development, provide your real estate team with access to e-learning platforms where they can access engaging ethics training. This will help them further their knowledge and stay up to date with the latest developments.
➡️ Develop a policy manual
Create a detailed policy manual that includes the code of ethics and outlines your brokerage’s expectations about ethical behavior. Ensure that all your team members have access to this manual and hold regular meetings to discuss it.
These meetings should encourage open discussion and address any questions or concerns about the code of ethics or your manual.
➡️ Hold regular performance reviews
When you hold performance reviews for your agents, include an evaluation of their ethical behavior. Provide them with constructive feedback and help them set goals related to ethical conduct.
➡️ Carry out compliance audits
Conduct regular audits of your real estate business to ensure compliance with the code of ethics. This can include reviewing transactions, client interactions, and marketing practices.
➡️ Implement reporting mechanisms
It’s a good idea to implement a system that allows your team members to report unethical behavior anonymously without facing any consequences.
➡️ Establish clear procedures
If you do receive any anonymous reports of unethical behavior, you need to have clear policies in place for handling them. Your procedures need to include how you will investigate the issue and the disciplinary actions you’ll take if you determine someone has violated the code of ethics.
➡️ Reward ethical behavior
You should regularly recognize and reward team members who consistently demonstrate ethical behavior. This can be done through formal awards, recognition, and other incentives. This form of positive reinforcement can encourage other employees to follow the code of conduct.
➡️ Get legal and professional support
Encourage your team to participate in professional real estate associations that offer resources, training, and support related to the code of ethics.
It’s also important to allow your team access to legal counsel who can advise them on ethical dilemmas and ensure compliance with legal and ethical standards.
➡️ Create feedback loops
Getting feedback from your employees is invaluable when it comes to ensuring everyone on your team follows the code of ethics. Ensure you regularly collect feedback from your team members about the ethical culture of your company and any challenges they face in following the code.
➡️ Aim for continuous improvement
Ensure that you regularly review and update any company policies related to ethics so that they reflect changes in laws, regulations, and industry standards.
➡️ Stay informed
As a broker, it’s important that you stay informed about trends and issues in the real estate industry that could impact ethical practices and adjust your training and coaching accordingly.
Remain Compliant Consistently with Paperless Pipeline
As you now know, the code of ethics mandates Realtors to promote and protect the interests of their clients. This implies that your transaction management software needs to be secure and reliable.
You’re also required to handle and store any sensitive or confidential information provided by your clients compliantly.
With robust transaction management software like Paperless Pipeline, you can ensure ethical handling of every aspect of the transaction process and maintain compliance.
With features like secure document storage, unlimited backups, and activity logs, you can safeguard your client’s information. Additionally, our solution allows you to set permissions so that only the right employees see the right information.
Investing in Paperless Pipeline is an investment in ethical practices for your brokerage.
Visit our website for a free 14-day trial to learn how Paperless Pipeline can help ensure you’re always compliant and acting in your client’s best interest.