Ethics Amongst Oregon Realtors
July 16, 2019
by Colin Marcum
Ethics Amongst Oregon Realtors
July 16, 2019
by Colin Marcum
All professions benefit from time to time in discussing the ethical issues that their sector is facing. This is the same for the real estate industry as it is for the military, doctors, civil servants, teachers, salespersons, and really any job or profession that deals directly or indirectly with other people (read: “all professions”). The two primary reasons for this are 1) the long-term economic benefits of running a consistently ethical business, and 2) to regulate over our own industry in order to avoid outcry from the general public which would compel the government to do it for us. We’ll discuss those reasons why we should be ethical towards the end of this article, but first…
What is Ethics?
What is Ethics?
Ethics is one of those terms that we have difficulty really pinning down with an all-inclusive meaning that is satisfactory for all, but we will try a few. Common definitions you may find on Webster’s or in Wikipedia deal with the “moral principles” behind the actions that we take. “Morals” are further defined from these sources as right and wrong behavior; which can differ between various groups and cultures, and “principles” which are inherent truths about a particular subject matter. Another potential source to help us understand this term comes from the book, Approaches to Ethics, by W.T. Jones, in which they say ethics is “a pattern or norm or code of conduct actually adopted by a group of people… [it is] the business of sociology, anthropology, and history [that] these disciplines have shown beyond question that there is great diversity among ethical codes that have existed and do exist today.”
Ethics can and does differ between different sectors, as you wouldn't expect a Realtor to follow the same moral imperatives as that of a Soldier, but both have their own that they follow and will be judged by. What makes their ethics differ is the nature of the environments they operate within, the desired behaviors their groups are trying to produce, and ultimately the desired results they are trying to achieve. This is true of all professions. We perceive ethics as how we and our colleagues ought to act within our profession for the betterment of the society in which we serve. We are trying to perceive principles that are inherently subjective in a more objective way, and hold ourselves and others to them.
Therefore, a more basic and apt definition of ethics we would like to use is that ethics is: Specific behaviors we have come to determine is either right or wrong for the group. With this definition, it isn’t necessarily that doing something wrong is unethical, as we all make mistakes and aren’t all-knowing, but the motivation behind why it occurred. You can do something wrong and be perfectly ethical, but if you fail to learn from those mistakes or don’t continuously improve your subject matter expertise then you enter the realm of unethical behavior. Because, after awhile, “you should've known better by now.” This is why we have principal brokers supervising associates, and why the agency requires you to conduct at least 30 hours of continuing education classes every two years. The system is trying to instill the right behavior in its people in regards to competency. So that being said...
What ethical issues are currently being witnessed within the Oregon real estate industry?
What ethical issues are currently being witnessed within the Oregon real estate industry?
When ethics are violated enough to the detriment of the general public, then the government steps in and establishes laws and regulations to help curb that behavior. For our industry, the Oregon Real Estate Agency manages the conduct, and punishes violators of Oregon’s real estate law. By law, the Real Estate Agency has to publish its list of violators to the public, and in Oregon, ours is published in their bi-monthly publication of the Oregon Real Estate News-Journal. At the end of each release, in the administrative actions section, we will see the Realtors and brokerages who the agency has come down on for violations, and you will see two primary forms of violators: 1) those who were incompetent, and 2) those who knowingly violated regulations.
Incompetence
Incompetence
You may not think that being bad at your job is an ethical issue, and in and of itself it is not. No one is perfect, and we all start out our careers with minimal capabilities which we build over time. The ethical issue occurs when they are incompetent, but people who put their trust in them are allowed to be unaware of that fact by that Realtor and their firm. They carry on without concern, or in spite of, the damage they can cause others. While incompetence in the military can literally get people killed, Realtors and brokerages in our industry still have a great impact on the lives of people.
For Realtors, errors and omissions insurance is a great asset for the once in a lifetime blunder. When financial harm has befallen a client as a result of a mistake their agent has made, it can protect the agent during litigation and compensate the client for the damages. But just like having airbags and seatbelts isn’t a replacement for being a good driver, you can’t use E&O insurance as a replacement for being a competent Realtor. The reasons are twofold, 1) clients will no longer commission your services, and 2) you will end up on the Oregon Real Estate Agency’s naughty list and lose your license. It is because of the damage an incompetent Realtor can do that people will shop around for the best, and who the Agency will punish to safeguard the image of our profession. If a Realtor can’t perform their duties to industry standard, then they shouldn’t assume the responsibility. It is wrong to behave in such a manner, and therefore, unethical.
For brokerages, they are ultimately responsible for the conduct of their agents, just as the Oregon Real Estate Agency is ultimately responsible for agent activity within our state. While brokerages will generally have a choice selection of skilled and reliable principal brokers to manage the rest, it is still that brokerage’s duty to supervise all agents under their banner. It is a responsibility that they can’t completely delegate. If there is an incompetant agent that constantly makes mistakes, and the firm believes that they will continue to do so, they have options. They could ensure they are effectively controlled and mentored by a skilled broker, or, if nothing else, return their license to the Agency.
We don’t have the power to revoke licenses, but we can prevent their ability to engage in real estate activities under our name. To continue to provide a place for these Realtors the firm knows may cause harm for their clients, is itself unethical of them. Even at a loss of monthly fees, transaction fees, or split commissions (depending on the firm’s business model) the firm must let them go. At the very least, the money made off of their work will barely offset the costs and time the brokerage spends fixing the mess, and at worst draw the eventual ire from the Agency upon the firm when that agent does eventually screw up.
Intentional Violations
Intentional Violations
It is one thing to knowingly violate the law and regulations due to incompetence. We can forgive a fool for their ignorance, and correct it through education and mentorship. It is an entirely more selfish thing to violate them for personal benefit. Thankfully, this is not as prevalent in the industry, as attested to in the limited notifications on the Oregon Real Estate Agency’s administrative actions list.
One reason for intentionally violating the Agency’s regulations could be attributed to laziness. People are inherently lackadaisical about activities they don’t have a vested interest in or are overconfident about their capabilities. A listing agent has to present every offer made to the seller, but obviously, if the agent knows their client well enough they can tell which ones they are going to refuse outright. If they aren’t a motivated seller, the agent still has to present all those low-ball offers. It takes time and effort, and some less ethical agents simply don’t bother.
Another reason is for personal gain. By violating a law or regulation, they stand to gain some type of capital, asset, or service. This is more nefarious as it usually comes at the expense of someone else. Realtors act as fiduciaries for their clients, and as a result, the client’s ends are more important than that of the Realtor’s.
By law, a Realtor can’t involve their own real estate dealings while providing services for their clients. For example, a buying agent searching for homes that their client might be interested in, discovers one that is a great deal. The seller is motivated and needs to close fast, and is willing to sell at a discount. It looks like a great investment opportunity for the Realtor, but knows this is a property their client would want to jump on if they knew of it. It is illegal and unethical not to present this property to them.
Another example, a listing agent has to show all offers to their client, as mentioned before. The agent may also have a comparable property they are looking to sell themselves, and discovers buyers for the client’s property are making a great offer. It would be illegal and unethical for the agent to redirect those high-rolling buyers away from their client’s property to their own.
For both examples, it should be apparent why it is illegal and unethical. The agents would be acting in such a way that doesn’t provide an optimal end result for their clients: better use of capital in both cases. Once the fiduciary relationship is over, if both opportunities are still available, only then can the Realtor jump on them.
Lack of Transparency
Lack of Transparency
Another unethical activity, one we have seen in abundance within the real estate industry isn’t actually regulated by the Oregon Real Estate Agency. This is probably because it isn’t between our people and the general public, but between brokerages and Realtors. More precisely the Realtors they seek to recruit to join their firms. The issue in question comes from the transparency, or lack thereof, in the fees and offerings of certain firms. We wrote a standalone article on the lack of transparency, but wanted to discuss it quickly here.
When a Realtor is shopping around for brokerages to join, they are weighing the pros and cons of each. Commission models, training and education, facilities, signage and marketing, and other various fees are weighed against each other and the likelihood of constant closings. Some firms have better business models based on the condition of the market so the agent will have to make a decision based on a balance of all three: the firms, the market, and their own capabilities.
The brokerage seeks only to acquire as many Realtors that can perform as possible. They are the workhorses that engage clients and make transactions happen so, in most instances, the more the merrier. Because of this singular need of agents, some firms will use techniques to draw the eye of many Realtors, and for some this has come in the form of boasting about their offerings while staying hush about their fees, or making promises they couldn’t keep.
Realtors are partially protected by this in the contract they must sign with the firm. All fees must be stated in the contract if the firm seeks to enforce the agent’s payment of those fees. Because of this, the Agency, we assume, hasn’t come down to regulate the advertisements of brokerages that target Realtors. But there are many, we have witnessed, that were taken in by half-truths, empty promises, and trusted their recruiter to such an extent that they don’t truly analyze the fine print in the contracts they sign. Buyer’s remorse quickly sets in after a few months when they realize the relationship was not what they were led to believe. Technically they have themselves to blame, but to not be given full disclosure is unethical on the firm’s part. Dissatisfied agents are not good for the brokerage in the long-run, and for the industry as a whole. Without more effective transparency, it may compel the Agency to step in and dictate recruiting practices, and what we can and can’t do.
How do we achieve an ethical environment within the Oregon Real Estate Industry?
How do we achieve an ethical environment within the Oregon Real Estate Industry?
To make our industry a better place, ethically speaking, there are two things that must occur simultaneously. That is to lead by example and to hold others to the same measure. It starts with the most senior and highest element on the Agency totem pole. The Oregon Real Estate Commissioner and the commissioner’s staff must appear to our community as a beacon of real estate ethics if we are to expect others to fall in line. Below that, the individual brokerage owners, principal brokers, and branch managers who are supposed to guide and mentor our associate Realtors and team members. The last ones are ourselves. While it would be nice if we could compel others within the industry to act more ethically, the ones we have the most control over is ourselves. Who are we to dictate more ethical behavior amongst our colleagues if we still act unethically ourselves on occasion? Additionally, when we engage people who have failed some ethical benchmark, how will we help correct them? Basically, what is the way we identify some behavior as unethical? Through a litmus test of sorts.
James H. Toner provides good examples of how to judge ethical quandaries. While he wrote for military audiences, and civilian leaders that would employ military force, this thinking can easily be utilized by any sector where ethics are concerned. In Toner’s book, True Faith and Allegiance: The Burden of Military Ethics, he said,
“It is important to note that ethical conduct normally is based upon a wise blending of customs, rules, outcomes, and circumstances. Blindly following the dictates of one source alone can lead to trouble.”
Whether or not a general action is ethical or not is difficult to determine due to the many variables that go into the decision to act, but with these four categories, we have a process to determine whether specific actions we could take are ethical by themselves.
Customs
Customs
The unwritten rules that people within the industry follow. Failing to follow these won’t result in civil or criminal punishments, but may cause damage to interpersonal relationships. In a people-oriented business; like real estate, these relationships are important. Customs for us include many of the behaviors you would expect of a lady and gentleman; being respectful, treating people with dignity, being punctual, and generally being trustworthy and doing as you say. Additionally, behaviors of a good fiduciary, such as being empathetic of a client’s unique circumstances, and making an effort to understand their needs so to better serve them are valued.
Rules
Rules
Laws, regulations, codes, and anything actually stated that one must follow or suffer some form of punishment. Within a society, in our case the Oregon real estate industry, we will identify those behaviors and actions that are so problematic in their consequences that they must be controlled. We find ours in federal and state agency regulations, municipal laws, and even brokerage and MLS bylaws.
Outcomes
Outcomes
This very much relies on the ends justifying the means type of ethical assessment. A particular behavior or action may not violate a custom or a rule, but still be unethical if you foresee that the subsequent end is likely to be a net negative. Negatives could involve not just yourself, but your family, the brokerage, the clients, the industry, and even local communities.
Circumstances
Circumstances
Even if under regular circumstances something may be considered unethical, there could be extenuating circumstances that justify it. Based on the situation you may be justified in breaking your fiduciary responsibilities if your client is knowingly violating the law, or being a whistleblower if your broker is engaging in illicit activities.
By assessing an action or behavior against these four areas, we can begin to make a determination on its ethical value. If it doesn’t violate the customs of our industry, its laws and regulations, if it provides a generally positive outcome, or the circumstances allow it, then it is ethical. Most of us are capable of assessing things in this light, and do it naturally. The real issue occurs when we have two contradictory options to execute, but neither appears to be ethically superior to the other.
We have usually seen this situation occur as a result of the conflict between customs and rules versus outcomes. Seeking positive outcomes, or avoiding really negative ones, are by themselves ethical, but by going through with it you may directly contribute to a net negative through unethical behaviors leading to that ethical outcome. One could be violating customs or rules by trying to achieve beneficial outcomes. So it can be a “damned if you do, damned if you don’t” type of scenario.
When there is a conflict between ethical or semi-ethical decisions, which options take priority?
When there is a conflict between ethical or semi-ethical decisions, which options take priority?
James H. Toner provides us another way to assess a better option amongst competing ethical loyalties.
“In the military, lives occasionally must be risked - never, of course, in a careless or negligent fashion. Without risk, many military purposes could not be fulfilled. People are not chattel to be spent at the whim of military commanders - as great leaders have known from Valley Forge to Desert Storm - but in the military, principle precedes purpose, and purpose precedes people.”
What Toner speaks of is that regardless of the leadership’s desires to safeguard the lives of its people, and to see to their wellbeing, that it cannot be at the expense of the military’s purpose; which is to engage with the enemy’s of the United State of America. That purpose, however, must be nested with principled actions that don’t bring dishonor to our country, because what point is there to the accomplishment of a mission if, in the process, we have weakened our credibility for future engagements.
The military, as with many professions, is a people business. Just as it is with the real estate industry, we too engage with people constantly; though not to the same hazardous degree as with military operations. Regardless, the “principle precedes purpose, purpose precedes people” guidance is still a very valuable tool when you must decide between those competing ethical decisions we mentioned before.
Ronald D. Francis and Guy Murfey, in their book Global Business Ethics, defined the purpose of business in two ways.
- Its purpose is to create goods and services to meet human needs - not to make money for its own sake.
- It is to make a profit while behaving ethically.
In this way, Francis and Murfey allude that a business, in their conduct, must be ethical. In a way, “principle precedes purpose” is itself a principle that extends into other endeavors.
In regards to “purpose preceding people,” one element is the economic viability that keeps us providing real estate services as a profession. Naturally, a seller would prefer to retain the 6% of that purchase price instead of giving it up for the commission, but Realtors can’t feed their families on gratitude alone. In the same way, the brokerage will need its fees and splits if it wants to keep its people and facilities operating. It will need to take from its people, so that it can continue to service people. “Principle preceding people” comes around as well as we mustn't risk our business in the process of serving our clients.
Bottom line, support your clients to the fullest extent you can while not endangering your business and principles. While engaging in business alongside colleagues, the brokerage, amongst your competitors, and with your affiliates, they mustn't conflict with established principles, be they codified in laws or regulations or unwritten customs for how you treat others. Basically, if you believe that what we provide as Realtors is a valuable service to the people of Oregon, then you must always keep in mind what must be done to protect our industry so it can continue to provide this service into the future.
Conclusion
Conclusion
The Oregon real estate industry suffers many ethical issues, as do other professions. It behooves us to discuss it periodically to ensure we maintain control over our own conduct. This helps build confidence amongst the general public that we are the consummate professionals we say we are, and it also keeps the government from imposing more regulations to try to keep our people in-line on our behalf.
- The general incompetency displayed by a handful of agents that require greater oversight and mentorship.
- Purposeful violations of regulations; either for lackadaisical or opportunistic reasons.
- Lack of transparency between certain brokerages and the Realtors they are seeking to prospect.
There are methods to help people ensure that their actions are ethically sound, and that includes assessing them against our customs, industry rules, social outcomes, and specific circumstances. At times there may be situations in which you will have to pick between competing priorities. Keeping in mind that your principles should always come first, those principles are followed up by the purpose of your business as it keeps you alive. As long as principles and purpose aren’t being violated then supporting your clients to the best of your ability is your fiduciary responsibility.