Chapter 5: Professional Ethics in Real Estate (UBC PDF)

DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, th...

DISCLAIMER: This publication is intended for EDUCATIONAL purposes only. The information contained herein is subject to change with no notice, and while a great deal of care has been taken to provide accurate and current information, UBC, their affiliates, authors, editors and staff (collectively, the "UBC Group") makes no claims, representations, or warranties as to accuracy, completeness, usefulness or adequacy of any of the information contained herein. Under no circumstances shall the UBC Group be liable for any losses or damages whatsoever, whether in contract, tort or otherwise, from the use of, or reliance on, the information contained herein. Further, the general principles and conclusions presented in this text are subject to local, provincial, and federal laws and regulations, court cases, and any revisions of the same. This publication is sold for educational purposes only and is not intended to provide, and does not constitute, legal, accounting, or other professional advice. Professional advice should be consulted regarding every specific circumstance before acting on the information presented in these materials. © Copyright: 2023 by the UBC Real Estate Division, Sauder School of Business, The University of British Columbia. Printed in Canada. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced, transcribed, modified, distributed, republished, or used in any form or by any means – graphic, electronic, or mechanical, including photocopying, recording, taping, web distribution, or used in any information storage and retrieval system – without the prior written permission of the publisher. This content is protected and may not be shared, uploaded, or distributed. ©Copyright 2023 by the UBC Real Estate Division  CHAPTER 5 PROFESSIONAL ETHICS Learning Objectives After studying this chapter, a student should be able to: Discuss the meaning of the term “professional ethics” Explain the purpose and scope of the REALTOR® Code, published by the Canadian Real Estate Association Discuss the ethical duties and responsibilities of real estate professionals Explain the importance of ethical business practices in the real estate profession List the disciplinary procedures to which real estate professionals could become subject ©Copyright 2023 by the UBC Real Estate Division ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.1 INTRODUCTION The following discussion reviews the broad topic of professional ethics in the real estate industry. After considering the meaning of the term “professional ethics”, we shall discuss the Canadian Real Estate Association’s (“CREA”) REALTOR® Code.1 This chapter also includes an overview of the disciplinary procedures employed by CREA and its member organizations, local real estate boards and councils (referred to in this chapter as “boards”), to resolve breaches by individual members of the ethical standards of their profession. Although this chapter refers in general to real estate professionals as that group of real estate registrants who are members of CREA or one of its member organizations, not all registrants are members of CREA or of a real estate board. Only board members are required to subscribe to the REALTOR® Code as a condition of membership in their professional association; however, all members of the real estate industry are expected to protect the interests of the public and to adhere to appropriate ethical standards. WHY STUDY PROFESSIONAL ETHICS? The complexity of the modern real estate industry combined with expanded legal responsibility of real estate registrants makes the study of professional ethics essential to maintaining a high standard of conduct in the industry and to promoting the good reputation of real estate professionals. Simply stated, the wide variety of responsibilities undertaken by real estate registrants involves the constant risk of conflicts of interest and other ethical problems. A good knowledge of the ethical code that governs a professional’s conduct is essential for anyone employed or otherwise active in the real estate industry. PROFESSIONALISM Elements of Professionalism Anyone learning about professional ethics must begin by considering what is meant by the term “profes- sional”. It is a term commonly used today to describe someone who earns a living by applying some degree of skill and expertise in their chosen calling or field. However, this description is imprecise and, as the term “professional” is to be used frequently in this chapter, it is worthwhile trying to formulate a more specific definition. F.A.R. Bennion, writing on the topic of professional ethics, has isolated six principal factors that, if present, indicate that an activity is “professional in the strictest sense.”2 1. Academic Basis: Every profession involves an intellectual or academic discipline, based on a course of education and tested by examinations. This factor arises by implication from the word “profession,” which “implies... professed attainments in special knowledge as distinguished from mere skill...”3 2. Private Practice: Daily person-to-person interaction with individual clients and the requirement of acting only in their best interests is another characteristic of a professional calling. For example, the activities of a real estate professional are devoted to the best interests of the client who retains him or her in a principal-agent relationship. The interests of this client must be served in preference to the interests of third parties (subject to certain legal and ethical limitations) and in preference to the private interests of the agent. 3. Advisory Function: A consulting or advisory role is implicit in the modern use of the word “professional”, especially when combined with activities such as negotiating, managing, or coordi- nating transactions. 4. Tradition of Service: Bennion describes this as “an outlook which is essentially objective and disin- terested, where the motive of making money is subordinated to serving the client in a manner not inconsistent with the public good.”4 1 The CREA REALTOR® Code can be found at: www.crea.ca/buyers-or-sellers/realtor-code 2 Bennion, F.A.R. 1969. Professional Ethics – The Consultant Professions and Their Code, Charles Knight & Co., Ltd. London. pp. 14-15. 3 Robbins Herbal Institute v. Federal Taxation Commissioner. 1923. 32 C.L.R. 457 per Starke, J. Australia. pp. 14-15. 4 Bennion, F.A.R. 1969. Professional Ethics – The Consultant Professions and their Code, Charles Knight & Co., Ltd. London. ©Copyright 2023 by the UBC Real Estate Division 5.2 Phase 1: Real Estate as a Professional Career 5. Representative Institute: A professional institute is a group or association of practising members all of whom share a common goal of promoting and maintaining an ideal of professional conduct in the interests of the public. 6. Code of Conduct: A professional institution is typified by its internal organizational formalities, which include a written code of ethical conduct expressing the members’ concept of professional standards. All such codes attempt to regulate the profession generally, focusing on conduct and disciplinary measures. Real Estate Professionals Taken together, the foregoing six factors identify categories of skilled persons whose vocations are of particular value and importance to the public. These professions may be called the consultant professions. In Saskatchewan, real estate services are provided by licensed professionals acting as salespersons, associate brokers, branch managers, and brokers working out of their related brokerages. Every code of professional ethics contains, either explicitly or implicitly, many provisions similar to those in the REALTOR® Code. For this reason, it is wrong to think that the types of ethical rules in the following discussion apply only to real estate professionals; similar ethical rules govern all professionals, regardless of their particular field or association. Remember, the REALTOR® Code is just one code of professional conduct among many. Although we will be using the Code of The Canadian Real Estate Association for illustrative purposes, there are in fact a number of professional associations representing different specializations within the real estate services sector and most of them have a Code of Ethics tailored for and applicable to their membership. While registrants who are members of CREA are obliged to act in accordance with the REALTOR® Code, it is important to reiterate that all registrants in Saskatchewan, regardless of whether they are members of CREA, must comply with applicable legislation. This includes: The Real Estate Act, The Real Estate Regulations, and the Saskatchewan Real Estate Commission Bylaws. In addition to legislation, registrants must also comply with the principles of common law such as contract law and agency law. Real estate professionals are faced with ethical considerations daily. Their daily work involves the most valuable asset most individuals will ever own. In addition to financial considerations, there is often an emotional aspect to real estate. A registrant may be dealing with the place where someone has lived most of their life, or where they intend to spend the remainder of their life. With such high stakes involved, not to mention the remuneration that could be earned by the registrant with a completed transaction, ethical issues abound. As a registrant is always in a position of trust, they must always act ethically, honestly and with integrity. WHAT ARE PROFESSIONAL ETHICS? One of the problems faced by society is the impossibility of devising a system of law that will always yield perfect justice. Legal rules are expressed in general terms and cannot hope to address every aspect of human conduct that may cause harm to others. It is possible to do wrong without breaking any civil or criminal law. For example, a professional may be able to escape criminal liability by ensuring that their conduct follows the letter of the law, but such conduct may still have an adverse impact on society. Codes of ethics exist to improve this situation by providing a set of guidelines to ensure that human actions will be morally fair as well as lawful. The Oxford English Dictionary defines ethics as “[t]he science of morals; the department of study concerned with the principles of human duty,” and the “moral principles that control or influence a person’s behaviour.” Professional ethics concern the morality of the daily business conduct of professionals. Written codes contain guidelines voluntarily adopted by members of professional associations as the minimum standard of behaviour necessary to maintain the reputation of the profession as a whole, in the public opinion. The differences between morals and ethics are subtle. However, morals can be viewed as universal in nature and application; whereas professional ethics looks more specifically to the activities that occur within a profession. The Real Estate Act (the “Act”) sets a minimum standard of conduct required by the law. The REALTOR® Code imposes a separate standard of conduct for real estate professionals than that laid out in the Act. Real estate professionals have formulated their own code of conduct which makes it improper for members of the profession to engage in certain activities in which the general public is entitled to engage. However, as you review this chapter, remember that any instance where the REALTOR® Code and the Act conflict, the Act and ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.3 its obligations always takes precedence. To review again the obligations under the Act, see Chapter 3: “The Real Estate Act and The Saskatchewan Real Estate Commission Bylaws”. It is important to note that suspension or cancellation of a registrant’s membership in a real estate board or council does not disentitle the registrant to continue their professional practice. The registrant may retain their licence to practice even though the registrant is subject to discipline for a breach of ethics under the REALTOR® Code, as long as there has been no breach of the Act or the Saskatchewan Real Estate Commission Bylaws. It would be wrong to conclude, however, that a real estate registrant is in a “better” position, or will suffer less drastic consequences for a breach of ethics, than a member of any other profession. A real estate professional’s livelihood depends largely on their personal reputation and good standing in the community. Registrants who do not adhere to ethical standards will quickly lose their good reputation and the confidence of their colleagues and clients. This will result in a loss of business which, if severe enough, will force the unethical registrant to leave the profession for economic reasons. To quote Ralph Waldo Emerson: Every man takes care that his neighbour does not cheat him. But a day comes when he begins to take care that he does not cheat his neighbour. Then all goes well...5 These words reflect the underlying premise or “Golden Rule” of the REALTOR® Code: “do unto others as you would have them do unto you”. THE REALTOR® CODE OF THE CANADIAN REAL ESTATE ASSOCIATION Real estate boards and councils and provincial associations have universally accepted CREA’s REALTOR® Code as the acknowledged measure of professionalism within the Canadian real estate industry. It is the standard that is widely recognized by professionals and the general public as the measure of professional conduct that may reasonably be expected from members of CREA. While the REALTOR® Code is relevant to all registrants, it is only those who are members of CREA who have officially agreed to abide it. The REALTOR® Code applies to a large portion of the industry. This collection of rules of conduct is voluntarily imposed by CREA and all its members agree, as a condition of membership, to abide by these rules. In turn, all provincial real estate association members and regional real estate board members are bound to abide by this code. The REALTOR® Code includes three parts: the Preamble, the Code of Ethics, and the Standards of Business Practice. The Preamble introduces the REALTOR® Code and explains its function. The Code of Ethics details the high professional ideals that are expected of CREA members. The Standards of Business Practice are comprised of 29 articles that set out specific rules of conduct. Accompanying each article in the Standards of Business Practice is a set of interpretations. The interpretations are supplementary to the Standards of Business Practice; they are included only as general guidelines as to the professional conduct required of a CREA member in a particular situation covered by a specific article of the Standards of Business Practice. Figure 3.1 provides an example of how the REALTOR® Code is organized. FIGURE 3.1: Excerpt from the REALTOR® Code Standards of Business Practice Article Interpretation 1.1 A REALTOR® shall be aware of current legislation and, wherever reasonably possible, be aware of pending legislation (including zoning, government programs, etc.) which could affect trading conditions in the marketplace. (Also applies to Article 4.) 1. Informed of Essential Facts 1.2 A REALTOR® should attend educational programs and courses which will A REALTOR® shall be informed assist the REALTOR® in remaining up-to-date and aware of matters that could regarding the essential facts which affect any aspect of a real estate transaction. affect current market conditions. 1.3 A REALTOR® shall be aware of appropriate financing procedures, mortgaging requirements, etc. in order to properly discuss financial obligations on any transaction. 1.4 A REALTOR® shall be familiar with the contents of the most current forms commonly used in real estate transactions. 5 Emerson, R.W. 1860. “Worship”. The Conduct of Life. New York. ©Copyright 2023 by the UBC Real Estate Division  5.4 Phase 1: Real Estate as a Professional Career The REALTOR® Code of CREA calls upon its members (designated by the trademarked designation “REALTOR®”) to observe the spirit of the Code in all of their activities and to conduct their business in compli- ance with the Standards of Business Practice and the “Golden Rule”. The Preamble reads as follows: Preamble to the REALTOR ® Code of Ethics Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization. Through the REALTOR®, the land resource of the nation reaches its highest use and private land ownership its widest distribution. The REALTOR® is instrumental in moulding the form of his or her community and the living and working conditions of its people. Such functions impose grave social responsibilities which REALTORS® can meet only by diligent preparation, and considering it a civic duty to dedicate themselves to the fulfillment of a REALTOR®’s obligations to society. The REALTOR® Code of The Canadian Real Estate Association (CREA) is universally recognized by real estate professionals and consumers alike as the measure of professionalism in real estate. The REALTOR® Code is intended to define the high standard of performance the public has a right to expect from those licensed to display the REALTOR® trademark. In the same manner that the real estate marketplace is a dynamic, demanding environment, so the REALTOR® Code is, has been and will continue to be a demanding document, a plan for professionalism in real estate, capable of including and accommodating every change, challenge and controversy which arises. Since 1913, when the first Code of Ethics was approved by the National Association of Real Estate Boards, it has served as the ten commandments of the real estate fraternity, binding REALTORS® together in a common continuing quest for professionalism through ethical obligations based on honesty, integrity, fairness, accountability and professionally competent service. The REALTOR® Code has been amended many times over the years to reflect the changing needs of the public and the values of society. Most recently, the REALTOR® Code was revised in 2004 to accommodate new technologies and an evolving marketplace and to focus on the REALTOR® trademark as an assurance of a high level of brokerage service and protection. Any charge filed shall read as a violation of the REALTOR® Code and/or one or more of the Articles of the Standards of Business Practice. An interpretation may only be cited in support of the charge or the defence. Penalties for violation of the REALTOR® Code shall be established by the local board or other body authorized to conduct discipline proceedings. The REALTOR® Code of Ethics is a very short document, and is set out in its entirety below. The REALTOR® Code of Ethics stresses a commitment to competence, service, and professional conduct as a personal obliga- tion to both the public and the real estate profession in general. The REALTOR® Code was first approved in 1913 by delegates at a convention of the National Association of Real Estate Boards and was subsequently adopted by CREA in 1959. The REALTOR® Code is revised by the CREA from time to time. The articles of the Standards of Business Practice are discussed below under topical headings. The 29 articles and accompanying interpretations are reproduced in their entirety in Appendix 5.1 for ease of reference. The REALTOR ® Code of Ethics The exclusive designation for a member of The Canadian Real Estate Association is the trademark REALTOR®. It symbolizes a commitment to competence, service, and professional conduct. In the quest for these high standards, REALTORS® in Canada have been bound together by a Code of Ethics since 1959. As REALTORS®, we accept a personal obligation to the public and to our profession. The Code of Ethics of The Canadian Real Estate Association embodies these obligations. As REALTORS®, we are committed to: Professional competent service; Absolute honesty and integrity in business dealings; Utmost civility; Co-operation with and fairness to all; and Personal accountability through compliance with CREA’s Standards of Business Practice. To meet their obligations, REALTORS® pledge to observe the spirit of the Code in all of their activities and conduct their business in accordance with the Standards of Business Practice and the Golden Rule – Do unto others as you would have them do unto you. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.5 Real Estate Board Rules and Regulations Introduction In addition to the REALTOR® Code, members of the CREA must adhere to the rules and regulations of their real estate board’s Multiple Listing Service® (MLS®). While the REALTOR® Code generally deals with how REALTORS® should treat their clients (and other members of the public), the rules and regulations of a board are designed to deal with how members should treat each other with respect to MLS® listings. These rules and regulations regulate the conduct of board members, and, in particular, promote the success of the MLS® system through members’ courteous cooperation with each other. This includes the object of ensuring that proper professional conduct is maintained according to the rules and regulations, which are to be followed in addition to the REALTOR® Code, the Act (and regulations), and the Saskatchewan Real Estate Commission Bylaws. Together, these rules require that board members’ actions meet a high ethical standard in their business dealings with the public and fellow members. There is a great deal of overlap between the requirements of the REALTOR® Code, the Act, and the boards’ own rules and regulations. It is possible, therefore, but not necessarily always the case, that a real estate regis- trant could be in breach of two or more of these three sets of rules at the same time. This could result in the registrant being disciplined in multiple forms for the same misconduct. Application of the Boards’ Rules and Regulations All real estate professionals who participate in a particular MLS® must first adopt the rules and regulations of the real estate board that operates that MLS®. This requires that, in order to have access to the MLS®, a registrant must be a member in good standing with their local real estate board. The bylaws of the board, including the REALTOR® Code, apply to all MLS® transactions and activities. The board rules and regulations are enforceable under the bylaws of the board. Each real estate board has established its own rules and regu- lations, all of which set high standards of professional conduct for its members. DUTY TO UPHOLD THE LAW The Law and Ethics Article 18 of the Standards of Business Practice states: “The business of a REALTOR® shall be conducted in strict accordance with all statutory and regulatory requirements.” This not only expresses an ethical duty, but states the official acceptance by all member real estate professionals of the relevant laws governing their professions. The accompanying Interpretations provide a qualification for a charge by a real estate board under this Article by stating that “[a] board may only charge a REALTOR® under this Article once he or she has been found to have violated a statute or regulation by the body duly authorized to make such a determination.” Therefore, a board is not authorized to conduct an analysis of whether a member has breached a statute or regulation, but may react to a conviction by the appropriate body. Despite this, the interpretations also state that nothing in Article 18 “prevents a board from initiating discipline proceedings where the conduct that is the subject of charges under other statutes or regulations may also constitute a violation of the Code of Ethics and Standards of Business Practice.” Therefore, while certain conduct by a member may have resulted in a charge but an unsuccessful conviction by an appropriate statutory or regulatory body, a real estate board is still able to discipline that member for a breach of another article of the CREA Standards of Business Practice. Note as well that Article 18 uses the phrase “all statutory and regulatory requirements”. Thus, its scope includes statutes and regulations that are not specifically related to the real estate industry, for example, the Income Tax Act or the Competition Act. Adherence to the spirit as well as to the letter of the Standards of Business Practice may prove difficult at times. For example, consider the situation in which a person learns of a colleague’s course of action that is contrary to some provision of the law or their shared code of ethics. This knowledge places the person in a quandary: on the one hand, the person has a duty to take some action to put an end to the unethical or illegal conduct and, on the other hand, there is a feeling of loyalty to one’s colleagues that causes one to hesitate before disclosing such conduct. If faced with this situation, what is the professional bound to do? ©Copyright 2023 by the UBC Real Estate Division 5.6 Phase 1: Real Estate as a Professional Career Article 23, Interpretation 23.3 has the following to say: “where a REALTOR® has reasonable and probable grounds to believe: (a) that another REALTOR® has apparently breached the REALTOR® Code, and (b) that a person will likely suffer serious damage as a consequence of the apparent breach, the REALTOR® should immediately report the apparent breach to the appropriate Board in writing... [t]he report should be made bona fide without malice or ulterior motive.” Duty to Uphold Human Rights: Non-discrimination The ethical duty of CREA members to observe a high standard of conduct in relation to the public is evident throughout the Standards of Business Practice. Article 16 states: The REALTOR® shall not deny professional services to or be a party to any plan to discriminate against any Person for reasons of race, national or ethnic origin, religion, colour, sex, family status, age, gender identity, or sexual orientation, marital status or disability. This Article applies to every aspect of the real estate profession: hiring practices, cooperation arrangements between professionals on exclusive listings, the accepting of listings, and the offering of brokerage and other related real estate services. Interpretation 16.1 to Article 16 states that all REALTORS® “must comply with applicable human rights legislation.” DUTY TO CLIENT IN REAL ESTATE TRANSACTIONS Competence Competence is the hallmark of a member of any professional association. When a real estate consultant holds themselves out to a client or potential client as a professional, the consultant is offering to perform a service with a high degree of skill and expertise. The public expects that a certain amount of education and prac- tical training has been successfully undertaken and, further, has been maintained over the period of time since professional accreditation was first obtained. To meet this expectation, real estate professionals must be competent within their area of expertise. To ensure the competence of their members, most professional institutions have included competence as an ethical duty under their professional codes of conduct. Article 12 of the Standards of Business Practice requires a REALTOR® to “render a skilled and conscientious service” upon entering into an assignment. If this standard of service cannot be rendered, or the particular transaction is beyond a REALTOR®’s expertise, the REALTOR® is directed to refuse the assignment. Real estate professionals are also prohibited from giving an “Opinion of Value” where the property in question is of a type outside their field of expertise. Refer to Article 12, Interpretation 12.2 in Appendix 5.1. Example Imagine a situation in which a real estate registrant is offered an exclusive listing of a chain of motels located throughout Saskatchewan. The registrant’s experience has only been with residential properties. However, as each motel is to be sold as an asset rather than as a going concern, the transaction appears to be quite a simple one. In reality, this is not true. Commercial property is a highly specialized type of real estate, often involving complex leases and finance agreements. Certain classes of business are governed by legislation administered by the Ministry of Health, which may require a purchaser of one of these motels to obtain a permit or licence to operate the business. Such permits and licences are not transferrable from vendor to purchaser; therefore, any such contract of sale should be subject to the purchaser obtaining the required permit or licence. The list of considerations and complications that arise in connection with the sale of commercial property is virtually endless. Even minor errors can be very costly to everyone involved. In such a situation, Articles 10 and 12 of the Standards of Business Practice direct a real estate professional either to refuse this listing or to encour- age the parties to a transaction to seek the advice of outside professionals. The CREA REALTOR® Code states that “[t]he REALTOR® shall encourage parties to a transaction to seek the advice of outside professionals where such advice is beyond the expertise of the REALTOR®.” Outside professionals include lawyers, accountants, apprais- ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.7 ers, mortgage consultants, and many others. Many registrants are asked by their clients questions such as “Can I get out of this lease?” or “Will this transaction qualify for a tax exemption?” While registrants may be tempted to try to help the client by answering such questions, such advice is outside the scope of a normal real estate sales practice and should be referred to a lawyer, accountant, or other competent professional. Duty to Ascertain All the Facts A real estate professional must be informed and knowledgeable about all aspects of a transaction prior to providing any advice or other services in relation to the transaction. This obligation is corollary to the duty to render competent service. All real estate professionals have an ethical duty to protect the public against fraud, unethical practices, and misrepresentation. To do this, certain precautions must be taken when acting on behalf of a client. Article 1 states: “A REALTOR® shall be informed regarding the essential facts which affect current market conditions.” Refer also to Article 4 in Appendix 5.1. Some of the essential facts with which a real estate professional should be knowledgeable are activity and price levels in the real property market, current and pending legislation affecting real property (including zoning bylaws, government programs, etc.), and general economic trends (interest rates, financing availability, etc.). A real estate professional has a duty to search out facts and information necessary to transact in real estate on behalf of a client. A professional cannot claim as an excuse that a client innocently or intention- ally gave incorrect information to the professional. If the information is reasonably discoverable by means available to the professional, such as by a title search or examination of municipal records, and a reasonably prudent professional in their position would have taken steps to obtain the information, then it is negligent not to obtain it. A failure to personally verify information supplied by a client can, in many cases, result in the real estate professional incurring civil liability to a party who suffers damages as a result of this failure. To illustrate this point, consider the obligation of a notary public or lawyer not to swear affidavits unless the deponent appears personally in their presence and produces acceptable identification. The notary or lawyer who ignores this obligation may be an unwitting party to a fraudulent transaction such as the transfer of land by forgery. In addition to civil liability for any resulting loss, such conduct is likely grounds for profes- sional discipline. Example In a case from British Columbia, Ms. S, a REALTOR®, was acting as a limited dual agent for a buyer and seller of property in Kamloops, BC. Before the contract of sale was completed, Ms. S discovered that the seller had grown marijuana plants outside the house. However, Ms. S failed to alert the potential buyers to this fact and she failed to inquire as to whether marijuana plants had also been grown inside the house. After the sale had completed, the buyers found out that the previous owner had been arrested for running a marijuana grow op inside the house. The new owners were told that it would cost them up to $80,000 to remediate the property. They tried to sell the property, but they found that the property now had a stigma that made it nearly impossible to sell. The discipline hearing committee of the BC Real Estate Council found that Ms. S contravened the Rules (the BC equivalent of the Saskatchewan Real Estate Commission Bylaws) when she failed to disclose to the buyers that the seller had marijuana plants growing outside the house. She also contravened the Rules when she failed to make further inquiries as to whether marijuana plants had ever been grown inside the house. Ms. S’s failure to ensure that the buyers had all material information resulted in a fine of $2,000 and a 21 day license suspension (2010 CanLII 49595). There is case law that suggests a real estate professional has a legal and ethical duty to search the title to real property that is the subject of a transaction in which the professional is involved, whether through a listing agreement or otherwise. The introduction of computer technology and on-line access to the land title registry records has removed most excuses for a registrant’s failure to perform a title search. After a title search is done and the results received, the title search documents should be carefully reviewed by a registrant to note any encumbrances, interests, or irregularities. At the very least, the state of a land title must be disclosed to a purchaser. Any encumbrances which will not be cleared by a seller must be referred to in the contract of purchase and sale. A registrant should bring these encumbrances to the attention of their purchaser client, and advise them of the option to seek further advice from a lawyer or other professional, particularly in a situation involving any irregularity identified by the registrant. ©Copyright 2023 by the UBC Real Estate Division  5.8 Phase 1: Real Estate as a Professional Career Duty to Advise Fully, Candidly, and Honestly Part of being a competent professional is making certain that both good news and bad news is imparted to a client regardless of the fact that honesty may, on occasion, result in a loss of business. A real estate profes- sional must maintain their reputation for integrity above all. Real estate professionals have a broad range of specific ethical and legal duties in this category. Registrants are obliged to counsel clients in a responsible manner, based on their knowledge of all pertinent facts, and to avoid “error, misrepresentation, or concealment” of facts. Refer again to Articles 1, 3, and 4 in Appendix 5.1. For example, if a real estate professional were to conceal from a seller that their agricultural property had development potential and could be resold at a high price for commercial use (such as a golf course or amusement park), this concealment would be contrary to Articles 1, 3 and 4 of the Standards of Business Practice. Even if the real estate professional had honest motives for concealing this information, they have acted unethically and may be disciplined for misconduct by the appropriate professional associa- tion or board. Example A real estate professional has a duty to disclose to a vendor of a property the existence of other potential purchasers who are likely to pay a higher price than that offered by a purchaser whose offer is currently being considered by the vendor. For example, a selling representative obtained and presented an offer of $85,000 to a vendor for a residential property. The offer was not accepted for some days. During this time the representative became aware of another purchaser who was looking for property similar to that of the vendor and who would be willing to pay a higher price than the first purchaser. The representative was aware of the vendor’s need to sell because of financial pressures and counselled her to accept the $85,000 offer without first disclosing that a sale at a higher price to the second purchasers was a realistic possibility. The vendor accepted the first offer in reliance upon the selling representative’s advice. The representative then took an exclusive listing on the property and negotiated the resale of the property to the second purchaser a few days later. The representative’s double dealings were discovered by the vendor who later succeeded in her lawsuit against him for damages for breach of fiduciary duty and misrepresentation.* This situation also reveals breaches of the REALTOR® Code. Refer to Articles 3, 4 and 11 in Appendix 5.1. * Jackson v. Packham Real Estate Ltd.(1980), 109 D.L.R. (3d) 277 (Ont. H.C.). Duty to Disclose All Options A real estate professional is usually hired to provide expert advice to a client based on a combination of academic knowledge, practical expertise, and confidential information imparted to the professional by their client. By applying these three sources of knowledge to a given problem, different options or solutions often arise, each with its own unique positive and negative aspects. A real estate professional cannot ignore the fact that every problem has more than one solution. Given this fact, it is important to consider the question of whether or not all options must be presented by an advisor to a client for consideration or whether the advisor can select and present only those options considered by them to be most favourable to the client. A real estate professional has an ethical duty to present all options to a client. This duty is implicit in the duty to advise fully, candidly, and honestly. One very practical reason for observing this duty is to avoid giving incomplete advice that may lead to results that are not in a client’s best interests. Example Imagine a situation in which an architect is hired by a land developer, Devco Ltd., to design a new residential subdivision. There is a new product on the market of which the architect is aware – a synthetic block for use in building foundations. This new type of block is superior to the traditional method of building concrete foundations: it is quicker to install, easier to use, and less expensive than the traditional method. In addition, it provides thermal insulation to the foundation, resulting in reduced heating costs to homeowners. The architect does not inform her client of this option because she does not have any first-hand knowledge about its use and long-term durability. As a result, Devco Ltd. is not given the opportunity to consider this option, which could have saved Devco considerable time and money. Devco’s competitor constructs a neighbouring subdivision using the new product on the advice of its architect and, as a result, was able to offer larger homes at a lower price than those built by Devco. The competitor meets consumer concerns about the synthetic block foundations by providing purchasers with full information about the product. The competitor’s homes sell quickly, and it gains a reputation as an innovative, environmentally conscious developer. Devco decides to hire a new architect for its next project. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.9 Real estate professionals, like all consultant professionals, have a duty to present all options to a client. This duty is implicit in the duty to act in a client’s best interests and is clearly a crucial aspect of the REALTOR®’s “Primary Duty to Client” in Article 3. Interpretation 3.1 to Article 3 states that a “REALTOR® shall fully disclose to his or her Client at the earliest opportunity any information that relates to a transaction.” Duty to Follow a Client’s Instructions In addition to the duty of competence, a professional has the ethical duty to obey a client’s instructions and, as a matter of practice, to put all such instructions in writing. This duty is implicit in all professional codes of conduct. Article 5 of the Standards of Business Practice requires every REALTOR® to ensure that “all Service Agreements with consumers with the exception of Service Agreements with Buyers are in writing in clear and understandable language, expressing the specific terms, conditions, obligations and commitments of the parties to the agreement.” Article 6, dealing with Written Transaction Agreements, contains very similar language. Such obligations must also be put in writing and must accurately set out the parties’ agreement. Instructions that are carefully reduced to writing and signed by both agent and principal provide an unequiv- ocal record of the contract to be performed, provided that the contract is competently drafted. By failing to obey a client’s instructions, a real estate professional accepts many risks, not the least of which is the loss of their professional accreditation. Under the law of agency, an agent who does not obey a principal’s instructions also loses their entitlement to the agreed fee or commission, and is personally respon- sible for any civil damages that result from a breach of fiduciary duty. Example Mrs. Kinsey, a real estate developer, had built a house and intended to resell it on or before March 31, the date on which the short-term financing of the project became due. The house was leased to a tenant on a monthly basis. Mrs. Kinsey hired a real estate trading services representative to act on her behalf in the sale of this house while she was out of town. The listing agreement was a standard form multiple listing contract, supplemented by Mrs. Kinsey’s oral instructions to the representative that the completion date of any sale must be no later than March 31. After this date the price of the house must be increased to include the added cost of short-term refinancing by Mrs. Kinsey. The representative subsequently contacted Mrs. Kinsey by telephone to present an offer to purchase the house by a young couple. The terms of the offer were made subject to the couple obtaining mortgage financing by March 25. The representative failed to disclose that the offer, drafted by himself, contained a completion date of April 30, on which date certain investments of the purchasers became payable to them and could be liquidated without loss of accumulated interest. These funds were to be used as the down payment for the purchase. Mrs. Kinsey instructed the representative to accept this offer on her behalf. She then contacted the tenant and terminated the lease effective March 31. When the completion date was discovered by Mrs. Kinsey, she refused to pay the representative’s commission because he had disobeyed her express instructions. On the facts as described, this representative has failed to adhere to Articles 2 and 13 of the Code (as they were at that time). If the matter were taken to court, a judge would probably hold the representative responsible to Mrs. Kinsey for her refinancing costs and the loss of rent for the month of April. A real estate board would discipline this representative for his breach of the Standards of Business Practice. Disciplinary procedures by a board are discussed later in this chapter. One exception to the duty to obey a client’s instructions is the overriding requirements of public protection and of fair dealings with others. For example, if a client’s instructions involve an illegal act, an unethical practice, or a violation of the Human Rights Code, a real estate professional must consider that a client’s instructions are always subject to the overriding requirements of public protection and of fair dealings with others. See, for example, Article 3 in this regard. Confidential Communications: The Duty of Discretion It is often necessary for clients to entrust personal and financial confidences to their advisors. The reasons for this are obvious. [The client] places his health and his fortune in the hands of his professional advisers, and he entrusts them with confidences of an intimate and personal kind. He is interested therefore not only in the technical, but also in what may be called the moral, quality of the service.6 6 Carr-Saunders, Sir A. and Wilson, P.A. 1969. The Professions. London: Frank Cass & Co. Ltd. p. 394. ©Copyright 2023 by the UBC Real Estate Division 5.10 Phase 1: Real Estate as a Professional Career Recognizing the importance of maintaining clients’ confidences with utmost discretion, many professions have implemented rules requiring their members to observe strict confidentiality. The legal profession, for example, has a special privilege in legal matters that is commonly recognized as being fundamental to our modern legal system. The medical profession requires all new entrants to swear an oath that the confidences of patients shall be preserved with absolute secrecy. Not all professions have made express rules for the purpose of promoting discretion, but it is undoubtedly professional misconduct to breach a client’s confidence. This ethical duty is derived from the law of agency: a fiduciary’s duty of fiduciary loyalty includes the duty to keep confidential any facts or information acquired a person who holds a position by virtue of the fiduciary’s position of trust in relation to a client. of trust with respect to someone The duty of confidentiality continues after the particular transaction is else and is obliged, by virtue of finished. Interpretation 3.3 to Article 3 states that “a REALTOR® shall not, during the relationship of trust, to act or following the relationship with his/her Client, reveal Confidential Information solely in the other person’s benefit of the Client”. It is, for example, unethical to disclose a client’s true bargaining position to a competitor even after a particular contract with the competitor is negotiated and the deal closed. Such a lack of discretion on the part of a professional undoubtedly diminishes their reputation in the eyes of both the client and the competitor. An indiscreet advisor also incurs the risk of personal civil liability for damages caused to a party as a result of a disclosure of confidential information. Example A chartered accountant and her colleague were consulted by a client for advice concerning the refinancing of his real estate development company for the purpose of financing a land acquisition. The land in question was currently undervalued in light of a recent discovery of valuable mineral deposits in the area. The client revealed this information to the accountant and discussed his plans to build a large residential subdivision and shopping mall near the site. He was anxious that the land acquisition be completed before the proposed construction of a large new mine in the area became public knowledge. The accountant and her colleague continued to discuss the client’s plans while eating lunch in a restaurant. Unfortunately, their discussion was overheard by a competitor of the client who happened to be seated at a table next to them. After taking steps to verify this indiscreet “tip,” the competitor acted quickly to buy up large areas of land in the area of the proposed mine. As a result of the competitor’s activities, land prices were driven up and the accountant’s client could not afford to carry through his plans. In this scenario it is clear that the accountant has acted unethically, even though her disclosure was unintentional. AVOIDANCE OF CONFLICTING INTERESTS: IMPARTIALITY Bennion makes a statement of the first importance: It is axiomatic that professional advice must be untainted by any private interest of the practitioner. It is a prime justification of the basic proposition... that advice should ideally be given by an individual who is beholden to no one, free from personal concern or involvement, and subject to no pressures or influences restricting his independence. The professional bodies have rightly regarded the securing of this state of inde- pendence, both for their members and for themselves, as one of the principal objects of their existence.7 From both a legal and ethical viewpoint, it is essential that a professional avoid any situation in which there is actual or apparent conflict between the interests of a client and the interests of the professional. The public expects impartial advice from the professional and is entitled to receive it. This right is recognized in the laws of our society: in particular, bribery is punished by criminal law, receiving undisclosed fees from clients’ competitors is prohibited by the common law of agency, and the purchase of a seller’s property by a real estate registrant is restricted by statute law. The REALTOR® Code goes further, however, and endeavours to regulate the conduct of real estate professionals in a wide range of situations in an effort to ensure that conflicts of interest are avoided or, at least, do not cause harm to members of the public who employ the services of a real estate professional. Personal, Financial, or Property Interests One of the primary duties specified in Article 3 of the Standards of Business Practice is the duty of a real estate professional to “protect and promote the interests of his or her Client.” As a corollary of this duty, a 7 Bennion, F.A.R. 1969 Professional Ethics – The Consultant Professions and Their Code, Charles Knight & Co., Ltd., London. p. 81. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.11 REALTOR® is restricted from dealing in or developing property, either directly or indirectly, without disclos- ing the member’s interest to the client with whom the member is dealing. Example: Financial Interests A married couple hires James as their salesperson to quickly sell their house because the husband has accepted a job in another country and needs to purchase a property in the new location. The couple is willing to sell their house at a discount in order to close the transaction quickly. The local real estate market is weak, and James knows that if he bought the property himself and held onto it for a year or so, he could make a reasonable profit. To this end, Articles 8, 9, and 11 require a member of CREA to make full disclosure in writing of conflicting financial interests. Articles 8 and 9 address the question of fees. Not only must the amount of a REALTOR®’s fees for their services be “fair and reasonable,” but their receipt must also be ethical. A REALTOR® must refuse to accept a fee from more than one party to a transaction unless they first obtain the consent of the client. The term “fee” is too narrow to describe fully the extent of this duty. The Articles use the terms “compensation”, “any financial or other benefit”, “rebate”, and “profit,” which can be broadly interpreted to include even such seemingly innocent items as bouquets of flowers and boxes of cigars sent to a member by someone other than a client. The Standards of Business Practice require disclosure by a REALTOR® who is either buying or selling land. Article 11 provides: A REALTOR® shall not buy or sell, or attempt to buy or sell an interest in property either directly or indirectly for himself or herself, any member of his or her Immediate Family, or any entity in which the REALTOR® has a financial interest, without making the REALTOR®’s position known to the Seller in writing. Article 11 places a heavy burden on a REALTOR®. It directs a REALTOR® to make full disclosure of their interest to the seller or buyer involved. To this express requirement of disclosure should be added the words “or which ought to be known to the REALTOR®.” A registrant cannot avoid the ethical duty of full disclosure merely by remaining ignorant of, or turning a blind eye to, the details of a real property transaction in which they have a financial interest. Interpretation 12.3 to Article 12 addresses the disclosure requirement when giving an appraisal: A REALTOR® shall not perform an Appraisal or Opinion of Value on a property in which the REALTOR® has a present or contemplated interest without first disclosing this fact to the Client. Acting for Competing Clients It is a fundamental premise of both agency law and of professional ethics that a professional must avoid acting for two clients whose interests conflict. A real estate professional’s role is to provide impartial, expert advice. It is difficult to give impartial advice to a client if another client is likely to be adversely affected by it. If a professional is placed in a position of conflict between the interests of two clients, they should resolve the matter by declining to act for one, or possibly both, of the clients. Real estate professionals are particularly susceptible to this type of conflict because of the peculiar nature of the listing and selling process involved in most real estate transactions. A prospective purchaser of a property will often look to a representative for expert advice and may request disclosure of information about a property that the representative, as the agent of a seller, is not in a position to disclose. An example of undisclosable information would be information relating to selling price. A purchaser of a property may be keenly interested to know a seller’s financial status and any details that might reveal the lowest price at which a seller would be willing to sell. Such details would undoubtedly be disclosed to the representative in confidence by a client, and could not be disclosed without first obtaining the client’s consent. It is important to bear in mind that while the party who is responsible for payment of professional fees is in fact the “client”, the real estate professional may owe a duty of care to other parties as well; this rule is applicable to all professions. With respect to the provision of real estate trading services, the client in a given real property transaction may be any one of the seller, the purchaser, or the mortgagee of either of these two parties. ©Copyright 2023 by the UBC Real Estate Division 5.12 Phase 1: Real Estate as a Professional Career The REALTOR® Code permits a real estate professional to act for two (or more) clients if that fact has first been fully disclosed in writing and the consent of everyone involved is obtained. See Articles 2, 3, and 5 in this regard. It is easy to foresee situations in which even compliance with these disclosure requirements will not meet the high ethical standards expected of a real estate professional. In such cases, a registrant has two options available: first, they can decline to act. Alternatively, they can recommend that the parties obtain independent legal advice to ensure that no one’s interests will be unprotected or prejudiced by the dual role. Article 10 provides that a REALTOR® “shall encourage parties to a transaction to seek the advice of outside professionals where such advice is beyond the expertise of the REALTOR®.” By encouraging parties to seek independent advice from another professional when such advice is warranted, a REALTOR® fulfils their legal and ethical obligation to protect the interests of clients. Articles 8 and 9 provide that a REALTOR® must disclose any referral fees or other compensation that a REALTOR® might receive from “any” other party, including lawyers, lending institutions, title insurance companies, appraiser, moving companies, etc., for recommending that the client or customer use the services or products of that particular professional. The Undisclosed Purchaser Another situation that may be unique to real estate is that of the undisclosed purchaser. This is where a regis- trant is asked to present an offer to purchase property on the condition that the identity of the offeror not be disclosed to the seller. Undoubtedly, such a condition places the registrant in a situation of conflict between the client (the seller) and the purchaser. This conflict is discussed by Peter Watts in Real Estate Practice and Ethics.8...There are some situations where the purchaser wants their name to remain undisclosed because they fear that if the vendor knew the purchaser they may request and perhaps obtain a higher price for the property. In situations such as this it is clearly relevant for the vendor to know the identity of the purchaser; and the representative is being placed in a position of dangerous conflict of interest if they allow themselves to accept the responsibility of not disclosing the identity of the purchaser under these circumstances. The solution for a purchaser is to have their solicitor or accountant make the offer on their behalf.9 The above-described situation presents the issue of conflict of interest quite clearly. It does not, however, fully resolve the question of disclosure; namely, must the registrant who knows the identity of an offeror disclose the identity to their client even though the offeror is presenting an offer through an intermediary other than the registrant in an effort to remain anonymous? From an ethical and legal viewpoint, the answer is obvious.10 Full disclosure must be made by the registrant to a client of all information known to them that is relevant to the client’s affairs. PECUNIARY RELATIONS WITH CLIENTS Maintaining Proper Accounts It is a discouragingly common occurrence to learn in the news of yet another instance of professional miscon- duct involving a failure to keep proper accounts or the commingling of client funds with general funds. Whether the misconduct is negligent or fraudulent (i.e., careless or intentional), a failure to keep proper accounts is a very serious ethical and legal breach. The requirement to maintain proper accounts is found in statute law, as well as in the rules and bylaws of all professional associations. The Standards of Business Practice states in Interpretation 3.6 to Article 3 that a “REALTOR® shall, at all times, be able to render a proper accounting to the REALTOR®’s Client with respect to monies and other property of the Client which have been entrusted to the care of the REALTOR®.” Additionally, Article 18 provides that the “business of a REALTOR® shall be conducted in strict accordance with all statutory and regulatory requirements” and, accordingly, with all provincial and federal laws that require the keeping of proper accounts and the separation of trust funds from general funds. 8 Watts, P. 1989. Real Estate Practice and Ethics (6th ed.). Vancouver: The British Columbia Real Estate Association. pp. 35-36. 9 Ibid., p. 36 10 If the answer (“yes, disclosure must be made to the vendor”) is not apparent to you, reread the chapters dealing with the law of agency and The Real Estate Act. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.13 Protection of Clients’ Interests Real estate professionals are sometimes entrusted with the care of clients’ property, including items such as registration documents, certified cheques, and original blueprints, which if lost or misappropriated could lead to serious consequences for both the real estate professional and the client. Example Assume that a client gives a mortgage broker several thousands of dollars worth of bonds to be used as collateral for a mortgage being negotiated by the broker. This mortgage broker places the bonds in his briefcase and sets out by taxicab to take them to a bank for safekeeping. On the way to the bank the broker forgets his briefcase in the taxicab. The bonds fall into the hands of a thief and are never recovered by the police. The serious consequences of the broker’s error need not be discussed here. It is sufficient to note that the broker has acted unethically as well as negligently in the loss of his client’s property. Real estate professionals, like all professionals, have an ethical duty to act in clients’ best interests, which is expressed in Article 3 of the Standards of Business Practice. This duty includes the protection of clients’ interests in secured transactions: a registrant must not permit a seller to act as a purchaser’s creditor without first ensuring that there is adequate security for the debt. It is not uncommon for sellers to offer some form of seller financing to a prospective purchaser of real property. This financing may take several forms, the most common of which are vendor “take back” mortgages and the assignment of a seller’s current mortgage at an attractive interest rate. Each of these forms of financing of a real property transaction involve a number of risks. It is the duty of a real estate professional to disclose these risks to their client and to advise the client to obtain legal or other professional advice in order to protect their interests as creditor. See also Articles 1, 4, and 7 with regard to a REALTOR®’s ethical duties in relation to clients’ financial transactions. RESPONSIBILITY TO OTHER PARTIES By their attainment of professional standing, a real estate registrant is granted by law the following rights: to hold themselves out as a registrant permitted to trade in real estate; as such to earn a livelihood by advising clients and representing them as agent; and to act on clients’ behalf in real estate transactions. In recognition of these almost exclusive privileges,11 a registrant is charged with certain ethical obligations to the public: to uphold the law (Article 18); to see to it that those admitted to the profession are qualified by character, ability, and training and to ensure that those who prove unqualified are removed from the profession (Article 23); not to bring the profession into disrepute (Articles 19 and 26); and not to discriminate (Article 16). See also the Code of Ethics which outlines general obligations by a CREA member to their community. Although a registrant’s primary duty of loyalty is to their clients, it does not mean that a registrant is free to sabotage other third parties’ interests. Article 3 of the REALTOR® Code provides that while a “REALTOR® shall protect and promote the interests of his or her clients”, “this primary obligation does not relieve the REALTOR® of the responsibility of dealing fairly with all parties to the transaction”, such as prospective purchasers. The ethical obligations owed by registrants can be summarized, once again, by the so-called “Golden Rule”: “Do unto others as you would have them do unto you.” Fair Dealings and High Integrity The doctrine of caveat emptor (let the buyer beware) was once the accepted rule in real estate transactions. Today, several common law and statutory rules exist to protect purchasers. Registrants owe both legal and ethical obligations to purchasers. A real estate registrant has an ethical obligation to make certain that a purchaser (or investor or lessee) is not deceived as to who the registrant is representing. If the registrant’s role is not made clear to an unrepresented party to a real estate transaction, that party may place unwarranted reliance on a registrant and suffer some loss, financial or otherwise, as a result of the confusion of roles. Regardless of the fact that an unrepresented party may get a fair deal in a transaction, they will feel cheated when it is discovered that the registrant’s loyalty lies with their opponent in the negotiation process and may respond accordingly; a lawsuit or a complaint about a real estate professional’s conduct to their professional association may be the result. 11 Remember, The Real Estate Act specifies who may earn income by transacting in real estate without a license to do so. ©Copyright 2023 by the UBC Real Estate Division 5.14 Phase 1: Real Estate as a Professional Career The REALTOR® Code attempts to ensure that unrepresented parties to real estate transactions are protected. A member of CREA must endeavour “to protect the public against... misrepresentation or unethi- cal practice” and must not depart from the ideals of fair dealing and high integrity expected of a real estate professional. As already noted, Article 3 states that, although a member of CREA is obliged to promote clients’ interests, this obligation “does not relieve him of the responsibility of dealing fairly with all other parties to the transaction.” See also Article 4, which requires a REALTOR® to be informed of facts regarding a listed property so as to avoid “error or misrepresentation” with respect to any party to a real estate transaction. See also Articles 5, 6, 8, 9, and 10, discussed earlier in this chapter, which place specific duties on a REALTOR® and protect all parties to a transaction. DUTY TO THE PROFESSION We have seen that a profession is a group of individuals who are active members of a professional organiza- tion. One reason for the existence of a professional organization is to promote the members’ common goal of devising and maintaining a set of professional standards embodied in a written code. The public places a great deal of reliance on a profession to govern itself according to high standards of ethical conduct. This reliance is best demonstrated by the fact that most professions are self-governing in relation to conduct and discipline. In return for this autonomy, a professional institute is obliged to make every effort to ensure that the public’s reliance is not misplaced. It is a common element of all professions that, as a condition of member- ship in their governing association, every prospective member must pledge to uphold the standards and ideals of the profession. A member of CREA must pledge “to observe the spirit of the Code [of Ethics] in all of their activities and to conduct business in accordance with the Standards of Business Practice and the Golden Rule – Do unto others as you would have them do unto you.” Similar pledges or oaths of allegiance are sworn by entrants into all professions in an effort to promote and maintain solidarity among members and public confidence in the integrity of the profession as a whole. Duty of Professional Courtesy and Good Faith Public confidence in a profession is endangered when one of its members does something calculated to cause injury to a colleague. For this reason, unethical practices are discouraged. Article 19 of the Standards of Business Practice specifies that a REALTOR® “shall never publicly discredit another Registrant.” If the REALTOR®’s opinion is sought regarding the specific transaction it should be rendered with strict profes- sional integrity, objectivity and courtesy. This rule of conduct does not, of course, prevent a registrant from expressing their professional opinion about a colleague’s conduct when asked to do so; such as, for example, when giving evidence before a court, tribunal or disciplinary committee (as expressed in Article 23). Another aspect of professional conduct is the duty to act with good faith in all dealings with other profes- sionals. This duty requires that undertakings (special promises and understandings between professionals) be carried out as strictly and honourably as though they were legally binding contracts, the purpose being to ensure honest conduct. The legal and notarial professions require that members’ undertakings impose a very high ethical duty on the promisor and render them personally liable for the consequences of a failure to fulfil an undertaking. Respecting Client Relations Another threat to the reputation of a profession is the deliberate attempt to attract a colleague’s clients by unfair means. This is regarded as a serious offence by all professions, a point made by Bennion who cites several examples:...The most picturesque formulation [of a prohibition against the poaching of clients] is in the Code of Royal College of Physicians, which states that no member ‘shall officiously, or under colour of a benevolent purpose, offer medical aid to, or prescribe for, any patient whom he knows to be under the care of another legally qualified medical practitioner’... The duty of an architect is equally plain: ‘Whether in private practice or salaried employment, he must not attempt to supplant another architect.’ The consulting engi- neers go further and ban any intervention in engineering work by an engineer who knows the work has already been entrusted to another.12 12 Ibid., p. 53. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.15 The REALTOR® Code contains strict rules regarding the soliciting of business. Article 20 of the Standards of Business Practice prohibits REALTORS® from seeking or using information about a colleague’s transaction for the purpose of closing a transaction or for interfering with a colleague’s contractual relations. Article 20 further requires that CREA members respect the contractual relations of colleagues: “The agency or other contractual relationship of a Registrant shall be respected by all REALTORS®.” However, Interpretation 20.2 to Article 20 provides that a REALTOR® may, under very specific circum- stances, enter into a listing agreement with a seller or, into a buyer agency agreement with a buyer, prior to the expiry of the listing/buyer agency agreement with another REALTOR®, provided that the following condi- tions are met: (a) any communication with the seller/buyer: (i) is initiated by the seller/buyer; or (ii) if initiated by the REALTOR® must comply with Board Bylaws/Rules concerning solicitation and any applicable provincial or federal legislation or regulation; and (b) any new Listing agreement for the property or buyer agency agreement with the buyer shall not commence until the expiry of the current Listing/buyer agency agreement. Interpretation 20.2 is a departure from CREA’s previous position with respect to dealing with parties already the subject of a Listing Agreement or buyer agency agreement with another member. You will note, however, that despite who makes the initial overture regarding the new agreement, the subsequent agreement cannot commence until the current agreement expires. Dispute Resolution Between Members The private arbitration of disputes between members of a profession is preferred to civil litigation. Litigation can invite publicity and such publicity may be harmful to the general reputation of a profession. For this reason, most professions encourage members to engage in non-judicial dispute resolution procedures such as informal discussions and arbitrations. The REALTOR® Code specifies arbitration as the preferred method of dispute resolution in the event that a controversy or dispute occurs between REALTORS® of different brokerages or boards. See Articles 24 and 25 of the Standards of Business Practice. Advertising and Ethics Throughout much of modern history the practice of advertising by a professional to solicit business was considered degrading, disreputable and a serious departure from the rules of professional conduct.13 The reason for this perception is that, in the earliest period of advertising history, much of the advertisement was “mere puffery” (i.e., misleading and dishonest). The following quotations from advertisements dating back to the 1600’s for quack medical remedies illustrate this point: INFALLIBLE preventive Pills against the plague. NEVER-FAILING Preservatives against the infection. SOVEREIGN Cordials against the Corruption of the Air.... An eminent HIGH-DUTCH Physician, newly come over from HOLLAND, where he resided during all the Time of the Great Plague, last year in AMSTERDAM; and cured Multitudes of People that actually had the Plague upon them.14 It is not difficult to understand why professional associations over many centuries absolutely forbade most forms of advertisement by members. In recent times, however, this strict prohibition has been relaxed by most, if not all, professions. There continue to exist, however, controls by professional bodies over advertising of members’ services. The REALTOR® Code contains ethical controls over members’ advertisements, beginning with the general requirement that members commit to the principles of honesty and integrity in conducting their business. This duty is also expressed in Articles 3 and 4 of the Standards of Business Practice. In addition, Articles 13 and 15 specifically deal with advertising claims. Article 13 states that “[a]ll advertising and promotion of properties shall 13 Bennion, F.A.R. 1969. Professional Ethics – The Consultant Professions and Their Code, Charles Knight & Co., Ltd., London. pp. 149-155. 14 F.A.R. Bennion provides these quotations at pp. 150-151, from Daniel Defoe’s Journal of the Plague Year. See also E.S. Turner. 1965. The Shocking History of Advertising, Penguin Books. ©Copyright 2023 by the UBC Real Estate Division 5.16 Phase 1: Real Estate as a Professional Career accurately reflect property and other details... and any additional information required by provincial regulation.” Article 15 states quite simply: “[c]laims or offerings in Advertising must be accurate, clear and understandable.” Interpretations 15.1 to 15.4 of Article 15 in the Standards of Business Practice set out some of the specifics of what constitutes “accurate, clear and understandable” advertising. These interpretations deal with issues such as: services provided; additional charges; listings (and whether the cost includes an MLS® listing); and qualifications when making claims such as “#1”, “top selling”, etc. All REALTORS® should be very familiar with the requirements and rules regarding advertising that CREA has set out under Articles 13 and 15. It should also be noted that, under Article 13, a REALTOR®’s website is considered to be an “advertising vehicle,” and all of the provisions of Articles 13 and 15 apply equally to any claims made on the internet. The rules also prohibit registrants from knowingly publishing real estate advertising containing any false statement or misrepresentation concerning real estate, a trade in real estate, or the provision of real estate services. A good discussion of the ethics applicable to advertising practices in the real estate industry is provided by William H. Pivar in Real Estate Ethics.15 Pivar stresses that representations made and facts quoted in advertisements must be true. For all professionals, “thou shalt not lie” is the golden rule of advertising. This rule is applicable to all forms of repre- sentations made in the course of business: oral communications, letters, pamphlets, business cards, and other types of business communications. In accordance with this requirement, Pivar recommends that certain advertising practices be followed by real estate registrants.16 Some of these practices are briefly outlined below. It is both illegal and unethical for a real estate professional to include any discriminatory or deroga- tory statement or to otherwise suggest discrimination in any form of business communication. Articles 16 and 19 of the Standards of Business Practice of CREA clearly prohibit such forms of unprofessional conduct. Colourful language and vivid adjectives (terms such as “mint condition”, “trouble-free”, “highest quality”, “bargain” and “wise investment”) in a business communication may be construed by a client or potential purchaser of a property as warranties by the registrant. Such terms should not be used without a basis in fact for the representation, and this factual basis should be verified personally by the registrant. The use of such terms by a registrant when the representation is untrue is not only unethi- cal but may also constitute fraud and false advertising with attendant civil and criminal penalties. Gross and net income figures quoted in business communications regarding revenue producing properties must be accurate and verified by a real estate professional through objective sources such as a seller’s tax returns and financial statements. It is not sufficient to rely on the information or opinion of the seller alone. Articles 1, 3, 4, and 15 of the Standards of Business Practice require that CREA members obtain and verify all factual information pertaining to every property for which a listing is accepted so as to avoid “error or misrepresentation” (Article 4). The employment of unlicensed personnel to solicit clients, either in person or over the telephone, is both unethical and illegal. The Standards of Business Practice require CREA members to strictly adhere to the spirit as well as the letter of the law. The foregoing four practice points are only a few of the many to be found in texts on real estate ethics. Advertising and other forms of business communications are subject to the stringent ethical code that applies to all professional conduct, and are areas of particular concern to the real estate professional. DISCIPLINARY HEARINGS BEFORE A REAL ESTATE BOARD Introduction: Professional Standards and Discipline Committees The REALTOR® Code, which every Canadian real estate board is bound to adopt and enforce and which every CREA member is required to observe, provides a means of disciplining members who breach their ethical and legal obligations. A disciplinary committee, sometimes called a business practices committee, is elected by fellow board members or selected by an elected discipline committee chairperson. Discipline committee members are the watchdogs of the ethical standards of their colleagues, carrying out a number of specific functions that are described below. 15 Pivar, W. H. 1989. Real Estate Ethics (2nd ed.), Real Estate Education Company, Div. of Longman Financial Services Institute, Inc., Chicago. pp. 111-121. 16 Ibid., pp. 111-118. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.17 The principal purpose and function of a discipline committee is to protect the interests of the public and to safeguard the integrity of a board’s members. Basic to the judicial system of this country is the principle that a person charged with some form of wrongdoing is to be considered innocent until proven guilty. This basic principle applies equally to professional standards and discipline committees. In a disciplinary hearing it must be proven that a board member has broken the rules of professional conduct before disciplinary action is taken against the member. The second function and purpose of a disciplinary committee is to act as an educator. Together with other committees of a real estate board, it must ensure that members understand not only the specific ethical rules of the board, but also the spirit and intent of their application. This is accomplished by providing educational seminars to members and publishing the results of disciplinary hearings. Factual reporting of a member’s misconduct is a powerful tool to advise all members that ethical misconduct is unacceptable and will result in disciplinary action. In this way, such reports act as a deterrent to other members. Board members act as their own judge and jury in disciplinary hearings and, in doing so, assume a large degree of responsibility. A disciplinary committee must make decisions affecting the personal reputa- tion, business conduct, and the livelihood of individual members. These decisions must not only be just but must also be perceived by peers and by the public as being just. The actions of committees charged with these responsibilities must be fair, not vindictive. Ethical rules must be applied in an unbiased manner to all members. Committees must render decisions that are based on fact and that are equitable. In carrying out its duties and functions, a committee can do no better than to follow the golden rule. Complaints and Disciplinary Procedures First, it is to be recognized that a real estate board only has jurisdiction over complaints regarding the conduct of its own members. If a real estate registrant is in breach of their professional obligations but is not a member of a real estate board, then the appropriate place in which to file a complaint is the Saskatchewan Real Estate Commission under the provisions of the Act. Complaints regarding board members may originate from either a member of the public, a member of a real estate board, or from the Saskatchewan Real Estate Commission. A complaint to a board must be in writing and provide a full description of the events giving rise to a particular complaint. The real estate board then informs its member of the complaint and requests that they respond to the complaint in writing. Most real estate boards have the power to initiate disciplinary proceedings against a member where the board is aware of the member’s misconduct, although no formal complaint has been received. After a written reply has been received from a member against whom a complaint has been made, an informal hearing may take place. Generally, this informal hearing is carried out by a professional standards committee that investigates the complaint and decides whether or not a formal disciplinary hearing is required. In the event that a formal hearing is required, the standards committee passes the complaint on to a discipline committee comprised of a three-member hearing panel. The powers of the discipline committee to compel the attendance of witnesses are generally restricted by the bylaws of the board. A real estate board can only require its own members to attend and give evidence at a hearing. Failure by a member to comply with a request by the discipline com­mittee to attend a hearing is considered to be a breach of a board’s bylaws and is itself a disciplinary offence. Procedural rules of a disciplinary hearing are established by the bylaws of the board. The chairman of the disciplinary hearing panel determines the date for the hearing and notifies the parties involved. The parties may choose to be represented by a lawyer or by another board member. In the event that a board member who is the subject of a complaint fails to attend the hearing, the hearing panel may proceed to hear and determine the complaint in their absence. Those involved in the complaint are allowed to call as a witness any person who may have knowledge of the events that led to the complaint. Penalties The decision of a disciplinary committee must be in writing and specify any discipline imposed. Generally, the forms of discipline that may be imposed include one or more of the following: a reprimand; a suspension of membership privileges; ©Copyright 2023 by the UBC Real Estate Division 5.18 Phase 1: Real Estate as a Professional Career a fine of a monetary amount set by the hearing panel; the costs of the hearing; expulsion from membership in the board; and an order that the member attend and successfully complete certain real estate courses. The discipline committee of a board does not have the power to suspend the licence of any member. Only the Saskatchewan Real Estate Commission may do this. However, the suspension or expulsion from membership in a board disentitles a suspended member to use of the board’s MLS®. This consequence can, in some cases, be as significant to a representative or broker as a suspension or cancellation of their real estate licence. It is for this reason that board members take disciplinary matters very seriously. In addition, a board may choose to notify the Saskatchewan Real Estate Commission if, in its view, a board member has breached the Act. Appeal Processes The procedure for an appeal from a decision of a disciplinary committee is usually provided in the bylaws of the individual board. In some boards’ bylaws, there is no reference to any appeal procedure; in others, there is a specific statement that no appeal is allowed. Some boards’ bylaws set out specific steps and time limita- tions which must be followed by a member in order to proceed with an appeal. In those situations where the bylaws do not provide for an appeal to the board administration itself, an aggrieved member may have to take the matter to a court. CLOSING THOUGHTS A solid, proven reputation for having high ethical standards is the best asset any industry member can possess, and will attract interested clients and colleagues alike. Registrants are advised to: keep themselves informed as to developments and trends in real estate, and rendering their services and opinions based only on their knowledge and experience in real estate; and endeavour to protect the public against fraud, misrepresentation or unethical practices in the real estate field. It is imperative that registrants are familiar and comply with legislation on an ongoing basis. This is the prime responsibility of all industry members. However, it is also important to remember that legislation and rules are not static; registrants must stay on top of changes on an ongoing basis. The following is a list of additional suggestions to consider. They are by no means comprehensive but may be helpful in your dealings with the public, industry members and organizations, colleagues, and the Commission. Be aware of the professional implications of your actions and words when interacting with the public and other registrants. Foster a good working relationship within the office between the broker and salespeople that facili- tates communication and discussion of issues. Develop informal networks with other registrants; learn from those who you look up to. Increase your familiarity with The Real Estate Act, CREA’s REALTOR® Code, and any other legisla- tion that impacts on your business – and keep up with the changes. Be proactive in situations where you observe or experience a breach of The Real Estate Act and CREA’s REALTOR® Code when interacting with other industry members. Increase your awareness of the mandate and functions of the Commission and cooperate in your dealings with their representatives. Become familiar with the Commission’s website (www.srec.ca). Read The Register, the newsletter issued by the Commission. Regard mandatory continuing education as an opportunity to enhance existing skills, knowledge, and your ability to serve your clients and customers. Plan ahead and avoid the last minute rush. ©Copyright 2023 by the UBC Real Estate Division  Chapter 5 – Professional Ethics 5.19 If you are a member of organized real estate, read the Saskatchewan REALTORS® Association’s e-newsletter, Sequence. Become familiar with its website (www.saskatchewanrealestate.com). Be prepared to present to your clients or customers any information pertaining to the industry and the programs in place to address consumer protection, e.g., mandatory continuing education and registration requirements, The Real Estate Act, CREA’s REALTOR® Code, the Real Estate Assurance Fund, protection for consumers, and regulations of the industry. Learn how to reduce your risks in real estate transactions by reducing potential errors and omissions. Stay updated with trends and developments within the industry, read industry publications, and attend conferences and education days. Search for ways in which you can deliver a higher level of service to your clients. Be a part of regular office meetings that encourage discussions on current industry topics. Stay involved in the area of ethics, take a seminar, read a book, join in ethics discussions with other industry members. The study and practice of ethics will be a lifetime endeavour. Participate in charitable or community projects that are organized by industry members, boards, or associations that assist the community and enhance the reputation of the industry as a whole. Professional Courtesies Promptly return phone calls. If you say that you will call someone by a certain time, then do so. Do not make late night phone calls for things that can wait until the morning. Do not make “urgent” phone calls unless the matter really is urgent. Be on time for appointments. Do not keep buyers, sellers, or your fellow salespeople waiting. Keep appointments or let the person know that you are unable to make it before the scheduled time for the appointment. Schedule appointments in such a way as to leave yourself sufficient time to get there on time. Anticipate rush hour traffic or winter driving conditions. Respect instructions on listings regarding viewing properties only through the listing agent and/or through the use of lock boxes. Respect expiration dates on listings. If you are going to be away from the city, arrange for someone to cover for you. Track conditions on offers to purchase to ensure that timeframes are met. Promptly return or replace keys. Be courteous. Treat others as you would like to be treated. CREA’s REALTOR® Code is reprinted with permission in Appendix 5.1 at the end of this unit. These national business standards benefit the industry. ©Copyright 2023 by the UBC Real Estate Division 5.20 Phase 1: Real Estate as a Professional Career APPENDIX 5.1 CREA Standards of Business Practice and Interpretations STANDARDS OF BUSINESS PRACTICE ARTICLE 1: Informed of Essential Facts A REALTOR® shall be informed regarding the essential facts which affect current market conditions Interpretations 1.1 A REALTOR® shall be aware of current legislation and, wherever reasonably possible, be aware of pending legislation (including zoning, government programs, etc.) which could affect trading condi- tions in the marketplace. (Also applies to Article 4.) 1.2 A REALTOR® should attend educational programs and courses which will assist the REALTOR® in remaining up-to-date and aware of matters that could affect any aspect of a real estate transaction. 1.3 A REALTOR® shall be aware of appropriate financing procedures, mortgaging requirements, etc. in order to properly discuss financial obligations on any transaction. 1.4 A REALTOR® shall be familiar with the contents of the most current forms commonly used in real estate transactions. ARTICLE 2: Disclosure of Role – Agency A REALTOR® shall fully disclose in writing to, and is advised to seek written acknowledgement from, his or her Clients and those Customers who are not represented by other Registrants regarding the role and nature of the service the REALTOR® will be providing. This disclosure shall be made at the earliest possible oppor- tunity and in any event prior to the REALTOR® providing professional services which go beyond providing information as a result of incidental contact by a consumer. ARTICLE 3: Primary Duty to Client A REALTOR® shall protect and promote the interests of his or her Client. This primary obligation does not relieve the REALTOR® of the responsibility of dealing fairly with all parties to the transaction. Interpretations 3.1 A REALTOR® shall fully disclose to his or her Client at the earliest opportunity any information that relates to the transaction. 3.2 A REALTOR® shall not intentionally mislead anyone as to any matters pertaining to a property. 3.3 A REALTOR® shall not, during or following the relationship with his/her Client, reveal Confidential Information of the Client. 3.4 A REALTOR® shall not use any information of the Client to the Client’s disadvantage. 3.5 In a competing offer situation, a listing REALTOR® acting as a dual agent shall not use the information contained in another offer to put either client at a competi