This ongoing series explores the NAR Code of Ethics through various case interpretations. Please read through the following case and try to decide if there was any Code of Ethics violations. Then click the box at the bottom to find out the answer. (These cases have been provided by the National Association of REALTORS®.)


Code of Ethics Case Interpretation – Article 3: REALTOR®’s Obligation to Disclose Dual Commission Arrangements

REALTORS® A and B were members of the same Association and Participants in the MLS. REALTOR® A, cooperating with REALTOR® B on REALTOR® B’s listing, submitted an offer to purchase signed by buyers offering the listed price, and a check for earnest money. The only contingency was a financing contingency, and REALTOR® A shared with REALTOR® B the buyers’ loan prequalification letter. The following day, REALTOR® B emailed the offer back to REALTOR® A with “REJECTED” written on it and initialed by the seller, and explained that the seller had accepted another offer secured by one of REALTOR® B’s sales associates. REALTOR® A inquired about the seller’s reason for rejecting the full price offer with only a mortgage contingency, and what had caused the seller to accept the other offer. REALTOR® B responded that he did not know, but with equal offers, he supposed the seller would favor the offer secured by the listing broker.

Later, REALTOR® A saw the seller at a dinner party. The seller thanked him for his efforts in connection with the recent sale of the seller’s home. The seller hoped REALTOR® A understood there was nothing personal in his decision, adding that the money he saved through his “special agreement” with REALTOR® B had been the deciding factor. When REALTOR® A asked about the “special agreement,” the seller explained he had signed a listing agreement for the sale of his property which authorized the submission of the listing to the Multiple Listing Service and specified a certain amount of compensation. However, the seller stated that he had also signed an addendum to the listing agreement specifying that if REALTOR® B sold the listing through his own office, a percentage of the agreed compensation would be discounted to the seller’s credit, resulting in a lower commission payable by the seller.

REALTOR® A filed a complaint with the Association of REALTORS® against REALTOR® B, alleging a violation of Article 3. After its review of the complaint, the Grievance Committee requested that an ethics hearing be arranged.

REALTOR® A, in restating his complaint to the Hearing Panel, said that REALTOR® B’s failure to disclose the actual terms and conditions of the compensation offered through the MLS resulted in concealment and misrepresentation of pertinent facts to REALTOR® A and to the prospective buyers served by REALTOR® A who had, in good faith, offered to purchase the property at the listed price with only a mortgage contingency. REALTOR® A told the Hearing Panel that if he had known the facts which were not disclosed by REALTOR® B, he could have fully and accurately informed the buyers who could have taken those facts into consideration when making their offer. As it was, said REALTOR® A, the buyers acting in good faith were deceived by facts unknown to them because they were unknown to REALTOR® A. Further, REALTOR® A said that REALTOR® B’s failure to fully disclose the true terms and conditions relating to compensation made it impossible to have a responsible relationship with REALTOR® B and make proper value judgments as to accepting the offer of compensation.

REALTOR® B stated that it was his business what he charged and the Association or MLS could not regulate his charges for his services. If he wished to establish a dual commission charge by agreement with his client, that was his right, and there was no need or right of the Association or MLS to interfere.

The Hearing Panel agreed that it was REALTOR® B’s right to establish his fees and charges as he saw fit, and that the Association or MLS could not and would not interfere. However, the Hearing Panel noted that his complete freedom to establish charges for his services did not relieve him of his obligation to fully disclose the real terms and conditions of the compensation offered to the other Participants of the Multiple Listing Service, and did not justify his failure to disclose the dual commission arrangement. In the case of a dual commission arrangement, the listing broker must disclose not only the existence of the “special arrangement” but also must disclose, in response to an inquiry from a potential cooperating broker, the differential that would result in the total commission in a cooperative transaction. The Hearing Panel concluded that by submitting a listing to the MLS indicating that he was offering a certain amount of compensation to cooperating brokers while other relevant terms and conditions were not disclosed to the other MLS Participants, he had concealed and misrepresented real facts and was in violation of Article 3 of the Code of Ethics.

See more case interpretations here

After conducting extensive in-person interviews with potential candidates for the Santa Clara County Association of REALTORS® Board of Director and Officer positions, our Nominating Committee has made their choices for 2020 President-Elect, Vice President, and Secretary-Treasurer. These candidates will join President Sandy Jamison, who will automatically become President after having served as President-Elect in 2019 (This cycle will continue next year as the 2020 President-Elect will automatically become President in 2021).

2020 SCCAOR Officers:

 

The Nominating Committee also chose the following 2020 Director Candidates:

Jen Beehler
Elizabeth Monley
John Scaglione
Will Chea
Gustavo Gonzalez*
Derek Essary – 2020 SCRA Representative**


* Per SCCAOR policy, the immediate Past President is given a three-year term.


**Per SCCAOR Bylaws, one director shall be designated by the South County REALTORS® Alliance to serve a one-year term from January 1,
2020 through December 31, 2020.

Petition: Candidates for officers or directors, other than those candidates selected by the Nominating Committee, may be nominated by written petition on a form from SCCAOR. You may pick up the petition form at SCCAOR. The petition must be signed by 150 or more REALTOR® members in good standing and be delivered to the Chief Executive Officer at SCCAOR not later than noon on July 22, 2019 (as prescribed in the SCCAOR Bylaws Article 10, Section 5). If you have any questions, please contact Alma Moreno or Neil Collins at (408) 445-8500.


Timeline of Election of Board of Directors

July 22 – Deadline to petition to be on the ballot.
July 24 – Record Date (Voting members must have their current e-mail address on file at SCCAOR prior to this date. Contact Member Services or go online to ensure your e-mail address is current.)
August 1 – Online voting begins at 8:00 a.m. (E-ballot sent via e-mail to all eligible members.)
August 23 – Online polls close at 5:00 p.m.
August 27 – Election results reported to Board of Directors.


Special Thanks to the SCCAOR Nominating Committee

Rick Smith, Chairperson (Past President 2017)
Kevin Cole, Vice-Chairperson (Past President 2018)
Trisha Motter, (Past President 2016)
Craig Gorman, (Past President 2015)
Myron Von Raesfeld, (Past President 2014)
Carl San Miguel, (Past President 2013)
Barbara Lymberis, (Past President 2012)
Jim Myrick, (Past President 2005)
Steve Hanleigh, (Past President 2002)
Karen Nelsen, (SCRA President 2019)
Tam Quach, SCCAOR Board of Director
Don Jessup, 2019 Foundation Chair & SCCAOR Board of Director
Kelly Hunt, SCCAOR Member
Anne Hansen, SCCAOR Member

By Joshua J. Borger
Partner, Gates Eisenhart Dawson

California real estate transactions are constantly the subject of hacking scams (i.e., wire fraud) due to our real estate prices. The inevitable purpose is to divert funds intended for escrow into a fake bank account. This article provides tips by a litigation attorney for agents and brokers to avoid liability for cybertheft.

In June 2016, the California Association of Realtors issued a new form entitled, “Wire Fraud Advisory” due to the drastic increase in wire transfer fraud targeting real estate transactions. Yet, as a fiduciary, a well-meaning agent or broker may be inclined to help their client close escrow by facilitating the transfer of the down payment. For example, the broker may confirm that wire instructions from escrow are correct. However, an inevitable problem arises when the instructions that the broker confirm are, in fact, the fake instructions.

A strikingly similar situation arose recently in a federal district court case in Kansas. In Bain v. Platinum Realty, LLC, the buyers sought to purchase a house. The buyers had their bank wire the purchase funds to a bank account that they thought was the sellers’ account. Unfortunately, it was actually some unknown criminal’s account who unlawfully entered the transaction by using fake email accounts that appeared to be similar to accounts used in the transaction. The buyers wired the money based on wiring instructions that were attached to an email account purportedly from the seller’s broker’s account. Having lost their money, the buyers sued the seller’s real estate agent and her employer claiming that an unknown criminal hacker intercepted an email from the title company to the real estate agent that contained the actual wiring instructions, altered the instructions to redirect the funds, created an email address similar to the title company, and sent the new fake wiring instructions to the agent, who then forwarded them to one of the buyers.

In an attempt to prevail shy of trial, the agent argued based on a California case that negligent misrepresentation—that is, a representation made without a reasonable basis for believing it to be true–requires a “positive assertion,” not an implied assertion. As argued, the agent forwarding an email was not sufficient. The court denied the motion, holding that Kansas law differed from California law.

The district court conducted a jury trial based on one of the buyer’s claims for negligent misrepresentation against the broker and her employer. The jury found against the broker and the employer.

Would it really have turned out differently under California law?  It is true that in California a negligent misrepresentation requires an affirmative statement. However, agents and brokers are fiduciaries to their clients. As fiduciaries, their clients are entitled to rely upon the information given to them. Thus, the agent or broker who—albeit inadvertently—forwards the fake email to their client without confirming it breaches the fiduciary duty to use reasonable care.

At the same time, the agent/broker would have nullified the warnings in the “Wire Fraud Advisory.” It is unlikely that a court would allow a broker to avoid liability for its own actions based on a prior advisory. Such a holding would contradict the right of the client to rely upon his fiduciary’s representations.

On the other hand, a broker does not owe a fiduciary duty to anyone but his client. Yet, he may be liable to someone other than his client if he represents that the fake email is valid without reasonable grounds for doing so. But, the broker likely would not be liable for negligent misrepresentation for merely serving as a conduit for the hackers (i.e., forwarding the email without confirming that it’s valid) because negligent misrepresentation has to be based on an affirmative statement; it cannot be implied.

The lesson from the Bain case is for agents and brokers to require that the clients work directly with escrow. Although you are well intentioned, do not serve as an intermediary. Otherwise, you may be doing more harm than good to both you and your client.


Interested in learning more? Come to Joshua’s class at SCCAOR on June 18th. He will be teaching “Duties and Liabilities of Brokers and Agents to the Client: 101”. Click here for more information.

Thank you to all our members who came out to our second General Membership Meeting of the year. We were welcomed by our 2019 President, Gustavo Gonzalez, who welcomed the packed crowd and shared some SCCAOR updates. We then heard from Otto Catrina, candidate for C.A.R. President-Elect 2021.

This meeting also featured a fantastic panel that discussed Accessory Dwelling Units (ADUs) aka “Granny Units”. A huge thank you to our panelists: Bob Wieckowski (CA District 10 Senator), Pam Foley (San Jose Councilmember), Rosalynn Hughey (Director of Planning, Building and Code Enforcement for San Jose), and Steve Vallejos (President of prefabADU). The panel was moderated by Chrissy Garavaglia (SCCAOR Government Affairs Director).

SCCAOR then recognized Membership Milestones for our long-standing members. Congratulations to everyone who hit a milestone!

We concluded the meeting with a local government affairs update from Chrissy Garavaglia, a C.A.R. update from Rick Smith, an NAR update from Mike Sibilia, and an MLSListings update from Karl Lee. You can see all the photos from this meeting on our Facebook page.

You can watch an archive of the Facebook Live video here:

This was the first SCCAOR General Membership meeting that featured interactive live polling. We asked the audience two questions after the panel on Accessory Dwelling Units, and they were able to cast their vote with their smartphone. The results of each question were then displayed live on the TVs in the room. Here are the results from each question:

 

This ongoing series explores the NAR Code of Ethics through various case interpretations. Please read through the following case and try to decide if there was any Code of Ethics violations. Then click the box at the bottom to find out the answer. (These cases have been provided by the National Association of REALTORS®.)


Code of Ethics Case Interpretation – Article 4: Responsibility for Subordinates

REALTOR® B, a sales associate in REALTOR® A’s office, exclusively listed a suburban house and subsequently convinced the seller to accept $60,000 less than the listed price. Several weeks after the transfer of title, the seller filed a written complaint with the Association, charging REALTOR® B with a violation of Article 4 in that REALTOR® B had sold the property to his mother without disclosing this relationship to his client, the seller, and that REALTOR® B got the price reduced for his mother’s benefit.

The complaint was reviewed by the Grievance Committee which, with the complainant’s concurrence, named REALTOR® A as an additional respondent.

At the hearing, REALTOR® B stated that he saw nothing wrong in selling the property to his mother and that the seller would have accepted the contract at the reduced price, even if the buyer had not been REALTOR® B’s mother. REALTOR® A stated that REALTOR® B was an independent contractor licensed with him. REALTOR® A acknowledged that he was accountable under the Code for the actions of other REALTORS® and REALTOR® associated with him but shared with the panel information on his firm’s orientation program. He noted that he required each licensee joining his firm to complete association-sponsored Code training. In addition, he required everyone in his firm to read Professionalism in Real Estate Practice, and produced a form signed by REALTOR® B stating that he had carefully read and understood his personal obligation under the Code of Ethics.

The panel found that REALTOR® B should have made his relationship to the buyer, his mother, unmistakably clear to the seller. He should have disclosed in writing that the buyer was his mother so there would have been no misunderstanding.

The Hearing Panel found REALTOR® B in violation of Article 4.

The Hearing Panel noted that REALTORS® are not presumed to be in violation of the Code of Ethics in cases where REALTORS® associated with them are found in violation. Rather, their culpability, if any, must be determined from the facts and circumstances of the case in question. It was the conclusion of the Hearing Panel that REALTOR® A had made reasonable efforts to ensure that REALTOR® B was familiar with the Code and its obligations, and that it would have been unreasonable to expect REALTOR® A to have known the purchaser was REALTOR® B’s mother. Consequently, REALTOR® A was found not to have violated Article 4.

See more case interpretations here

By Jen Beehler

I had a first-time buyer that I helped to purchase a townhome in downtown San Jose. When they had their housewarming party, I was thrilled that they invited me to attend and celebrate this momentous occasion. At the party, I met the buyer’s Aunt, Geetha. She was this sweet little older woman that shared stories of her family and plans for the future. She took my card, and I genuinely thought nothing of it but was warmed by our encounter.

A few months later, I get a call out of the blue from Geetha. She advises me that her husband is retiring and she wants to talk about estate planning with me. His monthly income would be limited with no chance of growth once he retired. She wanted to go over all their options so they went into this with eyes wide open and were prepared and sustainable.

We first explored what downsizing would look like and we quickly learned that prices had increased dramatically since they bought their home. Any type of downsizing would be accompanied by a larger tax bill than they paid now, so the value was not truly adding up.

She invited me to coffee in her home so I could evaluate the property to determine market value. Her home had a wonderful layout that included a bonus room at the back of the house. It had a private entrance, vaulted ceilings, and loads of light. The space was about 400 square feet. As we sat down for coffee, we devised a plan to turn that room into a rental unit that could be used to offset her mortgage to accommodate their future restricted budget.

I connected her with contractors, guided her through design, and helped her choose materials that would have minimal upkeep and withstand the beating a rental needs to be able to take.

In the end, she created a wonderful studio apartment that was beautifully finished. It rents for $1500 per month which helps cover a majority of the whole property’s monthly output. This creative solution will give their family security moving into retirement and will ensure they could stay in their family home for as long as they so desired.

Finding the solution for your clients doesn’t always involve a transaction. Sometimes it means helping them pull out the potential in exactly what they currently have so their lifestyle and needs are being met, while simultaneously protecting their financial foundation.

 


These REALTOR® Hero stories are part of a new series where SCCAOR Members write about all the extra care, compassion, and creativity exhibited during a transaction that sets the “REALTOR® Hero” apart. Do you want to be featured on our blog? Click here to submit your story!

In the wake of some recently reported thefts that have occurred during open houses in Santa Clara County, we would like to remind all our members to stay vigilant when putting on an open house. Individuals have been attending open houses where they pose as potential buyers. While in the home, they are targeting wallets, purses, jewelry, and other small items.

Since holding an open house will expose you to people that you’ve never met before, it is critical that you follow all possible safety precautions. Even a buyer that seems legitimate could quickly decide to steal a small item on a whim. We encourage you to read NAR’s blog post on 10 tips for holding a safe open house and watch this video on open house safety.

SCCAOR reached out to local Brokers to see what tips they offer to their agents when it comes to preventing theft at an open house. The following information comes from Doug Goss, Broker Associate of Keller Williams Bay Area Estates:

What advice and/or training do you provide to agents in regards to open houses?

“The C.A.R. Residential Listing Agreement Paragraph 10 and Seller’s Advisory Paragraph 4C address Security Precautions. We recommend that Agents go over these paragraphs in detail with the Seller so they understand there is risk with people coming through the home during showings or open house and to make sure all valuables are put away and secured. This includes, cash, jewelry, prescription drugs, firearms, cell phones, laptops/tablets and other valuables. I have also added expensive perfume to the list as I had a client in Willow Glen last year who had a bottle of expensive perfume stolen from the top of her bedroom dresser during an Open House.”


What tips do you have for providing a high level of service and protecting the homeowner’s assets?

Prior to an Open House, take a look around the property to make sure nothing has been left out that may be tempting for someone to walk away with. If you do find something, place in a drawer for safe keeping and let the Seller know where you placed it or replace when you are finished. Also, on large properties or multi-story properties, we recommend having assistance with the Open House. Many Lenders love to co-host Open Houses with Agents so they can pre-qualify potential Buyers and pick up business. It provides another set of eyes and ears to keep track of visitors when they are in different areas of the property. Also, when you are finished with an Open House, go back and double check ALL windows and doors. I have heard of thieves going through Open Houses and unlocking windows and doors so they can come back after the Open House and gain access.


Any other information that you can share?

Always let somebody know where you are holding Open House. If you are holding Open House in a remote area, always have someone co-host with you. Some areas have limited cell access and could be very risky. Also, when you are hosting an Open House, make sure you secure your own valuables while at the Open House. Do not leave your purse, briefcase, cell phone or laptop out in the open. While you are showing the home to a potential Buyer, a thief could easily take these items (or wallet, cash, credit cards out of a purse) and walk out with them.

SCCR Foundation Group Photo

The Santa Clara County REALTORS® Foundation (SCCR Foundation) recently participated in Rebuilding Day, a bi-annual home repair blitz organized by Rebuilding Together Silicon Valley (RTSV). Over 40 local REALTORS® volunteered their time to work on two homes in the Villa Teresa Mobile Community in San Jose.

“The Rebuilding Day event is always a fantastic opportunity for REALTORS® to give back to their community,” said Don Jessup, SCCR Foundation Chair. “I am so proud of everyone that came out to support our Foundation in helping make a difference in the lives of these homeowners.”

Volunteers painted the exteriors of the homes and replaced the paneling around the sides of the porch. The two homes were part of RTSV’s “Adopt-a-Park” initiative, in which several hundred volunteers from various organizations came together to make critical improvements to 14 homes in the Villa Teresa Mobile Community.

The SCCR Foundation is the charitable arm of the Santa Clara County Association of REALTORS®, which is made up of over 6,000 REALTORS® and Affiliates in and around the Bay Area. The SCCR Foundation aims to bring organized real estate together by investing in our neighborhoods with compassion, foresight and action.

Visit the SCCR Foundation website to learn more about the great work being done by REALTORS® in our community.