BARRISTER'S BRIEFING: A Refresher on Article 3 of the Realtor Code of Ethics

It is well known that Article 3 of the Realtor Code of Ethics deals with cooperation, surely an underpinning of an ethical real estate practice and a fluid marketplace. However, not all may be familiar with the nuances that are part and parcel of this rule of ethics.

Article 3 closely resembles fiduciary law in New York State. As such, it requires brokers to cooperate, but not necessarily compensate other brokers, unless the seller approves. Worth noting is that for HGMLS purposes, the duty of Participant Brokers is to cooperate and compensate as well. That is so unless the listing is subject to an explicit modification or exclusion regarding payment of a commission.

Harkening back to the Code of Ethics, there are 10 Standards of Practice that are subservient to Article 3. While this column will not deal with each of them in turn, it will illuminate on some of the most frequently misunderstood items. For example, SOP 3-2 states as follows:

“Any change in compensation offered for cooperative services must be communicated to the other REALTOR® prior to the time that REALTOR® submits an offer to purchase/lease the property. After a REALTOR® has submitted an offer to purchase or lease property, the listing broker may not attempt to unilaterally modify the offered compensation with respect to that cooperative transaction.”

What this means is that upon transmitting an offer to purchase or lease, the previously offered out compensation from the listing must be honored if the offer is accepted. The offered compensation amount is essentially “frozen in time.” However, that agreed upon compensation can be changed, after acceptance of the offer to buy or lease, only upon an agreement between the listing broker and cooperating broker. Of course, this is subject to the seller’s approval. In any event, all cooperating commissions must be paid to the cooperating broker, and not directly to an agent.

SOP 3-4 requires listing brokers to affirmatively disclose the existence of dual or variable rate commission arrangements privately agreed to with sellers. This Standard of Practice is actually unenforceable in New York. The New York Department of State has consistently held that if SOP 3-4 were to be enforced it would violate fiduciary duties the broker has to their seller clients.

SOP 3-6 requires Realtors to “disclose the existence of accepted offers, including offers with unresolved contingencies, to any broker seeking cooperation.” Reading the tea leaves carefully, this Standard of Practice does not require listing brokers or agents to disclose the name of the buyer with an accepted offer, nor the amount of the offer. Likewise, there is no duty for a listing broker with an accepted offer to reach out to cooperating brokers who had rejected or countered offers. To be clear, even if a seller has accepted an offer subject to unresolved contingencies (including but not limited to home inspection and mortgage contingencies) the existence of an accepted offer must be disclosed to anyone seeking to conduct a showing or make an offer.

Lastly, SOP 3-9 requires that “REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.” For practical purposes, this rule is a double-edged sword. Listing brokers must strictly adhere to seller’s instructions on what days and times of day the property can be shown, and for what duration. Cooperating licensees must adhere to the listing broker’s instructions on how to make a showing appointment, and must respect the privacy and security concerns of the seller, if known.

On a personal note, I hope the summer market is treating you, the Realtor community, and your clients, very well.

Editor’s Note: The foregoing is for information purposes only and does not confer an attorney/client relationship. For a legal opinion or advice specific to your situation, please consult with a private attorney at law.

Leon Cameron, Esq.
Leon Cameron, Esq., is Director of Legal Services & Professional Standards Administrator for the Hudson Gateway Association of Realtors.