Know Who You're Working With: REALTORS vs. Real Estate Agents

When it comes to trusting someone with the biggest financial transaction of your life—buying or selling a home—it’s good to know whether you’re simply hiring a licensed agent or entrusting your transaction to someone who has made a professional commitment to high-quality service and a strict Code of Ethics.  

In California, anyone who wants to represent buyers or sellers in a real estate transaction must obtain a license from the California Department of Real Estate. That license requires passing a state exam, completing specific coursework, and working under a licensed broker. This is the baseline, the minimum legal requirement to enter the profession.

A REALTOR, by contrast, is a licensed agent or broker who has voluntarily joined the National Association of REALTORS and, through their local association affiliated with the California Association of REALTORS, has agreed to be bound by a strict Code of Ethics. The code is updated regularly to reflect changes in law, technology, and professional standards. It goes far beyond what the state requires.

The code is organized around three broad duties: duties to clients, duties to the public, and duties to other REALTORS. If a REALTOR fails to uphold the these duties, injured parties can file a formal complaint, seeking either financial or civil damages. If a REALTOR is found guilty of breaking the Code of Ethics, their membership in the National Association of REALTORS may be revoked. As a rule, you can trust REALTORS to be ethical because the NAR values its good reputation and will not allow unethical agents to remain among their ranks.

While real estate agents make up the majority of REALTORS, anyone with a real estate license can choose to be a REALTOR, including property managers and loan officers. Let me walk you through some of the specifics of what you can expect from a REALTOR.

REALTORS have a fiduciary responsibility to their clients. That means they are legally bound to put their clients’ needs before their own. The Code of Ethics is explicit about the fact that REALTORS cannot mislead clients and must disclose information relevant to their transaction.

For sales agents this includes presenting all offers (even if the property in question is about to close escrow). REALTORS must also keep confidential information to themselves. They cannot use it to influence a transaction unless the information must be divulged for legal reasons. When REALTORS represent both the buyer and the seller, they must keep information private, even though it might benefit the other party. This is why I recommend against REALTORS having a dual role; I don’t like the inherent conflict of interest.

When entering into listing contracts, REALTORS must advise sellers of:

1)    the REALTOR’s company policies regarding cooperation and the amount(s)

2)    the fact that broker compensation is not set by law and is fully negotiable;

3)    the fact that buyer agents or brokers, even if compensated by listing brokers, or by sellers may represent the interests of buyers; and

4)    any potential for listing brokers to act as dual agents, e.g., buyer agents.

When entering into buyer agreements, REALTORS must advise potential clients of:

1)    the REALTOR’s company policies regarding cooperation;

2)    the fact that broker compensation is not set by law and is fully negotiable;

3)    the amount of compensation to be paid by the client, if any;

4)    the potential for additional or offsetting compensation from other brokers, from the seller, or from other parties;

5)    any potential for the buyer representative to act as a dual agent, e.g., listing broker, etc.; and

6)    the possibility that sellers or sellers’ representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties.

The Code of Ethics also keeps REALTORS from allowing money to unduly influence their professionalism. For example, if REALTORS are hired to evaluate a property, the amount they are paid cannot influence the results for the benefit of the person hiring the REALTOR to do the evaluation. In the case of a divorce, for example, if one spouse wants to buy out the other, they may hope for a low valuation. Whereas, the spouse hoping to sell their share may hope for a high valuation. The REALTOR needs to be a neutral party.

There are so many situations where the ethical lines could be a little muddy, but the National Association of REALTORS’ Code of Ethics spells things out in black and white. This is why it’s best to work with a REALTOR and not just a licensed real estate agent.

If you have questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

Dick Selzer is a real estate broker who has been in the business for more than 50 years. The opinions expressed here are his and do not necessarily represent his affiliated organizations.