( Originally Published 1924 )
Indicate the changes that have come over competition in business during the last two or three decades. What are the arguments in favor of cooperation as opposed to cutthroat competition? Which policy results in more business for the real estate dealer? What are the purposes of a local real estate board? Explain what is meant by "multiple listing." Why should a local real estate board belong to a State and a National Association? What are the purposes of the organization of a State and a National Association of Real Estate Boards? What are the points covered in the Code of Ethics of the National Association of Real Estate Boards? Indicate the nature of its provisions. What are some of the other activities of the National Association?
THE past two decades have seen sweeping changes in the attitude of business men toward each other. Previously an attitude of cutthroat competition prevailed among members of the same trade or business, a competition that was unscrupulous in its methods and indifferent to the actions and standards of the trade as a whole. Many practices that would not pass in the court of public morals were not uncommon in the conduct of competitive business. Suspicion characterized the relationship that existed in the competition that has been called "blind, vicious, unreasoning." When an opportunity presented itself to knife a competitor in the back, it was eagerly seized as a chance to eliminate him from the business in the hope of securing his part of the trade. Trade secrets and methods were jealously guarded, as a general guards his plans from the enemy. The face of every man was against every other in the same business.
In other words, each business was considered an isolated unit, obliged to determine its policies and conduct its affairs without consideration of how others of the same sort were conducted. The scrupulous and progressive felt no obligation beyond that of determining their own policies and methods. But gradually the realization has dawned upon business in general that no individual company or organization can be isolated; each unit of the group, think as it may otherwise, is a part of its group and owes a responsibility to the group. Each one is judged by the actions of every member of the group, and it is folly for one to consider that the actions of the unscrupulous will not reflect upon his own principles. In every endeavor we are all our "brother's keeper." The progress of the whole group in public estimation depends upon that of the weakest members ; like a herd on the move, the group is retarded by the halting standards of the most unscrupulous. The store next to a pawnshop suffers from its neighbor, and the honest merchant has long borne the stigma brought upon the whole group by ancient forestallers, regraters, and monopolizers. Consequently, the progressive render themselves a service by putting the whole group on a higher place in the estimation of the public when they help the weaker members of the trade.
Another argument for cooperation and friendliness is that when the trade as a whole develops higher standards and better practices, business prospers as it did not pros-per before. The added confidence of the public in the business makes the commodity dealt in more liquid; the increased competition coming from better methods spurs the market and actually creates a greater volume of business. A store in an isolated situation will do less business than one in a group where competition is stronger. The progressive business man is consequently not afraid to give the best of his secrets concerning methods to his competitor; by improving the practice of his competitor he creates business for himself.
The realization of such facts has come to the real estate dealers and resulted in the organization of various groups for the purpose of forwarding the interests of real estate and raising the standard of the group as a whole. The first natural group to organize is the local real estate board, composed of men in the same community dealing in, owning, or interested in real estate, or in allied business such as mortgages and investments. The members of such boards are divided into five classes, ac-cording to the interest each has in the objects of the board.' The active members are individuals who are en-gaged in whole or in part in "selling, renting, or managing real estate for others, or the loaning of money on real estate for others in the city of (local board) and who are the owners or principals of a firm, partners of a co-partnership, or officers of a corporation engaged in the real estate business, or manager of, and having a financial interest in, the business of a real estate firm or corporation. Only such individuals as maintain or are associated with an established office for the transaction of real estate business in this city shall be eligible." Associated members are those who are engaged by the active members as salesmen or in other capacities in the conduct of the real estate business. Affiliated members are those who are not engaged in the business, but whose interests financial or otherwise prompt them to belong to the board, to keep informed on real estate, and to sympathize with the objects of the board. Non-resident members are of two kinds: (1) those whose office is in a city where there is no board and who desire to affiliate with a board in order to receive the benefits of cooperative action, and (2) those who belong to a board in the city in which their office is located and who, for any reason join a board in another city. All active, associated, and non-resident members are required to sign a pledge to observe the rules and regulations and the Code of Ethics adopted by the Board. Honorary members are elected as a mark of honor for service rendered to the real estate business.
The objects for which the boards are organized are expressed in the Model Constitution and By-Laws as follows: (1) "To unite the real estate men of this community for the purpose of exerting effectively a combined influence upon matters affecting real estate interests." This purpose needs no comment. The influence of individuals may be ignored, but when a group of any considerable size organizes to exert a combined influence, they are much more likely to be felt. So long as they exert their influence in the interests of society as a whole as well as the real estate interests, this purpose is altogether laudable.
(2) "To enable its members to transact their business connected with the buying, selling, renting, caring for, and loaning of money on real estate to better advantage than heretofore, by the adoption of such rules and regulations as they may deem proper." This purpose looks toward improving the methods and practices of those in the business by standardization. The man who is best equipped and handles his business in the most efficient way puts at the disposal of the other members all the information he has as to method. By standardization of practice, many difficulties are removed and avoided that are likely to arise under the individual methods.
(3) "To promote and maintain the high standards of conduct in the transaction of the real estate business expressed in the Code of Ethics formulated by the National Association of Real Estate Boards and to enforce that code among its members in their dealings with the public." The Code of Ethics referred to in this paragraph will be explained later. The significance of having a large number of local boards pledged to maintain the high standard which is set up by this Code, together with a formal pledge to the same effect given by each member, means a tremendous advance over former practices.
(4) "To advance the civic development and the economic growth of this community." There is no man more concerned with the prosperity of his community than the real estate dealer. When the community prospers, his business increases proportionately; when it fails to prosper, his business lags. The first man whom a new citizen of the community interviews is the real estate dealer. Not infrequently the ability or inability of the real estate dealer to supply his need for a home will be the deciding factor in his staying or "moving on." The fundamental unity of interests here causes the dealer to be interested in all movements that look toward the improvement of his community. Local boards are therefore usually leading movements for city zoning ordinances, for an increase in public parks and public improvements of all kinds, and for the things that build up the community in general. Of necessity his is the role of community developer.
(5) "To grant to its active members the right to use the designation `Realtor' under conditions established for that use by the National Association of Real Estate Boards." While this purpose would not be a part of the constitution of a board that did not belong to the National Association it is a decided advantage for the board to be able to grant to its members the use of this term.
A manifestation of the spirit which the organization of the local real estate boards brings is found in the multiple listing system which is in operation in a number of cities. Under this plan dealers list property for sale only under an exclusive contract. Thus the dealer is assured a commission for the sale and is justified in giving some time and thought to it. But he in turn sends a copy of the listing to the secretary of the local board who sends it to every member. The property then is for sale by every member of the board. If another member of the board makes the sale, commissions are divided, a part usually going to the board through which the multiple system is operated.
The advantage of such a plan from the point of view of creating a more perfect market has already been pointed out. In addition it gives an opportunity for co-operation that is an asset to the dealers. It is especially successful in smaller cities where members of the board are known to each other, although it has also met with considerable success in larger places.'
One other activity of the local boards should be discussed, namely, that of making appraisals. The apt appraisal of real estate is a complicated and difficult task ; justice to all parties interested in the appraisal requires that it be made with all skill and science available. The dealer is the one person qualified to make such appraisals. It has been common practice, therefore, for each board to appoint or elect an appraisal committee composed of its members who are best qualified, to make formal and scientific appraisals of property when it is requested. The significance of such a service is indicated by the fact that the Federal Real Estate Board, charged with the management of all real estate owned or leased by the government, frequently requests appraisals from the local boards of property situated in the city where the board is organized. Charitable and public institutions as well as private individuals have also availed themselves of this service. An appraisal by the local board usually means the studied and careful opinion of the best qualified men in the city as to the value of a piece of property.
The Organization of State Associations. Local associations naturally see their problems from a restricted point of view. Moreover, their interests are affected in many ways by forces that are wider in their scope than any community. Communities touch each other and are affected frequently by the same influences. It is, there-fore, natural that local associations should be bound together by some sort of organization whose interests and power would be wider than those of any community in order to exert an influence on the larger forces.
The result is the organization of state associations, composed either of individuals or of boards. The state association performs the same functions for the local boards that those boards perform for their individual members. All matters of interest to the boards of the state, or to any considerable portion of them, are studied by the state association and a solution is sought. Particularly attracting their attention is the subject of taxation, for a part of the burden of taxation carried by real estate is assessed by the state and affects all real estate in its borders. Other matters of state-wide significance are good roads, the advertising of the state as a whole, and the preservation of its reputation as a state. Just as the real estate business is likely to be judged by the standards of the poorest member, so the state is likely to get its bad reputation from the questionable practices of the single board or group of dealers. In order to develop the standards of the whole state, some sort of organization is needed that is state-wide.
In addition, the state association creates a spirit of fellowship in its members and lifts their vision beyond the borders of their own city and interests. It develops a spirit of solidarity that could not be developed on a national scale; its scope would be too wide. At the same time the state association serves as an efficient unit of administration. A national organization is so far flung in its activities that it is likely to be unwieldy unless there is a more localized unit which it can rely upon to help in the administration of its policies. This function is admirably performed by the state association.
The National Association of Real Estate Boards. In 1908 a national organization was formed to include in its membership all the local real estate boards of the nation and of Canada, to perform for them the services which the state associations perform for the boards in their state. The service which the association performs is attested by its rapid growth to the point where it now has about four hundred and fifty board members. These are scattered throughout the country in forty-five states and in three provinces of Canada.
Boards secure membership in the National Association upon the payment of the prescribed fees, upon their "being favorably voted upon by two-thirds of the Board of Directors . . . and upon their complying with the requirements of the Constitution and By-Laws." Persons, firms, and corporations may become members of the Association by contributing "to the support of the Association funds other than annual dues for membership, of an amount to be fixed by the Board of Directors and subject to their approval" and are known as endowment members.
Concerning its activities, the Association makes the following statement:
The Association is a clearing house for ideas and facts about the real estate business. It maintains an Information Bureau in which valuable data are collected, codified and analyzed, and publishes surveys and statistical compilations from time to time. It serves its member real estate boards by giving them suggestions and help in the conduct of their activities. Through a Field Secretary, who visits local boards, it keeps in direct touch with its members and advises them concerning their problems. In addition to the service to local boards, the Association, through committees and otherwise, protects and promotes the interests of real estate as a whole. Taxation, legislation, city planning, and real estate license laws have been some of the important fields of its activity. Above all, however, the Association is striving through every possible means to standardize real estate practices among those who make their livelihood in the real estate business and has promulgated a Code of Ethics based upon the Golden Rule, which all active members of local boards are bound to observe.
While indicative of the scope of the activities of the Association, this statement can give no idea of the possibilities that lie in them. The fact that the sweep of the Association is nation-wide gives it great opportunity to serve and forward the interests of real estate dealers and owners everywhere. Few factors affect our lives more than real estate, for from it we secure both our living and our shelter, and few fields of endeavor have so long continued neglected as this. Men everywhere are concerned with policies and activities that have to do with real estate, for real estate is vital to their lives. The opportunity of the National Association to serve the whole nation in standardizing practice, forwarding research, and raising the ethical standards of the profession is tremendous.
Code of. Ethics of the National Association. The earnestness with which the National Association is at-tacking its problem of elevating the standards of the profession is indicated by the Code of Ethics which it is promulgating and which every member of each of its constituent boards is obliged to sign. The code covers three general topics, as the real estate dealer's activities include three different parties. The first section is de-voted to the "Duties of the Broker to his Fellow Brokers"; the second, to the "Duties of the Agent to his Client"; and the third to the "Duties of the Agent to the Customer." A section of "Suggestions to Owners and Investors" is added, designed to place before the clients and customers of the real estate dealer the point of view of the dealer, and indicating to them some of the practices which are hardly fair toward the dealer and the ways in which they can help the dealer.
Duties of a Broker to His Fellow Broker. There is no profession today that would command the respect of the public if its members should adopt the attitude of suspicion and malicious criticism toward each other. One of the points of honor of a physician is never to suggest that one of his competitors is not capable, or that a course of treatment which his competitor prescribes is not correct. This attitude is reflected in the public mind; it takes it for granted that each physician is capable. Hence, the attitude of a broker toward his competing brokers is very important in building up confidence in the profession and prestige in the community. Because of the lack of this professional spirit, there has been much carping criticism of the real estate business. But on this point there is no organization that goes further than the National Association, and it would be difficult indeed to set up a higher standard of conduct between members of the same profession than that indicated in paragraph one of this section : "Follow the Golden Rule, In his attitude toward fellow brokers as toward all mankind each should endeavor to the best of his ability to at all times follow the Golden Rule `Do unto others as ye would that they should do to you.' " This declaration is almost ritualistic in its solemnity and religious in its significance.
Paragraph two deals more exclusively with the attitude of brokers toward each other, but maintains the same high purpose. "A broker worthy of respect and confidence will never make unfair criticisms or untruthful statements regarding a fellow broker. On the contrary, he will cultivate a friendly relationship and respect for all worthy competitors." But the difficulties that more frequently arise are those that come from attempting to block the other broker's transactions. It would be difficult to imagine a physician or a lawyer going to the patient or client of his competitor and suggesting his own services and increased results. But it has not been sufficiently uncommon for brokers to try to interfere with each other's business at any stage whatsoever. Hence the progress attained in paragraph three which declares that "should a prospective buyer express interest in a property offered by a competitor, the broker should treat the proposition as well as the absent broker with fairness, however anxious he may be to sell property which he represents." A similar attitude is urged in paragraph nine: "A member of a Real Estate Board cannot honorably seek information concerning a deal of a fellow broker and make use of the knowledge for the purpose of closing the deal himself or diverting the customer to another property."
The rest of section one deals with the details of action between brokers, with the exceptions of paragraphs thirteen and fourteen. These provide for punishment of those who by "misrepresentations or any fraudulent, criminal, or illegal act pertaining to real estate," attempt to "entrap or injure innocent or ignorant persons." Members are also instructed to maintain standard rates for services, and to settle their difficulties between each other by arbitration which is provided by the local board.
Duties of the Agent to His Client. The dealer's relation to the public is a two-fold one. He represents two different interests from time to time, and to keep the distinction between the two clear, the practice of referring to them as "client" and "customer" has grown up. The distinction is obvious. A client is one who lists property with the agent for his attention, while the customer is one to whom the agent tries to sell or otherwise dispose of property. The relation to his client, then, is similar to that of a banker to his depositor, or rather a trustee to-ward the one whose funds he is handling. Obviously, the client places his interests more or less completely in the hands of the dealer, and the broker must be careful of the handling of the property thus entrusted to him. The attitude of the Code of Ethics is that a dealer has no right to accept promiscuous listings ; that when the relationship of client and patron is established, it involves definite duties and responsibilities. The agent is, for example, forbidden to accept for exclusive listing with him any property which he is not equipped to handle satisfactorily, and is instructed to "either enlist the cooperation of a fellow broker more favorably situated or recommend that the owner place the property in the hands of such a broker." "When a broker accepts from an owner," says paragraph three of section two, "the exclusive listing of a property, the latter has a right to understand that such acceptance is equivalent to a guarantee that the broker has good facilities for accomplishing desired results and will put forth consistent effort toward that end."
Further it is expressed as the duty of the broker to fit himself to perform his duties as an agent with the highest degree of skill possible. "The agent or broker owes it to his clients, as well as himself, to embrace every opportunity, through reading, study, inquiry, discussion, observation, lectures and addresses, affiliation with the Real Estate Board and other public-spirited organizations, to increase his knowledge of things pertaining to real estate in his community, such as special assessment, taxation, sanitation, fire protection and legal liabilities for damages on various accounts to which owners and agents of real estate are liable."
Another of the abuses that has been common in the practice of real estate and does much to cheapen the profession in the mind of the public is that of giving gratuitously an offhand opinion of values and policies affecting real estate operations. So long as the real estate dealer acts as a "curbstone" practitioner, he cannot expect the public to regard him as any other. Realizing this, the National Association includes the following provision in this part: "When applied to by a client for information or advice on a real estate matter, the agent or broker should never turn the applicant away with an illy considered or `curbstone' opinion. He should either de-cline to advise or take time to familiarize himself with the essential details of the case, making a fair professional charge therefor, when the circumstances warrant. Unless he is thoroughly informed, the broker should not undertake to give his client legal, engineering, architectural or other technical advice; he should refer him to an expert in that line."
Other paragraphs in this section indicate the duty of the agent to advise his client on the methods of obtaining a greater return from his property, on values and other considerations with which he should put himself in a position to be familiar.
Duties of the Agent to the Customer. The uprightness of the Code is nowhere better exemplified than in the first paragraph of this section. "An invitation to do business with him extended by an agent to the public should be a guarantee of honorable and straightforward dealing; and no instruction from clients can justify him dealing in any other manner." And again in paragraph three : "The agent should offer each property solely on its merits as to location, convenience, plan, quality, and price, affording full opportunity to inspect, making no exaggerated or misleading statements, giving truthful replies to questions asked and not in word, act, or any other manner become chargeable with deception." This represents a course of conduct that would be unimpeachable, excelled by no profession.
The agent is also instructed to inspect all properties before he offers them to the public for sale so that he may be informed as to the value beyond doubt or question, to advise precautionary measures on the part of the inexperienced customer, to "exercise all care to see that all papers, adjustments and details are correct, unless he is specifically relieved from such responsibility," and to collect but one commission on property sold, 'unless both parties to the transaction are fully informed of his actions.
Suggestions to Owners and Investors. This section is so succinct and admirable that it is reproduced in full:
1. A self-respecting agent will not attempt to procure a customer for property at a given price when aware the owner is offering it for less.
2. Names of customers and terms of propositions from brokers are confidential. This information is valuable and if repeated may result in injury to him who intrusted you with the facts.
3. Promiscuous listing does not procure adequate service. A broker will not spend time on property he knows others have made common. One agent and one sign are strongly advised.
4. Investors should put their proposition in one reliable broker's hands. Good investments are secured through a knowledge of facts governing development and relative growth of localities which will make and maintain values, or facts regarding building character and cost, problems of rentals, expenses, management and income—truly a complex subject, the only master of which is the agent whose years of study and practical experience have given him the right to high professional standing.
Other Activities of the National Association. For purposes of forwarding more actively and rapidly the interests of the dealers in the several kinds of property the National Association is divided into seven divisions, (1) the Brokers, (2) the Mortgage and Finance, (3) Home Builders and Subdividers, (4) Industrial, (5) Property Management, (6) Farm Lands, and (7) the Realtor-Secretaries Divisions. It is evident that the dealers in these types of real estate are interested in varied subjects and problems; for them all to meet and at-tempt to find a common ground would be to, waste much time and effort. But the divisions are able to start where the whole Association would have arrived.
Once a year the whole Association meets in convention for the purposes of taking up the problems and subjects of interest to the Association as a whole. At these conventions the Divisions meet separately for many of the sessions and discuss their peculiar problems, while the whole convention comes together in a body to discuss subjects which are more universal or inspirational in their nature. This annual convention is attended by four or five thousand real estate men from all sections of the United States and Canada and gives an unparalleled opportunity for the achievement of the ends for which the Association is striving.
Another method of accomplishing their ends is that of education. Within recent months the Association has become active in educational movements and is taking a leading part in arousing interest in real estate courses and getting such courses adopted in the universities and colleges of the country. Education is a powerful weapon for the advancement of any cause, and once it is fully utilized by the real estate leaders, their cause will have progressed further than the most optimistic of them hope.
The National Association has adopted the term "Realtor" to designate the members of its constituent boards. It has established exclusive rights to the word, so that it may not be used by those who are not members. The purpose is to make the word Realtor convey a definite impression of reliability and competency. So long as its use can be confined to those who subscribe to the Code of Ethics, this content can be preserved. The advantage to the dealer of using the word is evident. To the public as a whole it is coming more and more to mean exactly what it was designed for, and the dealer who uses it avails himself of the nation-wide advertising and recognition of the term.
1. The change in the attitude of business from one of cut-throat competition to that of competitive cooperation is reflected in the real estate business where an effort is being made to standardize and improve practices throughout the business.
2. One of the first results of such a spirit is the organization of a local real estate board composed of the most reliable members of the business in a community. The purposes of such a board are : (1) to unite the real estate men of the community to forward the interests of real estate; (2) to enable its members to carry on their business more effectively and more efficiently ; (3) to promote a high code of ethics in the business. Membership consists of all who are actively engaged in the business and those who are interested in real estate.
3. Local boards find themselves affected by many influences that are wider in their application than the local boards, so that they are obliged to combine in state-wide organizations to protect their interests and forward the interests of real estate in the whole commonwealth.
4. State Associations and the local boards find their interests frequently nation-wide, and as a result combine into a National Association for effecting their purposes on a nation-wide scale.
5. The aims of the National Association of Real Estate Boards are to bring about more scientific, uniform, and efficient methods of dealing in real estate, to forward a Code of Ethics that will place the real estate business above reproach as a business, and to promote education in real estate subjects.
6. The Code of Ethics of the National Association of Real Estate Boards covers the topics of (1) the broker's duties to his fellow broker; (2) the duties of the agent to his client; (3) the duties of the agent to his customer; and (4) suggestions to the public. The standards set up in this Code are high and worthy.