Those of you who teach the NAR Code of Ethics probably zeroed right in on these words that come from Article 11. That Article cautions practitioners to stay within their “field of competence” although exceptions permit one to stray from his or her field of competence if safeguards are invoked. Those safeguards include engaging the assistance of one who is competent in such matters and full disclosure to the client as to the limitations.
How do you know when you are providing specialized professional service outside your sphere of competence? We can only opine as in practice it is a three-person ethics hearing panel, having heard the facts, who will decide whether a transgression has occurred.
It is safe to say that residential and commercial practices are separate spheres. Article 11 specifically identifies them as such. Also referenced are land brokerage, appraisal, real estate counseling, syndication, auctions and international real estate. And it is also safe to say that within those large spheres there are multiple categories that each represent specialized areas, the lines of demarcation looming large in many cases. Commercial real estate is a large sphere and within it are many disciplines and specialized practices that are as different as night and day. One practitioner I know deals exclusively in the marketing and purchase of golf courses and he is not about to assist a client seeking a distribution center along the Interstate 81 corridor or manage residential real estate in Center City Pittsburgh.
Of course, some specialized practices may be difficult to distinguish. Consider the residential practitioner who is assisting her buyers locate a modestly priced resale property. When nothing suitable is found, is she at risk when she takes her clients to look at a residential construction site? A lawsuit arose from a similar set of facts and is instructive. As it turns out, the new construction was similarly priced to those properties the buyers had previously seen. The newness of it was enticing and their agent encouraging.
The lot ultimately selected by these buyers was on a slope with the uphill lots on one side of the road and the downhill lots on the other. They selected a downhill site because it offered a daylight basement. It was evident that earth removed in the construction of uphill homes had been deposited on the downhill side of the road that allowed the downhill lots to be leveled to some extent.
The buyer agent had limited experience selling new construction and did not understand the perils that could be associated with fill. When she assisted the buyers in negotiating the construction contract (unauthorized practice of law?) which was separate from the agreement for the lot sale, she tried to put the burden of providing /consolidating or removing fill on the builder. The builder would not remove the clause and ultimately, when additional fill and foundation depth was deemed necessary, construction stopped. At this point, there was little the buyers could do and ultimately they paid nearly $30,000 more for the home than they anticipated. The buyers had never considered this possibility and it was never a discussion between them and their agent, who at least had some information as to the risk the buyers were taking.
In her deposition, the buyer agent was asked if she subscribed to and observed the Code of Ethics and if she held the Code of Ethics as a standard of practice to which she adhered. She said yes after which the buyers’ lawyer proceeded to cross examine her on the difference between resale and the purchase of a residential lot suitable for building. The agent soon was tied up like a pretzel; further, she acknowledged that she had strayed from her area of expertise and therefore, had breached an article of the Code of Ethics that she had adopted as her standard of practice. The case settled shortly after!
Do geographic boundaries play any role in defining specialized areas? Is it a violation of Article 11 if the Delaware County based agent assists her buyers in purchasing a second property in Eagles Mere, Sullivan County? While the answer may seem obvious, I caution that one should never prejudge a potential ethics violation without visiting all of the facts. I presume that a Bucks County agent who reads the Sullivan County newspapers and makes frequent visits, studies the market, etc. may provide great service to her clients.
Hone the skills in the area in which you practice. Use your knowledge in your specialized area(s) to deliver great services to your clients, that will yield referrals of yet more business. But, by all means, do yourself a favor and avoid the headache and potential liability of marketing or selling a property that is a little or a lot off your beaten path. Make a referral for which you are likely to be paid and for which you will have no sleepless nights or cause to call your errors & omissions insurance.
Copyright © James L. Goldsmith, Esquire, 2021
All Rights Reserved
Mr. Goldsmith is an attorney with Mette, Evans & Woodside and serves as outside legal counsel to PAR. A substantial portion of his practice is dedicated to providing advice and counsel to real estate licensees. He and his firm represent and defend real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. Jim also defends Realtors® in disciplinary hearings conducted by the Real Estate Commission. Jim was one of the voices of the PAR Legal Hotline for the first 27 years following its inception in 1992.