Case Interpretations: Article 6

Case #6-1: Profit on Supplies Used in Property Management

(Reaffirmed Case #16-1 May, 1988. Transferred to Article 6 November, 1994.)

REALTOR® A, a property manager, bought at wholesale prices, janitorial supplies used in cleaning and maintenance of an office building which he managed for his client, Owner B. In his statements to Owner B, he billed these supplies at retail prices.

REALTOR® A’s practice came to the attention of Owner B who filed a complaint with the local Board of REALTORS®, charging REALTOR® A with unethical conduct in violation of Article 6 of the Code of Ethics.

In questioning during the hearing called by the Board’s Professional Standards Committee, REALTOR® A’s defense was that the prices at which he billed these supplies to his client were no higher than the prices which Owner B had been paying prior to putting the property under REALTOR® A’s management. It was clearly established that no disclosure of this profit or supplies used in property management had been made, and also that in proposing the management contract, REALTOR® A had held out to Owner B the inducement of attainable economies in operation.

REALTOR® A was found by the Hearing Panel to be in violation of Article 6.

Case #6-2: Manager’s Use of Client’s Property for Vending Machines

(Reaffirmed Case #16-2 May, 1988. Transferred to Article 6 November, 1994.)

REALTOR® A managed Client B’s large apartment building, and made an arrangement under which coin operated vending machines were placed in the basement of the building.

Six months after the machines were installed, Client B noticed them and raised a question to the propriety of REALTOR® A’s action in installing them, and deriving revenue from them, without Client B’s knowledge and consent. REALTOR® A’s response was that he had considered the machines a service to the tenants which in no way affected Client B’s interests. He told Client B that he did derive a small amount of revenue from them, which had not been remitted to Client B because he felt that this revenue compensated him for his time and effort in arranging for installation of the machines and maintaining contact with the firm that operated them. He suggested that if Client B was unhappy he could seek a formal ruling by submitting the matter to the Professional Standards Committee of the Board of REALTORS®.

Accordingly, Client B did just that. At a hearing on the matter it was established that REALTOR® A had not consulted his client at the time he authorized installation of the machines; that revenue derived from operation of the machines had been retained by REALTOR® A; and that Client B had been furnished no information whatever in the matter until he observed the machines in his own periodic inspection of the building.

It was the conclusion of the Hearing Panel that, whether or not the presence of the machines was a service for the tenants, the giving of authority for their installation was in effect a rental of the space they occupied; and that, in the absence of any disclosure to the owner, REALTOR® A was in violation of Article 6 of the Code of Ethics.

Case #6-3: Management Responsibility in Relation to Manager’s Enterprises

(Reaffirmed Case #16-3 May, 1988. Transferred to Article 6 November, 1994.)

REALTOR® A managed a large apartment building for his client, Owner B. After the building had been under his management for two years, REALTOR® A acquired a vacant site adjacent to the building and developed it as an automobile parking lot with monthly rates set at $50. REALTOR® A advised Owner B of this action, feeling that it would be advantageous to the building, and Owner B indicated that he, too, felt this development was favorable to him.

Six months after opening his parking lot, REALTOR® A raised the monthly rate to $100. When this came to the attention of Owner B, he filed a complaint against REALTOR® A with the Board of REALTORS charging that the parking rate increase represented an unethical attempt on the part of REALTOR® A to profit by Owner B’s investment in the apartment building; that REALTOR® A should have raised rents in the building but had instead substituted the rent increase with an increased rate in his parking lot.

A hearing was called on the complaint before the Board’s Professional Standards Committee. At the hearing, REALTOR® A presented data tabulating monthly parking rates in the general area of his enterprise, which showed that $100 was the average prevailing rate for similar facilities in the area. He also presented information which showed that the rent charged in Owner B’s building was relatively high in comparison with similar apartments in the area.

After careful review of this data, the Hearing Panel concluded that REALTOR® A’s parking lot enterprise had involved no expenditure of Owner B’s funds; that his action in establishing this business had met with Owner B’s approval at the outset; that REALTOR® A’s exhibits demonstrated that there was no merit to Owner B’s contention that a justified rent increase had been shunted into an increase in parking rates; that Owner B’s interests had in no sense been betrayed; that the proximity of the parking area continued to be an asset to Owner B’s building; and that REALTOR® A was not in violation of Article 6.

Case #6-4: Acceptance of Rebates from Contractors

(Revised Case #16-4 May, 1988. Transferred to Article 6 November, 1994.)

REALTOR® A, who managed a 30-year-old apartment building for Client B, proposed a complete modernization plan for the building, obtained Client B’s approval, and carried out the work. Shortly after completion of the work, Client B filed a complaint with the Board of REALTORS® charging REALTOR® A with unethical conduct for receiving rebates or “kickbacks” from the contractors who did the work.

At the hearing, Client B presented written statements from the contractors to substantiate his charges.

REALTOR® A defended himself by stating that he had carried out all work involving the preparation of specifications, solicitation of bids, negotiations with the contractors, scheduling work, and supervising the improvement program; that he had presented all bids to the owner who had authorized acceptance of the most favorable bids; and that he and Client B had agreed on an appropriate fee for this service.

REALTOR® A also presented comparative data to show that Client B had received good value for his money.

After all of the contracts were signed and the work was under way, REALTOR® A found that his fee was inadequate for the time the work required; that he needed additional compensation but didn’t want to add to his client’s costs; and that when he explained his predicament to the contractors and asked for moderate rebates, they agreed.

Questioning by panel members revealed that the contractors felt that since they were being asked for rebates by the man who would supervise their work, they felt that they had no choice but to agree.

The Hearing Panel concluded that REALTOR® A was in violation of Article 6 of the Code of Ethics and that if he had miscalculated his fee with Client B, his only legitimate recourse would have been to renegotiate this fee with Client B.