Ethis2.0

Commercial Real Estate

Ethics 2.0
By. D. Scott Smith,
CCIM
Scott.smit@PenFedRealty.com
www.expertcre.com

Class Room, DLLR, and MREC Rules!!!
•You must sign in and out to get CE (show ID)
•No eating, sleeping, or using electronics
•You must be on time
•Raise your hand to ask questions
•Be polite

Today we will
Part 1. What are Ethics?

• Definition
• Ethic’s in Practice
• Are you Ethical?

Today we will
Part 2. Regulations

• DLLR and COMAR
• NAR Code of Ethics
• Filing a Complaint

Today we will
Part 3. Predatory Lending and Flipping

• Predatory Lending Defined
• What is Flipping
• Understanding Mortgage Fraud

Definition
• A system of moral principles

“It is perhaps one of the most important
qualities of any professional to have
strong ethics, as one cannot succeed
without them. “

Where do ethics come from?

• Your Environment
• Learned Behavior
• Enforcement
• Behavioral Science

As a Result

• Varying Degree of procedures
• Oversight and regulation (Voluntary)
• Criminal Charges (Involuntary)
• Ethics Vs. Legal
• Resources for Ethical assistance

Do Ethics Change and How?

5 min. on the back of your sheet.

Ethical Dilemma's
• Unintended Consequences in Ethics
Trying to do the right then may open a can of worms

• Admit Existence of Ethical issues
Even though no malice is evident, practice may still be
edging the line

• Interpretation itself is an issue
Blurring the lines

Ethics in Practice
Advising on Reservation / List Price

• Suggest motivation
• Subjective comparables or rates used
• DOM longer for higher priced properties
• Broker Motivation for accepting assignment

Is it ethical for broker to recommend
price below market?

Ethics in Practice
Assignment Duration

• Acceptance contract for longer than DOM
• Broker Fishing
• New Assignment = Higher price, nearing
expiration assignments = Lower price

Should listing contracts be longer
than average time on market for
other property?

Ethics in Practice
Amount of Properties you are Servicing

• Are you servicing all equally
• Variable rates and pricing of servicing at
different times of contract
• Geographical issues

Should a broker take on more
assignments if they are already near
capacity?

Ethics in Practice
Purposeful Procrastination

• Office Inventory Control
• Broker Finance Control
• Marketing saturation
• Market Timing

Should Time Driven Results be
mandatory?

Now Let’s Play

Are you Ethical!

Rules of the Game
• Every classmate will write out one real
estate ethics question

• Teams will be chosen by Instructor

• Each team will pick a player

• Players to the front of the room

Rules of the Game
• Each team will pick a question from
box

• Each question will be worth points

• Highest points win a prize

• Wrong or no answer will result in point
reduction

LET THE GAME BEGIN!

(O’ yeah and there is a time limit )

DLLR and COMAR
• Department of Labor Licensing and Regulations

• Code of Maryland Regulations
www.dsd.state.md.us/comar

• 09.11.02.01 Licensees Relations to the Public
• 09.11.02.02 Licensees Relations to the Client
• 09.11.02.03 Licensees Relations to Fellow
Licensees

09.11.02.01 Licensees Relations to the Public

• The licensee shall remain informed of matters affecting
real estate in the community, the State, and the nation.

• The licensee shall be informed on current market
conditions in order to be in a position to advise clients
as to the fair market price.

• The licensee shall protect the public against fraud,
misrepresentation, or unethical practices in the real
estate field. The licensee shall endeavor to eliminate in
the community any practices which could be damaging
to the public or to the dignity and integrity of the real
estate profession. The licensee shall assist the
commission charged with regulating the practices of
brokers, associate brokers, and salespersons in this
State.


• The licensee shall make a reasonable effort to ascertain
all material facts concerning every property for which the
licensee accepts the agency, in order to fulfill the
obligation to avoid error, exaggeration,
misrepresentation, or concealment of material facts.

• The licensee, acting as agent, may not discriminate in
the sale, rental, leasing, trading, or transferring of
property to any person or group of persons because of
race, color, creed, religion, national origin, sex, handicap,
or familial status.

• The licensee may not be a party to the naming of a false
consideration in any document.


• Advertisement.

• (1) The licensee in advertising shall be especially careful
to present a true picture. A broker may not advertise
without disclosing the broker's name or the company
name as it appears on the license. A broker may not
permit associate brokers or salespersons to use
individual names unless the connection with the broker is
obvious in the advertisement.
• (2) Effective October 1, 2004, an associate broker or
salesperson may not use an individual telephone
number or email address in an advertisement, as defined
in Business Occupations and Professions Article, §17-
527.2(a)(3), Annotated Code of Maryland, unless the
identified telephone number of the broker or branch
office manager also appears in the advertisement


• For the protection of all parties with whom the licensee
deals, the licensee shall see to it that financial
obligations and commitments regarding real estate
transactions are in writing, expressing the exact
agreement of the parties, and that copies of these
agreements are placed in the hands of all parties
involved within a reasonable time after the agreements
are executed.

• All real estate documents shall be signed by a licensee
in the licensee's own name, and may not be signed in
the name of a group or team

09.11.02.02 Licensees Relations to the Client
A. In accepting employment as an agent, the licensee shall protect and
promote the interests of the client. This obligation of absolute fidelity to the
client's interest is primary, but it does not relieve the licensee from the
statutory obligations towards the other parties to the transaction.

B. In justice to those who place their interests in the licensee's care, the
licensee shall endeavor always to be informed regarding laws, proposed
legislation, governmental orders, and other essential information and public
policies which affect those interests.

C. A licensee may not accept compensation from more than one party to a
transaction without the full knowledge of all the parties.

Ethics in Commercial Real Estate
COMAR
D. Disclosure Requirement.
(1) The licensee may not acquire an interest in, or purchase, personally, for any
member of the licensee's immediate family, for the licensee's firm, for any
member of the firm, or for any entity in which the licensee has any
ownership interest, property listed with the licensee or the licensee's firm
without making the licensee's true position known to the listing owner. In
selling or leasing property in which the licensee, the licensee's firm, or any
member of the licensee's immediate family or the licensee's firm has an
ownership interest, the licensee shall reveal that interest in writing to all
parties to the transaction.

(2) A licensee who provides real estate brokerage services in a group or team
shall have the same disclosure requirement of §D(1) of this regulation
with regard to unlicensed members of the group or team as the
licensee has with regard to members of the licensee's firm.

COMAR

E. When acting as agent in the management of property, the licensee may not
accept any commission, rebate, or profit on expenditures made for an owner
without the owner's knowledge and consent.

F. Competitive Market Analysis.
(1) A licensee may prepare a competitive market analysis of a specific property
for a client, prospective client, or customer. The analysis shall include the
following statement printed conspicuously and without change on the first
page:

COMAR
Cont.
COMPETITIVE MARKET ANALYSIS DISCLOSURE

This analysis is not an appraisal. It is intended only for the purpose of assisting
buyers or sellers or prospective buyers or sellers in deciding the listing,
offering, or sale price of the real property.

(2) If a licensee includes a property in which the licensee has an interest as one
of the comparables, that fact shall be disclosed to the client, prospective
client, or customer.

COMAR
G. The licensee may not submit or advertise property without authority. In any
offering, the price quoted may not be other than that agreed upon with the
owners as the offering price.

H. If more than one formal written offer on a specific property is made before
the owner has accepted an offer, all formal written offers presented to the
licensee, whether by a prospective purchaser or another broker, shall be
transmitted to the owner for a decision.

I. Unexcused failure to ensure that a prospective purchaser has the real
property disclosure statement or disclaimer statement in hand before the
submission of an offer to purchase may be considered a violation of
the licensee's obligation to protect and promote the interests of the
licensee's client when this failure could result in a contract
becoming void or voidable.

COMAR
09.11.02.03 Licensees Relations to Fellow Licensees

A. The agency of a licensee who holds an exclusive listing, shall be respected.

B. The licensee shall cooperate with other brokers on property listed by the
licensee exclusively whenever it is in the interest of the client, and share
commissions on a previously agreed basis. Negotiations concerning
property listed exclusively with one broker shall be carried on solely with the
listing broker.

C. Signs giving notice of property for sale, rent, lease, or exchange may not be
placed on any property without the owner's prior consent.

NAR Code of Ethics

• Less violations in Commercial than
Residential

• Most complaints are over compensation

• Most violated are Articles 1, 2, 9, and 11

Article 1.
When representing a buyer, seller, landlord,
tenant, or other client as an agent, Realtors®
pledge themselves to protect and promote the
interests of their client. This obligation to the
client is primary, but it does not relieve
Realtors® of their obligation to treat all parties
honestly. When serving a buyer, seller, landlord,
tenant or other party in a non-agency capacity,
Realtors® remain obligated to treat all parties
honestly. (Amended 1/01)

Article 2.
Realtors® shall avoid exaggeration,
misrepresentation, or concealment of pertinent
facts relating to the property or the transaction.
Realtors® shall not, however, be obligated to
discover latent defects in the property, to advise
on matters outside the scope of their real estate
license, or to disclose facts which are
confidential under the scope of agency or non-
agency relationships as defined by state law.
(Amended 1/00)

Article 9

• REALTORS®, for the protection of all parties,
shall assure whenever possible that all
agreements related to real estate transactions
including, but not limited to, listing and
representation agreements, purchase contracts,
and leases are in writing in clear and
understandable language expressing the
specific terms, conditions, obligations and
commitments of the parties. A copy of each
agreement shall be furnished to each party to
such agreements upon their signing or initialing.
(Amended 1/04)

Article 9

• For the protection of all parties,
REALTORS® shall use reasonable care
to ensure that documents pertaining to the
purchase, sale, or lease of real estate are
kept current through the use of written
extensions or amendments. (Amended
1/93)

Article 9

• When assisting or enabling a client or customer
in establishing a contractual relationship (e.g.,
listing and representation agreements, purchase
agreements, leases, etc.) electronically,
REALTORS® shall make reasonable efforts to
explain the nature and disclose the specific
terms of the contractual relationship being
established prior to it being agreed to by a
contracting party. (Adopted 1/07)

Article 11.
• The services which Realtors® provide to their
clients and customers shall conform to the
standards of practice and competence which are
reasonably expected in the specific real estate
disciplines in which they engage; specifically,
residential real estate brokerage, real property
management, commercial and industrial real
estate brokerage, land brokerage, real estate
appraisal, real estate counseling, real estate
syndication, real estate auction, and
international real estate.

Article 11.
• Realtors® shall not undertake to provide
specialized professional services concerning a
type of property or service that is outside their
field of competence unless they engage the
assistance of one who is competent on such
types of property or service, or unless the facts
are fully disclosed to the client. Any persons
engaged to provide such assistance shall be so
identified to the client and their contribution to
the assignment should be set forth. (Amended
1/10)

Filing a Complaint

• Complaints are reviewed to determine whether the
complaint falls within the jurisdiction of the Commission.
An acknowledgement letter is sent to the complainant.
Copies of complaints are sent to the brokers of the
involved companies for responses to allegations. A
review process takes place and the submitted evidence
determines the case's progress. The case is either
administratively dismissed or sent for an investigative
process. Only Commissioners, by law, have the authority
to charge any violation of the law and/or regulation or to
dismiss a complaint.

Filing a Complaint
• Complaints must be submitted in writing on the real
estate complaint and guaranty fund claim form. It is
necessary that you submit supporting documentation
with your complaint.

• A complaint that results in recommended charges is
reviewed by the Attorney General's Office for legal
sufficiency. The majority of cases set for a hearing are
sent to the Office of Administrative Hearings for a
hearing date.

Part 3. Predatory Lending, Flipping, and
Mortgage Fraud

What is Predatory Lending?
• Some Videos on Predatory Lending
http://youtu.be/L_eFOvJXtH0

http://youtu.be/oORM-m4crXg

http://youtu.be/kQY18xiGen4

Is Flipping Illegal?
http://youtu.be/hsOUl8l8MD8

http://youtu.be/5M-ZJPRidII

• Profits from flipping real estate come from either buying low and selling high
(often in a rapidly-rising market), or buying a property that needs repair and
fixing it up before reselling.
• Under the "fix and flip" scenario, an investor or flipper will purchase a
property at a relatively low price (often deeply discounted from the house's
market value). The discount may be due to the house's condition (e.g., the
house needs major renovations and/or repairs) or due to the owner(s)
needing to sell a house quickly (e.g., relocation, divorce, pending
foreclosure). The investor will (usually) then perform necessary renovations
and repairs, and attempt to make a profit by selling the house quickly at a
higher price (closer to market value).

Understanding Mortgage Fraud
• http://youtu.be/9fMlGGABcHs

• http://youtu.be/hNURYMKQW-M

• http://youtu.be/cS2HsaBA5No

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