Test Drive/Lesson One | Contents

Standards of Professional Conduct
Unlawful Conduct in Sale, Lease and Exchange Transactions

Standards of Professional Conduct

In order to enhance the professionalism of the California real estate industry, and maximize protection for members of the public dealing with real estate licensees (whatever their area of practice) the following standards of professional conduct and business practices have been adopted.

Unlawful conduct consists of acts which the Commissioner already considers a violation of the Real Estate Law. By placing these in regulation form, real estate licensees are put on notice that these are violations and their licenses can be suspended or revoked for performing any act enumerated in the unlawful conduct section. Having these regulations in writing, and thus incorporated into a course such as this, should be very helpful to some licensees because some of the acts are those for which a licensee may not realize are violations of the Real Estate Law.

Unlawful Conduct in Sale, Lease and Exchange Transactions

Misrepresentation

Licensees when performing acts within the meaning of Section 10131(a) of the Business and Professions Code shall not engage in conduct which would subject the licensee to adverse action, penalty or discipline under Sections 10176 and 10177 of the Business and Professions Code including, but not limited to, the following acts and omissions:

Knowingly making a substantial misrepresentation of the likely value of real property to its owner for the purpose of securing a listing or for the purpose of acquiring an interest in the property for the licensee's own account.

EXAMPLE #1:

People vs. Barker (1060) 53 C 2nd 539. The victim owned real property and asked the defendants, Mr. and Mrs. Barker, with whom he had previously dealt, for his opinion regarding an offer the victim had received. The offer was for $25.00 per acre on property owned by the victim. In their discussions, Mr. Barker stated that the property was probably worth $50.00 per acre. However, after a short time, Barker told the victim that the property was more realistically valued at not more than $35.00 to $40.00 per acre.

In the meantime, Barker told Marsh that the property could be bought for $50.00 per acre. Marsh offered $45.00 and gave Barker a $500 deposit. Barker then told the victim that he was unable to find anyone who would pay more than $25.00 per acre. (This, of course, was a lie.)

Barker presented an offer from Mrs. MacDonald (really Mrs. Barker, the broker's wife) at $25.00 per acre. The victim accepted the offer and a double escrow was opened for MacDonald and Marsh. Neither the victim nor Marsh knew that Mrs. MacDonald was in fact Mrs. Barker. After the escrow closed, Marsh confronted Mrs. Barker with a handwriting expert's opinion that Mrs. MacDonald and Mrs. Barker were the same person. Barker denied this saying Mrs. MacDonald was a real person living in Michigan.

The decision was that the defendants were guilty and should be convicted of grand theft. Mr. and Mrs. Barker knowingly and designedly by false pretenses defrauded the victim of the difference between the sum they intended to pay and the amount Marsh had offered ($12,800). (Also see Penal Code 484, 487, 1110 and 31).

EXAMPLE #2:

Mr. Adams was about to retire and decided that the best way to sell his property was to list it with a real estate broker. One Sunday afternoon, he dropped in on broker Williams to discuss the matter and said that several brokers had told him that he should expect to get from $85,000 to $88,000 for his property. "Oh, that sounds low to me," said broker Williams. "Property in your neighborhood has been moving well and I recall that your house is in good shape and well landscaped. Give us an exclusive on it at $93,000 and we'll make a strong effort to get what your property really is worth." Williams got the listing.

Williams had salesman Brown, a newly licensed agent in his office, hold the property open the next weekend. Numerous prospective buyers saw the property, but there were no offers. When activity slowed, and the client became concerned, broker Williams said, reassuring, "We'll just keep plugging till the right buyer comes along." When the 90 days had passed, the broker contacted seller Adams and asked for a renewal. He told him that new houses coming on the market were adversely affecting the market on resales and recommended that he lower the selling price to $89,500. Adams ruefully agreed, but the lowered price did not materially increase buyer interest in the property. As the term of the 90-day extension neared an end an agent from another office submitted an offer of $83,000 which Williams strongly recommended be accepted.

After a long discussion Mr. Adams accepted the offer and charged the broker with misinforming him as to the fair market value apparently as a means of obtaining the listing of his property.

During a hearing, questioning developed the following facts:

The broker had not gone through the house to make a systematic appraisal or opinion of value; his recommended offering price was not based on a systematic review of sales in the neighborhood; and, there was no indication that any property in the immediate neighborhood had been resold for as high as $93,000. When told that the circumstances tended to bear out the complainant's charge, the broker's defense was that he felt he had a right to take an optimistic view of the market.

The inevitable conclusion of the hearing was that the agent had acted in an unethical manner.

Knowingly making a substantial misrepresentation of the likely value of real property to a prospective buyer for the purpose of inducing the buyer to make an offer to purchase the real property.

In California, the real estate licensee is required to deal fairly and honestly with all parties and not act in a negligent manner. (B. & P. Code § 10176(a), (b), (c), (d), (i); & § 10177(c), (f), (g), (h), (j), (l).) The ancient rule of caveat emptor ("let the buyer beware") has little application in today's complicated market.

In a transaction, the broker suggested that buyer purchase an 11-unit apartment house. In order to induce the plaintiff to purchase, the broker made representations that the apartment would be worth $140,000 (this was in 1968) if the rents were raised . With the increased rents the buyer would have a net spendable $500 per month.

At the close of escrow every unit was occupied and the new owner sent rent increase notices to each tenant. Within 60 days, 65% of the apartments were vacant. No new tenants could be secured at the higher rent. The eventual result was a loss of the property as well as a $42,000 loss instead of the profit the broker had represented. The result was a law suit with verdict in favor of the buyer (plaintiff).