The REALTOR® Code of Ethics Turns 100 [excerpted from REALTOR® magazine’s Centennial Ethics article]

COE_Centennial_verticalThe year 2013 marks the centennial of the Code of Ethics and Standards of Practice of the National Association of REALTORS®. The first Code was written before license laws and most other regulations governing real estate existed and was seen as a declaration of the industry’s principles and beliefs. The Code, a living document that today undergoes annual review and revision, has been called a “golden thread,” uniting those devoted to raising the standards of professionalism and service in real estate. Here’s a look back at a few defining moments in the life of one of the industry’s most important documents.

Strong Underpinnings

When NAR was founded in 1908 as the National Association of Real Estate Exchanges, the organization’s bylaws included provisions for seven key committees, one of which was a committee on the Code of Ethics. So why did it take nearly five years for members of the committee to put pen to paper and write the first Code? During the intervening years, members spent much time—at local board meetings, at annual conventions, and in articles—exploring how the concept of ethics might apply to real estate in a meaningful way. Through this process, two of the Code’s most vital and enduring concepts were developed. In 1910, C. F. Harrison of Omaha, Neb., pointed out that a code of ethics “naturally divides itself into two parts, the broker’s duty to his clients and the broker’s duty to his fellow brokers.” Today, the code has a third section: duties to the public. In June 1912, Frank Craven of Philadelphia, Pa., suggested the Golden Rule as the ideal starting point. It’s now part of the Code’s preamble in language that remains endearingly frozen in time: “Whatsoever ye would that others should do to you, do ye even so to them.”

Check out NAR’s slideshow on the Code of Ethics centennial.

Baltimore came first

Although NAR’s Code was the first to be applied to real estate professionals nationally, it was not the first code of ethics for real estate. The Greater Baltimore Board of REALTORS®, when it was founded in 1858, incorporated rules of conduct into its bylaws that discouraged members from stealing one another’s listings. Those rules are considered to be the industry’s first formal ethics rules. By 1913, many local associations had ethics codes. In fact, the 1913 Code was modeled after rules developed by the Kansas City association. Since adoption of the Code was voluntary, some boards created their own versions even after 1913. The national association amended its bylaws in 1923, requiring all local associations to adopt the Code.

VAR's Kemper Funkhouser of Funkhouser Real Estate Group in Harrisonburg is featured in NAR's video

VAR’s Kemper Funkhouser of Funkhouser Real Estate Group in Harrisonburg is featured in NAR’s video

Yep, the Rules Apply to You

At first, it was assumed that real estate brokers, once made aware of the rules, would simply abide by them. At least in some instances, that proved to be more hope than reality. So by 1915, the national association was encouraging local boards to set up enforcement procedures. NAR’s first ethics enforcement guidelines were issued in 1925. Still, seven decades later, enforcement was apparently still an issue, because in 1998, NAR President R. Layne Morrill appointed a presidential advisory group to address the problem. The group recommended several steps to enhance enforcement, one of which was for all REALTORS® to successfully complete Code of Ethics training on a periodic basis. A four-year cycle of ethics training was instituted the next year, with the first cycle running from 2000 to 2004. The current training cycle ends on Dec. 31, 2012.

27-Year freeze

The Code was meant to evolve; it was thoroughly revised in 1914, 1915, and 1924, and an amendment prohibiting “horseback appraisals”—what we would now call drive-by appraisals—was added in 1928. After 1928, however, the Code was declared “complete” and not touched again for more than 20 years. A 1948 member survey found the Code was outdated and no longer the source of pride, so the newly formed Professional Standards Committee set about bringing it up to date. But efforts to enact the proposed revisions were put on hold when the federal government brought an antitrust action against NAR. At issue was Article 9, which required REALTORS® to follow their board’s published commissions and fees. NAR said the provision protected consumers from paying unfair and arbitrary rates, but the Justice Department called the rate setting anticompetitive. The case reached the U.S. Supreme Court, which, in 1950, declared that Article 9 was illegal. It was removed from the Code, but attempts to bring the remaining articles up-to-date were rejected. In 1955, the Professional Standards Committee tried again. This time the revisions passed.

CLICK HERE to read NAR’s full story on the REALTOR® Code of Ethics’ 100-year history