Realty Reality: Federal Sentencing Guidelines Have Insights For Broker Ethics Programs

Written by Bob Hunt on Wednesday, 01 June 2005 7:00 pm

Chapter 8 of the Federal Sentencing Guidelines Manual deals with the sentencing of organizations. Its discussion of potentially mitigating factors contains useful food for thought for real estate brokerages. This is not because brokerages are particularly liable to be facing federal sentencing. Rather, it is because the Guidelines provide a structural outline for the existence of an effective compliance and ethics program. This is of interest to anyone who wishes to promote, in the words of the Guidelines, an organizational culture that encourages ethical conduct.

We note here some of the features of an ethics program, as described in the Guidelines.

The Guidelines recognizes that not every organization is so large as to have the layers of management personnel implied by these provisions. Small organizations may meet the requirements with less formality and fewer resources than would be expected of large organizations. Small organizations might use available personnel, rather than employing separate staff to carry out the ethics program.

Further provisions stipulate that:

The organization shall conduct training programs and otherwise take reasonable steps to communicate periodically and in a practical manner its standards and procedures.

It’s hard to find a real estate firm that does not claim that ethics is its highest priority. Major firms in all regions of the country proclaim their commitment to ethical conduct. And yet none — that I know of, at least — have any sort of program like the one described in the Guidelines. Why?

A number of possible answers present themselves, but there is one that deserves special consideration. That is, real estate firms don’t conduct their own ethics programs because they believe it is the job of the Realtor organizations to teach and promote ethical conduct.

This is understandable. For years the national, state, and local Realtor&reg organizations have represented themselves both to their members and to the public as, so to speak, the guardians of professional morality for the real estate industry. They have, with great sincerity, taken on the tasks of defining, teaching, and enforcing rules of professional ethics for real estate practitioners.

Perhaps this worked once. But it doesn’t work now. For one thing, it is a plain, albeit regrettable, fact that the activities and priorities of the Realtor organizations are far removed from the consciousness of most agents. Second, the mandatory ethical training required by the National Association of Realtors is simply too infrequent an occurrence to have a real impact on most members. Finally, and of the greatest importance, questions of ethics are widely perceived to be the Realtor Board’s issues, not those of the agent’s firm.

The lesson is clear, and the federal guidelines are right on target. If a company really wants to promote an organizational culture that encourages ethical conduct, it needs to institute and implement its own ethics program. Certainly, the Realtor associations may be able to help in this regard. Chapter 8 of the sentencing guidelines provides some excellent structural suggestions for an ethics program, but it does not deal with content. That is where the national, state, and local Realtor associations could provide useful resources.

The Realtor organizations can help individual firms to institute ethics programs that will have an impact on their agents; but they can’t do it for them.