The NAR says it wants higher standards, yet when presented with the opportunity to discuss "best practices" presented by a research group voluntarily funded by 20 percent of its members, the NAR's Risk Management Committee disagreed.

Standards of Practice are among the association's benefits of membership:

1. The NAR was among the first professions ever to create a Code of Ethics, as far back as 1914.

2. Standards of Practice are mandated as well as its Code of Ethics.

3. One of the 2004 NAR Strategic Plan's six goals says that "members acknowledge the need for higher uniform standards and customer care..."

4. The trade organization mandates that Realtor members must have ethics and standards of practice training every four years.

Yet, last week, the NAR's risk management committee refused to endorse a new "best practices" presented by members of The Real Estate Standards Institute (RESI).

The higher standards of practice for members was proposed by the RESI, a grass-roots organization with membership composed of over 26 real estate associations and counting. The standards identification process involved over 1200 REALTORS® in 58 different markets who identified over 900 pages of specific "best practices" currently in use. The proposed standards were shaped with constructive criticism by no less than Laurie Janik, general counsel to the NAR.

"The Real Estate Standards Institute includes participation and membership from organizations representing over 262,000 NAR members, REALTORS®. Over $500,000 has been collected to date from Realtors. Some of the brightest researchers in the industry have explored the role that best practices and standards will play in the future of the real estate industry. Hundreds of Realtors were involved in identifying best practices that, over the past years, have been developed by some of the best REALTORS® in the country. Unlike those third parties who even now seek to impose their standards on our members, this has been an all-Realtor effort and merits your consideration," said the Institute's introduction letter to the risk management committee.

The Institute isn't comprised of outsiders. These are industry leaders turning to their national organization for support. Yet, they were turned away.

The risk management committee ruled that some members might not be able to meet higher standards, which could expose them to legal liability.

"The standard of care is a legal measure of negligence and a Realtor can be held liable for failing to meet a standard," said David Mansell, CRB, vice chair of the NAR Risk Management Committee, in an NAR release.

According to research by associate partner of RECON Intelligence Services, John Ansbach, Esq., the industry needs more "best practices."

"Unless we categorically accept that real estate professionals are simply incapable of providing the consistently superior service that consumers demand (which we do not), it seems evident that setting standards, measuring performance and ensuring customer satisfaction is a road to decreased liability exposure, not the opposite," writes Ansbach in the Institute's white paper which was presented to the NAR's risk management committee.

Among other points made in the white paper were:

• The NAR's Legal Scan survey from 2002 to 2003 says there was a 29 percent increase in commission disputes, a 100 percent increase in fiduciary duty claims, and a 49 percent increase in fair housing disputes.

• A Murray Consulting and Harris Interactive 2002 study showed that only 29 percent of consumers felt they can trust their real estate agent to look out for their interests; only 37 percent of consumers feel real estate agents are a reliable source of neighborhood information; and only 25 percent think that real estate agents can be trusted to do a professional job. "For a service industry built on trust and professionalism, these are disturbing results, indeed," writes Ansbach.

• E & O insurance has increased dramatically, with brokers performing dual agency, transactional brokerage, and designated brokerage paying the most in premiums, according to a 2002 Realty Times' story.

• Currently standards are set by thousands of independent contractors. Allowing brokers to set standards allows them to regain control of their businesses by requiring their agents to measure up.

• The inability of brokerages to effect standards that build powerful client relationships is contributing to... declining profitability.

• Would standards exist in any industry if they increased liability exposure for their professionals?

• According to the Institute's attorneys, the NAR and its members would not incur liability for adhering to higher standards. "The standards process was represented throughout the process by the leading standards legal firm (practice) in the country, Gesmer-Updegrove, LLP of Boston who provides legal counsel and guidance to over 70 SDO's or standards development organizations. The Institute's anti-trust experts tell us that a member association's liability for being members in no way creates liability for member associations any more their membership in the NAR would makes them liable if the Department of Justice where to sue NAR, or than contributing to RPAC makes members responsible for the acts of politicians it supports, or contributing to a local charity makes an association responsible for that charity's actions," said an Institute letter to the NAR.

• The Institute further stated, "association members will play absolutely no role in the administration, certification, recertification, or decertification of the brokerage members and have no part in the standards compliance process."

The committee recommended that NAR go on record as neither supporting nor endorsing the work of RESI. "The committee feels these [RESI] standards expose real estate brokers to an unreasonable risk of legal liability. What's more [is]," said Mansell, "the blanket E&O insurance policy provided to member boards by the NAR would not provide coverage for claims arising from these circumstances."

Another way to look at the best practices is that grassroots members of the NAR has done a lot of work that will save the organization time, money, and trouble. One-fifth of the NAR's membership want higher standards. Squashing the proposal from consideration would prevent other associations and brokers from considering the best practices. At the least, a discussion should take place.

The Institute appears open to modifications to its proposal. The Institute requested that the NAR not rule on the risk management committee's findings until November 2005, when all the committee members have had a chance to read through the standards, express concerns, confer with the NAR legal counsel, and allow the Institute to respond.

Published: May 23, 2005

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