K. Soma Sundram, a Registered Estate Agent with 36 years of experience, serves as the Corporate Strategic Advisor. He authored this article.
The real estate industry plays a crucial role in the economy, influencing both individuals and businesses in their property transactions.
Corporate finance is essential in offering educational resources for real estate professionals, helping them enhance their knowledge in accounting and financial analysis.
However, the perception of real estate professionals is often tainted by concerns about ethical conduct. While financial incentives can sometimes overshadow ethical responsibilities, real estate agents must uphold a strong code of ethics.
Ethical practices not only foster trust with clients but also enhance the industry’s reputation as a whole.
This article explores the importance of ethics in real estate, the professional responsibilities of agents, and how adherence to ethical principles benefits all stakeholders involved.
Table of contents
Understanding the Real Estate Industry
The real estate industry is a complex and multifaceted field involving buying, selling, and developing properties.
It is a significant sector of the economy, with millions of people employed in various roles, from real estate agents and brokers to property managers and developers.
The industry is driven by supply and demand, with factors such as interest rates, government policies, and demographic changes influencing the real estate market.
Real estate professionals play a crucial role in facilitating transactions and providing expertise to clients.
They must stay up-to-date with market trends, laws, and regulations to provide the best possible service. The industry is also subject to various rules, such as zoning, environmental impact, and fair housing.
By understanding these dynamics, real estate professionals can better navigate the complexities of the market and serve their clients effectively.
The Need for Professionalism in Residential Real Estate
Real estate professionals are often perceived with skepticism due to the nature of sales, which is sometimes associated with manipulation and dishonesty.
As Judge Service, an established organization in customer service improvement, says, “Sales as a profession often suffer from a negative reputation.
Many people view sales with suspicion or disrespect, associating it with dishonesty and manipulation.” However, real estate agents deserve professional recognition due to several key reasons:
Real estate refers to land and structures permanently affixed to it, while personal property includes items that are movable and not permanently attached, such as vehicles and furniture.
This distinction emphasizes the legal definitions and ownership rights of both property types.
- Collaboration with Other Professionals – Real estate agents work closely with professionals from the marketing, finance, and legal fields, requiring them to operate at the same professional standards.
- Legal Recognition – Many jurisdictions have specific Acts that recognize real estate professionals, granting them the authority to act officially.
- Specialized Knowledge and Training – Real estate is a specialized field that requires extensive training, certification, and work experience.
- Public Trust and Market Standing – A well-established ethical framework elevates the profession’s status and builds confidence among clients and the general public.
Understanding Ethics in Real Estate
Ethics, derived from the Greek word “ethos” meaning “character,” is the study of moral behavior and principles. Ethical behaviour in real estate ensures fairness in dealings with clients, colleagues, and the public.
The real estate industry is guided by a Code of Ethics, which outlines the professional responsibilities of real estate agents, property executives, and negotiators.
In addition to ethical practices, understanding the role of private lenders in real estate financing is crucial. Private lenders are significant in diversifying funding avenues for investors, offering alternatives to traditional lending institutions and hard money lenders.
Real Estate Investing and Development
Real estate investing and development involve acquiring, renovating, and selling properties to generate profits.
This can include residential real estate, commercial real estate, industrial real estate, or agricultural properties. Investors may hold onto properties for long-term rental income or sell them for a quick profit.
Real estate development involves the planning, constructing, and selling of new properties.
This can include single-family homes, multi-unit buildings, or commercial developments.
Developers must navigate complex regulatory requirements, secure financing, and manage construction timelines to bring projects to fruition.
Real estate investing and development require a deep understanding of the market, financing options, and regulatory requirements.
Investors and developers must also be prepared to take calculated risks and adapt to changing market conditions.
By doing so, they can maximize their returns and contribute to the growth and development of the real estate industry.
The Code of Ethics for Real Estate Professionals
The Code of Ethics in real estate emphasizes honesty, transparency, and professionalism.
Real property refers to land and permanent structures attached to it, distinguishing it from personal property. Below are key ethical principles that agents must uphold:
- Client Interests First – Agents must always prioritize and protect their client’s interests while maintaining fairness to all parties.
- Honesty and Transparency – Agents should refrain from exaggeration, misrepresentation, or withholding important information about properties and transactions.
- Professional Cooperation – Agents must collaborate with other real estate professionals in co-agency dealings to ensure the best outcomes for clients.
- Disclosure of Personal Interest – Agents must disclose their position to all relevant parties when buying or selling properties for themselves, their families, or firms.
- Avoidance of Conflicts of Interest – Agents should not provide professional services if they have a personal or financial interest in a property unless fully disclosed.
- Full Disclosure of Fees – Any financial benefits an agent receives from recommending accurate estate-related services must be disclosed.
- Single-Source Compensation – To prevent conflicts of interest, agents should receive compensation from only one party.
- Financial Accountability – To ensure financial integrity, client funds must be held in separate escrow accounts.
- Written Contracts – All contract details should be documented in writing, with copies provided to all involved parties.
Duties to the Public in Real Estate Transactions
Beyond their responsibilities to clients, real estate professionals must also adhere to ethical standards in their interactions with the public. These duties include:
Vacant land, a category of undeveloped property, can be acquired and repurposed by developers to enhance its value through processes like rezoning and assembling it with other properties.
- Equal Service to All – Agents must not discriminate based on race, colour, religion, sex, disability, familial status, or national origin.
- Competence and Continuous Learning – Agents should remain knowledgeable, seek expert assistance when needed, and disclose any lack of expertise to clients.
- Truthful Advertising – Agents must accurately represent properties in their marketing and public communications.
- Respect for Legal Boundaries – Agents should not engage in unauthorized legal practices.
- Professional Conduct – Agents must avoid misleading statements about competitors or their services.
- Respect for Exclusive Agreements – Agents must honour exclusive representation agreements and avoid interfering with other professionals’ client relationships.
Regulatory Compliance and Best Practices
The real estate industry is subject to various regulations and laws, including fair housing, environmental impact, and zoning.
Real estate professionals must comply with these regulations to avoid legal and financial consequences.
Best practices in the real estate industry include transparency, honesty, and professionalism.
Real estate agents and brokers must disclose all relevant information to clients, including property defects and market conditions.
They must also maintain confidentiality and avoid conflicts of interest.
In addition, real estate professionals must stay up-to-date with industry developments and best practices. This includes ongoing education and training and adherence to industry standards and codes of ethics.
By understanding regulatory compliance and best practices, individuals can confidently and succeed in navigating the complex world of real estate.
Ethics in Real Estate: A Professional Imperative
Real estate is more than just a job; it requires dedication, skill, and integrity. A strong ethical foundation benefits all parties involved in real estate transactions.
Ethical agents enhance client trust and contribute to a fair and reputable industry. Upholding ethical values ensures long-term success and respect within the real estate sector.
Terminologies in Real Estate Ethics
To further understand the importance of ethical practices, here are two key terminologies:
- Conditional Agreement – A real estate transaction in which one or both parties have set conditions for the sale. For example, fees may only be paid upon full settlement of the purchase price or when approval from the Foreign Investment Committee (FIC) is obtained. The agreement becomes unconditional once all conditions are met.
- Secret Profits – Unauthorized earnings made by an agent without the knowledge or consent of the principal (buyer or seller). This practice violates fiduciary duties and undermines trust in real estate transactions.
Conclusion on the Real Estate Market
Ethical conduct and professionalism are the cornerstones of a booming real estate industry.
Agents can foster trust, improve industry reputation, and ensure fair dealings for all stakeholders by adhering to a strong Code of Ethics.
Real estate is a career that offers growth and development opportunities, but only when practised with integrity.
In an industry where financial incentives can sometimes lead to ethical dilemmas, real estate professionals must remember that long-term success is built on honesty, transparency, and adherence to ethical standards.
If you’re interested to become a successful agent, don’t hesitate to be a part of our amazing team!
