A Realtor completed a professional apartment-building property appraisal on behalf of the seller, and the valuation was used to negotiate a final price with the buyer. But the seller later filed an ethics complaint because the Realtor managed the buyer’s properties. Is it an ethics violation?

ORLANDO, Fla. – Dear Shannon: I’m a long-time Realtor and property manager in a challenging situation – a complaint has been filed against me.

I was hired by a seller to appraise an apartment building they wanted to sell. To determine a fair price, the buyer and seller agreed to get separate appraisals and take the average. The seller hired me, I conducted my appraisal diligently and submitted my fair valuation, which was used to calculate a final transaction price.

Recently, the seller filed a complaint against me, alleging that I acted unethically. The complaint says I had been managing other properties owned by the buyer before the appraisal and was still doing so – now including the one I’d appraised for the seller. As a result, I had a logically contemplated interest in it. The seller claims I should have disclosed this relationship upfront and failed to do so.

While I did manage other properties for the buyer, the buyer never discussed property management of this new building until after the purchase. Also, though, I’m a professional. My role as a property manager did not influence my appraisal and expert valuation. – Not Influenced

Dear Not Influenced – I understand you find yourself in a challenging situation with a complaint filed against you. Let’s take this opportunity to delve into Article 5 of the NAR Code of Ethics, its significance, and how it applies to your scenario.

In your case, you were hired to appraise an apartment building for a seller in a transaction. However, an issue arose when it came to light that you had been managing other properties owned by the buyer, and now are also managing the one you appraised as part of the transaction.

The complaint alleges that your property management relationship with the buyer created a logically contemplated interest, which required you to disclose this relationship to the seller. But you argue that your appraisal was not influenced by your role as property manager.

Article 5 states, “Realtors® shall not undertake to provide professional services concerning a property or its value where they have a present or contemplated interest unless such interest is specifically disclosed to all affected parties.”

Let’s break down the key elements of Article 5 in relation to your situation:

  1. Professional services concerning a property: Your appraisal was a professional service concerning a property and its value, namely the valuation of the apartment building in question.
  2. Present or contemplated interest: Article 5 requires that you disclose any present or even contemplated interest you may have in the property being appraised. A logically contemplated interest arises if your property management relationship with the buyer’s other properties creates a reasonable inference that you might have a vested interest in the appraisal outcome.
  3. Specific disclosure to all affected parties: The disclosure must be explicit, made to all parties involved in the transaction. It ensures transparency and allows the parties to make informed decisions.

Based on the facts presented, it’s reasonable to argue that your management relationship with the buyer’s other properties may create a logically contemplated interest in the property you appraised. This is a crucial point of analysis in the complaint against you. Given the potential logically contemplated interest, you were obligated under Article 5 to disclose this relationship to the seller before conducting the appraisal. The disclosure would have ensured transparency, allowing the seller to make an informed decision on whether to proceed with your appraisal services.

This situation serves as a valuable ethical lesson for all Realtors. Consider this an opportunity to grow as a Realtor and reinforce your commitment to ethical conduct. Emphasize the importance of disclosure with your colleagues and peers to promote a culture of transparency and integrity in the real estate profession. Embracing these principles will elevate your reputation and contribute to the overall integrity of the real estate industry.

Inspired by Case Interpretation #5-1. Other laws and rules may apply.

Shannon Allen is an attorney and Florida Realtors Director of Local Association Services
Note: Information deemed accurate on date of publication

© 2023 Florida Realtors®

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