What ethical considerations are involved in working with FSBOs? FSBO ethics are not included in the National Associaton of REALTORs® (NAR) Code of Ethics. However, NAR’s Field Guide to Working with FSBOs contains numerous links to help members work with FSBOs. In addition, there are many sources cited in this post that will assist you with how to ethically deal with FSBOs.
Why work with FSBOs?
According to RISMedia, in 2015, the vast majority of FSBOs who couldn’t sell their homes on their own eventually listed with real estate brokerages. Agent Marketing claims that working with FSBOs attracts more listings and buyer leads. They recommend helping FSBOs market their properties for free for 30 days while becoming a “buyer agent” to get paid.
FSBO ethics: avoiding unethical tactics
A 2016 Florida Realtors® forum asked: “Can a Realtor® advertise his/her home for sale as a FSBO with no intention of actually selling, but to only attract buyers for the agent’s services?” Answer: No, because it violates the NAR Code of Ethics Article 12, which requires Realtors® to “present a true picture in their advertising and representations to the public.” In addition, such false advertising also violates Florida laws because it is false, deceptive, and misleading.
In Case #12-8 of the NAR Case Interpretations Related to Article 12, a Realtor® placed a For Sale sign in front of his house which simply stated “For Sale By Owner,” giving only his name and home telephone number. The house was not listed with his brokerage. The buyer after closing complained to the Board of Realtors® that the seller failed to disclose he was a real estate broker in his sign and negotiations. The Realtor® was found guilty of violating Article 12, which requires disclosure of both ownership interest and license status even when advertising his own unlisted house for sale pursuant to Standard of Practice 12-6. Also, see Case #12-1 for similar facts and results.
Earlier this year, a FSBO seller posted on Zillow’s forum, “REALTOR® says she will not bring clients to my FSBO,” which got 22 comments. The FSBO was contacted by an agent via phone soliciting a listing. Even though the FSBO offered to pay the “buyer’s commission,” the agent refused and stated she would not be bringing any buyers to a FSBO. Most supported the buyer agent’s “right” not to show FSBOs. One commenter declared, “The agent has no obligation to show your home whether or not she actually had a buyer.” Another stated, “It’s not a violation of ethics, and she has no obligation to show your property to anybody.” Sadly, all of them may be wrong.
A real-life situation occurred in Colorado when a buyer agent was sued for violating her fiduciary duties to her buyer for not searching FSBOs matching the buyer’s criteria. The Fiduciary Duties for the Buyer Agent include confidentiality, disclosure, obedience, loyalty, diligence, accounting, and reasonable care. The buyer agent was required to search all available properties for her clients, including those not listed in the MLS. After the buyers closed on the house their agent found, they discovered a neighbor had the same type of house—in better condition, for the same price—as a FSBO. The lawsuit was settled with the agent paying an undisclosed amount. NAR cited this case and recommended buyer agents use written representation agreements limiting searches to the MLS.
NAR Code of Ethics Article 1 states that Realtors® pledge to “protect and promote the interests of their client.” This LA Times article questioned whether refusing to show low-commission properties to buyer agent clients violated this article. The story quoted several brokers and an ethics “guru” claiming such boycotts violate the agent’s ethical duties.
Contacting FSBOs ethically
Another NAR FSBO guide warns about unsolicited phone calls to FSBOs. You can’t call numbers on the FTC “Do Not Call Registry” to solicit. You can call those not on the registry, but introduce yourself immediately. NAR publishes an excellent Do-Not-Call Registry guide, including a section on calling FSBOs where an agent soliciting listings can’t, but a buyer agent can—if his or her buyer client may be interested in the property, which is not “soliciting.” However, in-person visits are legal. A 2013 Zillow forum asked: “Is it ethical for a Realtor® to advise me that I am unlikely to sell my home using for sale by owner?” All seven replies agreed that it was ethical for a Realtor® to inform a FSBO seller that the home will not sell as long as the property was not listed in an MLS.
While FSBO ethics are not included in NAR’s Code of Ethics, they do advise how to make phone calls to FSBOs to comply with federal laws. As far as what you can and cannot do: You can contact FSBOs in person. You can tell FSBOs their chances to sell increases by using your services. But you absolutely cannot pretend to be a FSBO to attract buyers. Keep these things in mind to ensure you are practicing sound FSBO ethics.
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About the author
Steven Rich, MBA has over three years of experience as a successful real estate agent. He was awarded the Top Condo Salesperson for two of those years by his real estate company. Steven has served as Associate Editor for a real estate magazine and is the author of a 104-page e-book on How to Buy, Develop, Lease, and Sell Real Estate.