Unit 1: History of NAR and the Code of Ethics
All Realtors® are bound by a strong code of ethics which they pledge to comply with when they agree to become a member of the National Association of REALTORS®. The code was originally created in 1913 and is today called the “Code of Ethics and Standards of Practice”.
In this unit, we will cover the history of the Code of Ethics as well as summarize the most important points of each Article.
Objectives
- To identify the factors and circumstances leading to the creation of the Code of Ethics and Standards of Practice
- To recall the major provisions of the Code of Ethics and Standards of Practice
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100 Years Ago To best understand the origins of the National Association of REALTORS® and the Code of Ethics, we need to go back to 1908 when Theodore Roosevelt was president. It was a time when electricity in homes was still relatively new and most people were bound to the cities which tended to be crowded and dirty. Enter Henry Ford and the creation of the automobile! This one development allowed the middle class the ability to be mobile and the concept of commuting to the city for work was born. People could now begin to move to the wide-open spaces outside of town. This was before the idea of suburbs was originated but it was the beginning of subdivision maps and rural neighborhoods.
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Transferring Property
In colonial times, transferring property was simple. Almost always, property was acquired in one of the following ways with very little paperwork needed:
- Sold at auction
- Given away by the government
- Passed on to family members
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Increase in Fraud But as people started this trek to the outskirts of town and began acquiring new parcels, transactions became more complex and required more paperwork. This created many new opportunities for fraud. Unscrupulous real estate dealers, often known as Curb Stoners (because they would sit on street corners or curbs), would be happy to swindle any potential buyer that happened by. The real estate dealers would sell worthless property, land they didn’t have title to, or the same mortgage many times over. By the time a buyer had caught on that they had been swindled, the dealer was long gone. |
Swindling Farmers
Sellers were also easy targets as farmers who owned vast areas of land became fatigued with the demands of farming. They could easily be persuaded to sell their property to speculators with plans of subdividing.
Since demand was increasing, land prices were on the rise, but the farmers weren’t savvy to this fact. Swindlers could offer a price that seemed high to the land owner but was far below market value. Often these deals were done on net listing arrangements where the dealer was compensated on the amount over the low value offered to the land owner.
These unscrupulous dealers didn’t need weapons to commit their crimes – they used real estate documents instead.
Rise of the Professional
As the demand for transactions grew, so did the number of real estate professionals. Many had high standards of honesty and integrity but they were working in an era where double-dealing (selling a property or mortgage many times over), fraud, and forged documents were common.
They knew something had to be done. The need for licensing requirements was evident as was the creation of a national exchange where ideas and common interests could be shared.
Edward S. Judd, President of the Chicago Board of Real Estate Professionals at the time, made a statement that ultimately launched the concept of a national board:
“There is something about the permanency and stability of land which should give like traits of character to the real estate man.”
What Happens in Duluth
So in May 1908, a gathering of state boards organized in Duluth with 120 professionals representing 13 states. This was the first gathering of the National Association of Real Estate Exchanges, as it was then called.
The gathering came together to solve the common problems they were experiencing:
- Overcrowding in the cities
- Rampant land speculation and exploitation
- No regulations for selling real estate
- Fraudulent transactions
Association Goals
Their goal was to create a permanent national association and standing ethics committee with the intent of:
- Establishing ethical standards
- Exchanging information and statistics
- Promoting good public policies for real estate development
- Separating themselves from the unscrupulous practitioners and real estate sharks
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Slow Start This meeting was valuable, but they still lived in a time where communication between states was difficult and common practices were tough to adhere to. The national exchange met only once a year and any proposed changes had to be discussed via letters. So progress was slow and five years passed before there was a meeting at the Winnipeg Convention in 1913 where the Ethics of the Real Estate Profession was finally created. It was just one sheet of double-sided paper that stipulated the standards to which real estate professionals began to adhere. This single document shifted the marketplace from “Let the public be damned” to “Let the public be served”. |
Founding Principles
Renamed to the Code of Ethics in 1915, this document still represents the professionalism by which the real estate industry operates today.
The Code was founded on the principles of:
- Creating a vision
- Being a realistic standard of performance
- Staying relevant throughout the years
Work in Progress
The Code of Ethics has been amended over 40 times since it was originated in its attempt to remain relevant. The first revision broke the items into three sections:
- Duties of the Broker to His Client
- Duties of the Broker to the Prospective Buyer
- Duties of the Broker to His Fellow Broker
Today these titles are slightly revised, but the concept remains the same.
Additional Revisions
A few notable revisions to the Code throughout the years:
- Added what today are known as the Articles
- Included a stipulation for arbitration
- Added suggestions to the public
- Required all local boards to join the national association and agree to follow the Code of Ethics
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Preamble The Preamble was created in 1924 which incorporated the golden rule, “Do unto others as ye would that others should do unto you”. It was modernized in 1955, but Realtors® were not happy with the wording and in 1961 it was reverted back to the original words. No further attempts were made to revise it until 1994. |
The Term Realtor®
In 1916, the term Realtor® was adopted to include a real estate professional who is a member of the National Association of Real Estate Boards as it was called at the time.
In order for a real estate professional to use the term Realtor®, they agree to abide by the Code of Ethics as a part of their personal code of honor.
The National Association of REALTORS®
The National Association of REALTORS® (as it was renamed in the 1970s) still serves as the membership organization that bands together real estate professionals in protecting their clients to the utmost standards of care.
Local real estate boards are all members of the NAR and are tasked with the duty to enforce the Code of Ethics and Standards of Practice so there is common ground by which all real estate customers can expect to be served.