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Opinion: The real truth about ethics in real estate

I recently read a great article about why real estate agents breach their code of ethics. It appears in an American publication but is directly relevant to us in Canada.

So, why would a realtor breach their code of ethics? The author speculated about the causes and broke them down into two possibilities: ignorance of our code of ethics and insufficient enforcement. 

I was largely in agreement with his views on these possible causes, but before I address them, I want to disagree with the major premise.


Ethical standards


The main premise was that, despite our codes of ethics, the public perception is there that we are not to be trusted and that even within our ranks, complaints about the lack of adherence to ethical standards are common. 

The author did not state it directly but very directly implied there is a problem. I disagree with this premise, as perception is not always reality.

Thank you to the Real Estate Council of Alberta for providing me with the last year’s sanction statistics. A few cases remain open, but in all likelihood, the number of hearing outcomes totalled nine individuals between Oct. 1, 2021, and Sept. 30, 2022 (there were 33 administrative penalties and 43 letters of reprimand). 

In 2022, the Realtors Association of Edmonton recorded some 24,000 transactions, while nearly 30,000 transactions were recorded in Calgary

I contend that, by and large, realtors are highly ethical professionals and that our codes of ethics do make a difference. For the few bad apples that make their way in, we all have a duty to report them and to let our regulatory system weed the garden.


Enforcement and punishment 


Okay, so back to the arguments about why real estate agents breach their code of ethics. The author dismissed the ignorance argument for most cases, and I agree with him. 

But then he also dismissed the enforcement argument because enforcement is too cumbersome for the plaintiff and is not intended to punish. Rather, enforcement is to demonstrate that ethics are to be taken seriously and internalized, a sort of positive reinforcement.

I disagree with the first point and agree with the second.

I disagree that enforcement is not to punish, and I believe punishment needs to be one aspect of the consequences for an ethics breach. I researched deterrence with respect to crime, though it should apply directly to ethics violations as both involve breaking the rules and subsequent consequences.


The Economic Theory of Crime


Some researchers argue that punishment does not deter crime, but many argue it does, with the Economic Theory of Crime being a major theory.

The Economic Theory of Crime is basically an application of the theory of demand. In 1968, Nobel Laureate Gary Becker formalized the theory, which states that potential criminals are economically rational and respond significantly to the deterring incentives of the criminal justice system. 

In a nutshell, in choosing to commit a crime, they weigh the costs and benefits. The probability and severity of punishment negatively affect crime rates, therefore reducing them. 

For all but the irrational criminals, this makes complete sense to me, and some of the studies I found claimed that there is substantial empirical evidence to support this.


Internalize good ethics


My experience as an instructor for an industry ethics course bears this out. Reassuringly, most attendees in the course who are there because they have to be and not because they want to be, seem to understand they broke the rules and accept their consequences in a rather cheerful manner.

Still, there are always some who clearly demonstrate their discomfort with this part of their sanctions. This tells me deterrence has an effect. 

But I agree that punishment should also have a positive component aimed at getting attendees to internalize good ethics. I try my best when instructing ethics to treat all attendees with respect and to demonstrate the joys of internalizing and exemplifying good ethics in our careers. 

At the end of most classes, one or two attendees will pay me the greatest compliment, expressing their new outlook and newfound joy in internalizing good ethics in their practices. 

This makes it all worthwhile.

I have met many great realtors in my years both as a realtor and as an instructor, and I contend the public is in good hands.


The article referenced in Gerald’s writing originally appeared in Realty Times on Jan. 15, 2023.