Friday
December 19, 2014

The Code Hits 100

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The Code Hits 100

For a century, the National Association of REALTORS®' Code of Ethics has served as a vital benchmark for conducting business the right way.

The year 2013 marks the centennial of the Code of Ethics and Standards of Practice of the National Association of REALTORS®. The first Code was written before license laws and most other regulations governing real estate existed and was seen as a declaration of the industry’s principles and beliefs. The Code, a living document that today undergoes annual review and revision, has been called a “golden thread,” uniting those devoted to raising the standards of professionalism and service in real estate. Here’s a look back at a few defining moments in the life of one of the industry’s most important documents.

Strong Underpinnings

When NAR was founded in 1908 as the National Association of Real Estate Exchanges, the organization’s bylaws included provisions for seven key committees, one of which was a committee on the Code of Ethics. So why did it take nearly five years for members of the committee to put pen to paper and write the first Code? During the intervening years, members spent much time—at local board meetings, at annual conventions, and in articles—exploring how the concept of ethics might apply to real estate in a meaningful way. Through this process, two of the Code’s most vital and enduring concepts were developed. In 1910, C. F. Harrison of Omaha, Neb., pointed out that a code of ethics “naturally divides itself into two parts, the broker’s duty to his clients and the broker’s duty to his fellow brokers.” Today, the code has a third section: duties to the public. In June 1912, Frank Craven of Philadelphia, Pa., suggested the Golden Rule as the ideal starting point. It’s now part of the Code’s preamble in language that remains endearingly frozen in time: “Whatsoever ye would that others should do to you, do ye even so to them.”

Check out our slideshow on the Code of Ethics centennial.

Baltimore came first

Although NAR’s Code was the first to be applied to real estate professionals nationally, it was not the first code of ethics for real estate. The Greater Baltimore Board of REALTORS®, when it was founded in 1858, incorporated rules of conduct into its bylaws that discouraged members from stealing one another’s listings. Those rules are considered to be the industry’s first formal ethics rules. By 1913, many local associations had ethics codes. In fact, the 1913 Code was modeled after rules developed by the Kansas City association. Since adoption of the Code was voluntary, some boards created their own versions even after 1913. The national association amended its bylaws in 1923, requiring all local associations to adopt the Code.

Yep, the Rules Apply to You

At first, it was assumed that real estate brokers, once made aware of the rules, would simply abide by them. At least in some instances, that proved to be more hope than reality. So by 1915, the national association was encouraging local boards to set up enforcement procedures. NAR’s first ethics enforcement guidelines were issued in 1925. Still, seven decades later, enforcement was apparently still an issue, because in 1998, NAR President R. Layne Morrill appointed a presidential advisory group to address the problem. The group recommended several steps to enhance enforcement, one of which was for all REALTORS® to successfully complete Code of Ethics training on a periodic basis. A four-year cycle of ethics training was instituted the next year, with the first cycle running from 2000 to 2004. The current training cycle ends on Dec. 31, 2012.

27-Year freeze

The Code was meant to evolve; it was thoroughly revised in 1914, 1915, and 1924, and an amendment prohibiting “horseback appraisals”—what we would now call drive-by appraisals—was added in 1928. After 1928, however, the Code was declared “complete” and not touched again for more than 20 years. A 1948 member survey found the Code was outdated and no longer the source of pride, so the newly formed Professional Standards Committee set about bringing it up to date. But efforts to enact the proposed revisions were put on hold when the federal government brought an antitrust action against NAR. At issue was Article 9, which required REALTORS® to follow their board’s published commissions and fees. NAR said the provision protected consumers from paying unfair and arbitrary rates, but the Justice Department called the rate setting anticompetitive. The case reached the U.S. Supreme Court, which, in 1950, declared that Article 9 was illegal. It was removed from the Code, but attempts to bring the remaining articles up-to-date were rejected. In 1955, the Professional Standards Committee tried again. This time the revisions passed.

Inspirational and Aspirational

“Under all is the land” is a familiar phrase. It’s the opening of the Code’s preamble, which sets forth the social responsibilities of the association and its members. The famous introduction, written by A. H. Barnhisel of Tacoma, Wash., was added in 1924. In 1955, the language was modernized, but REALTORS® were unhappy with the changes, and in 1961 members reverted to the earlier language “because of its superior phrasing.” No further attempts were made to alter the preamble until 1994.

Winding Path to Equal Opportunity

Today, the Code is renowned for its progressive attitude toward equal opportunity and fair housing, surpassing the federal government’s own laws prohibiting discrimination against various protected classes. But it took many years for the Code to reach its current level of openness, and for several decades it was widely criticized for being discriminatory. The original Code didn’t address topics of nationality or skin color, but a 1924 addition—the infamous Article 34—stated that members “should never be instrumental in introducing into a neighborhood a character of property or occupancy, members of any race or nationality, or any individuals whose presence will clearly be detrimental to property values in that neighborhood.” As explained in 1965 by Eugene Conser, NAR’s executive vice president from 1955 to 1970, this provision “reflected the then widely accepted policy of ‘separate but equal,’ ” established under the Supreme Court’s Plessy v. Ferguson decision of 1896. Conser cited another Supreme Court ruling, 1947’s landmark Shelley v. Kraemer, as the beginning of the end of Article 34. That decision struck down states’ rights to enforce restrictive covenants—in this case, an agreement among neighbors to bar real estate sales to African Americans and Asians. It led the association in 1950 to remove all references to “race or nationality,” but the full article wasn’t removed until later. The Code underwent a complete revision in 1974, when a new provision—Article 10— brought it in line with federal fair housing and employment law; a 1989 revision factored in 1988 amendments to the federal Fair Housing Act; and in 2010, REALTORS® moved beyond federal rules, adding a requirement for equal service and employment opportunity regardless of sexual orientation.

Hear Them Roar

The 1913 Code followed the convention of  using male pronouns and other gender-specific language. For example, the first rule under “Duties to Fellow Brokers” read: “An agent should respect the listings of his brother agent, and cooperate with him to sell.” At the time, women comprised only a tiny fraction of REALTORS®. It wasn’t until 1989—when 52 percent of members were women—that gender-neutral phrasing was introduced.

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