Bottom Calling to Solicit Clients: Is it Ethical?

A question was asked by seattlerenter in this post at SeattleBubble about an advertising letter mailed out by a real estate agent. See comment 19:

Dear Renter,

Youve been patient. Youve waited for the perfect time to buy a home. Well this is it. Home prices have bottomed out. Many experts see prices rebounding from current lows. The $8000 Federal Tax Credit is available for a limited time. The….. Buyers Rebate is yours when you use me as your Buyers Agent. And now Mortgages are at their lowest since 1971…Your patience has paid off!”

Seattlerenter asks if this is legal and ethical, specifically, using the phrase “home prices have bottomed out.” Since I do not practice law, I cannot answer the legal side. In this blog post, I will analyze the ethical question.

First we need to differentiate between real estate agents and Realtors. Everyone is an agent but only some are members of the National Assoc of Realtors.  In order to solve any ethical dilemma, it’s important to first consult the minimum moral standard; the law.  First we would consult the state agency law. Next we would look to other state laws that may answer the question such as consumer protection laws. After that, there may be a federal law that addresses the question. If we still have no answer, we would consult MLS rules. After that, we would check with our own company for policies and procedures and company ethical codes that address honesty and advertising. Perhaps we belong to a professional association. Then we would consult the ethics code of that association for guidance.

Real estate agents who belong to the Realtor association consult their Code. Here is the link to the NAR Code of Ethics.

As we see in Article 1, a duty of honesty is paramount when working with a client. But at this point, we are soliciting to obtain a client. We don’t have a client yet.  Standard of Practice 1-3 says, “REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.”  In order for the marketing piece to be deceptive, the real estate agent must have known about the falling market in advance and intentionally choose to mislead potential home buyers and sellers. Since we can’t know the future, this article may not fit our situation.  Article 2 says “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property.”  If Realtors have facts that lead them to believe that now is NOT the bottom, then they might be in trouble here. For home sellers, that’s not going to be a problem (since selling NOW in a down market is better than waiting.) This would only be problematic for a buyer who was lead to believe through exaggeration, that we are at the bottom.
Here is what I’ve been waiting for. Article 12:

“REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”

How would a Realtor put up a defense against an Article 12 ethics violation for sending out the above letter?  Well, I suppose what he/she might do is to provide some sort of analytical proof with numbers, statistics, and graphs as to how he/she arrived at an affirmative realization that “now” is the bottom of the market. This Realtor may be able to defend against an ethics complaint by saying that he/she WAS being honest, based on the facts known at the time, and based on his/her analysis.

This leaves homebuyers to make their own decision as to if this particular Realtor’s personal opnion and analysis of the market can be verified by other third parties.

A prudent decision for a Realtor (who is going to embark on a bottom calling ad campaign) to do is to take his/her personal bottom calling statistics and analysis and have it reviewed by a neutral third party for accuracy. Similar to how we had our thesis papers reviewed by professors and then winced when they tore up our paper with obvious errors and made us do more research. We were better students because of those professors, even though we didn’t like doing the extra work, but I digress. Without neutral third party review, a bottom-call is just one person’s opinion.

If ever hauled in for a professional standards committee hearing, there would be ample documentation from a wide variety of local, state, regional, national, and international economists , Nobel Prize Winners, and other real estate industry experts who could provide solid opinions based on known facts as to if we were at the bottom on the day that marketing piece was mailed.

The third to the last step in any professional ethical dilemma is to consult one’s own set of values. What kind of a real estate agent/Realtor do I want to be? What behavior do I value in this world? For example, if I value honesty then I need to also be honest with other people, too.  Careful reflection is important when considering all the possible consequences.  Realtors value honesty, justice, beneficence and non-maleficence, responsibility, respect for persons, loyalty, and compassion.  These values are hidden all throughout the Realtor Code.  How does our marketing campaign support the values that we believe in?

The second to the last step is to make the decision.

The last step is to look back and reflect on what we did, how it turned out, and if we’d do anything different next time.

The person making the “bottom call” in the letter claims to have experts who agree with him/her. Who are these experts and where can the letter reader go to get more information? Perhaps the real estate agent who wrote the letter could provide that information in the letter.

At best, the letter brings to mind the viagra, porn, and loan mod spam in my spam bin, and I haven’t even touched the typos and the deception regarding the $8,000 tax credit. 

If Realtors care about their ethics as much as they claim to, then Realtors should talk with each other about the possible consequences of calling bottom in marketing material and provide guidelines as to what research to use.  It goes without saying that we would have benefitted from guidelines like this when we rode the real estate bubble on the way up. 

Using the NAR’s economist as the only source  would be a very, very bad decision.