This article is Part One of a series arguing for the reinstatement of the Department of Real Estate (DRE)’s code of ethics. Check out Part Two, where we take a closer look at what’s in these codes — and what should be.
CAR vs. the DRE — untangling the knot
For too many California licensees (and too many members of the buying and selling public) the Department of Real Estate (DRE) and the California Association of Realtors® (CAR) are one and the same — an overarching government body with regulatory authority over licensees. But this couldn’t be further from the truth. While both entities are broadly involved in California real estate practices, they fulfill very different purposes — and have vastly different kinds of authority.
The DRE is, in fact, a government agency, replete with disciplinary and regulatory power; CAR is not. CAR is a trade union — a private, non-profit corporation in which membership is entirely noncompulsory (as we’ve discussed before). It has disciplinary leverage only over its own members for its own purposes.
Put simply: the DRE is the guardian of the members of the public who deal with DRE licensees; CAR was created to serve and carry out what the association perceives to be in the best interest of its members. The former puts the public first, the latter its members (if not CAR itself).
Of course, only one of them currently has a professional code of ethics — rather, only one of them claims to have a code of ethics — and it’s CAR.
If that seems counterintuitive, or even downright wrong, you’re not alone. The DRE did once have its own code of ethics, but it was short-lived, lasting only from 1979 to 1996. And the code of ethics CAR purports to impose on its members is actually that of its national wing, the National Association of Realtors® (NAR) — and thus is not specific to California real estate agents at all.
There are two obvious questions. First, how does the California government body dedicated to the oversight of real estate licensees not currently have a dedicated code of ethical conduct for those licensees? And second, how did California real estate agents end up without any state-specific code of ethics at all?
To answer these questions — and to understand why having a code of ethics at all is important — we first need to hop back in time and get some context.
A brief history of CAR and the DRE
In May 1905, the California State Realty Federation (CSRF), the organization that would become CAR, was born in Los Angeles as a conglomeration of nine local real estate boards. Three years later, in Chicago, came the National Association of Real Estate Exchanges (NAREE) — a precursor to NAR — which adopted a code of ethics in 1913. CSRF felt no need to follow suit and construct a code of ethics of its own, laying the groundwork for CAR’s current misguided reliance on a non-California-specific code that is applicable to union members in all states.
The DRE itself (then known as the Commission on Real Estate) was founded in 1917 — along with CSRF’s first pass at a Real Estate License Law, establishing the first real estate license in California.
The 1917 law was ultimately declared unconstitutional, but CSRF successfully sponsored a revised version in 1919. It was the first such license law in the United States and became the model for laws adopted in other states.
Then, in 1923, the organization scored another first — a law requiring licensees to pass a written state examination to prove their competence before representing others in California real estate transactions.
The following years also saw the DRE grow in size and power. The Commissioner gained the authority to suspend or revoke a license in 1945; five years later, the department began publishing the names and addresses of licensees on the receiving end of disciplinary action.
All this is to say that CAR and the DRE are inextricably linked, down to the roots of each organization — which may explain the perpetual confusion between the two. And given the ethical vacuum left by CSRF, the implementation of a DRE code of ethics seems as though it should have been a no-brainer.
But it wasn’t until 1979, under Real Estate Commissioner David Fox, that the DRE finally followed in NAREE’s footsteps and adopted Regulation 2785, the Ethics and Professional Conduct Code.
“The most serious problem facing [real estate agents] today is that the public holds real estate agents in low regard,” wrote Fox at the time. “This poor public perception is unwarranted and unjustified. Our challenge is to help consumers better understand and appreciate what a good and professional job we are doing.”
The code was updated slightly in 1983, and more substantially in 1990, but even with its original code the DRE had nominally filled that vacuum, providing a set of California-specific ethical guidelines it could enforce among its licensees.
Unfortunately, Governor Pete Wilson’s 1996 Regulatory Reform Project sounded the death knell for the DRE’s code of ethics.
A state without a code
The rationale used to repeal the code is the same rationale currently at work opposing its restoration. Critics argue the DRE’s code of ethics was redundant on multiple levels — everything it contained is covered by California Business and Professions Code and the DRE’s mandatory ethics courses. Further, NAR (and by extension, CAR) already has a more extensive code of ethics than anything the DRE ever implemented.
The DRE’s code was by no means perfect, but how many licensees, buyers or sellers research, analyze and seek guidance from real estate statutes and regulations for agent conduct prior to signing a listing agreement? Virtually none. Besides, most formal real estate qualification and renewal education (which the DRE does not write) is so non-specific in application as to be acceptable in any state in the nation. An updated code of ethics published by the DRE would provide a uniform baseline for providers of continuing education when writing their ethics course content.
Editor’s note — A California-specific three-hour Ethics course is automatically included in all 45-hour renewal packages provided by first tuesday.
As for the unions? CAR claims 190,000 members, just over 60% of the nearly 300,000 currently active brokers and agents licensed by the DRE. That may sound like enough, but it leaves 40% of all California real estate licensees unbeholden to a formal code of ethics — and 100% of California licensees unbeholden to a code of ethics rooted in state law.
The NAR code of ethics isn’t generic, necessarily — it’s just specific enough to be able to apply in any state (say, Texas), waving aside the nuances of each state’s rules by explicitly stating that licensees should refer to the laws and regulations of their own states. This is not only unproductive, it renders parts of the code practically meaningless.
The problem is that all real estate is local and thus by definition entrenched in state law — every state has its own rules regarding topics like fair housing and agency, and no nationwide code is able to encompass all of them.
If it’s legal, is it ethical?
But even if CAR had a real code of ethics, the situation would be problematic for a few reasons.
First of all, how does a state agency like the DRE enforce ethical behavior among the people it regulates without a written code of ethics? And how can the public gain insight into the industry and learn what to expect from their agents and brokers without a singular and self-contained code of ethics they can consult for everyday practice?
According to current Real Estate Commissioner Wayne Bell, the agency’s position boils down to whether potentially questionable behavior is legal. What the DRE really cares about, claims Bell, is “professional responsibility.”
“While a violation of a rule of ethics may be appalling and inexcusable, and wholly unacceptable business conduct,” writes Bell, “the Bureau can only take disciplinary action and impose penalties against licensees based on violations of the California Real Estate Law, including the Regulations of the Real Estate Commissioner… Ethics rules are not grounds for administrative discipline by CalBRE. Only ‘unlawful’ acts form the basis for such discipline, and an unethical act is not necessarily unlawful.”
In other words, as far as the DRE is concerned, if it’s legal, it’s ethical.
CAR, on the other hand, has the power to discipline its members and impose sanctions for unethical conduct — usually in the form of a fine, letter of reprimand or the imposition of mandatory education. But this power does not extend to the revocation of a license. And CAR does not often expel members from the union, which would require CAR to carry on without that member’s dues.
Operating at a higher level
Tacitly, Commissioner Bell acknowledges the agency he heads relies on the trade union to elevate the standards expected of licensees.
“In the realm of real estate licensure,” he writes, “those real estate practitioners who are also Realtors® are committed and agree to comply with a well-developed ‘Code of Ethics and Standards of Practice’ (‘Ethics Code’). The Ethics Code was created to help govern the behavior of Realtor® members and to increase the level of competence and standards of practice among Realtors®.”
This may rightfully raise the skeptical eyebrows of California’s many non-union members. Are they more likely to be treated as acting outside of the law since they are not beholden to NAR’s code of ethics?
By mandating ethics education for all California licensees, as well as emphasizing “professional responsibility,” the DRE acknowledges that a code of acceptable behavior and practices is essential to the profession it regulates. Yet the DRE — and by extension, the California real estate industry — has functioned without its own code of ethics for more than two decades.
In fact, the Commissioner seems to be relinquishing the DRE’s responsibility as the highest authority in California real estate practice, passing the baton to a private, national trade union. This is fundamentally improper on multiple levels — especially considering the 40% of licensees who are not CAR members, as well as the legion of principals they represent every day.
Today’s licensees need public guidance from an authority to which they have to answer, in the form of a concise, accessible code of ethics all people can see, understand and put into practice. This needs to come from the DRE, not CAR — and especially not NAR, whose code, again, has no descriptive basis in California law. Further, California licensees overwhelmingly support the reinstatement of the DRE’s code.
When agents are held to the highest standards under threat of loss of license for unethical behavior, then they, their clients and fellow licensees need to know what those standards are.
David Fox put it best: “The cornerstone of any well-respected profession is a code of ethics for all its members. None has existed for California real estate licensees. Although the California Association of Realtors® has a fine code, it only applies to a minority…of brokers and salespersons. It is time for us to fill this void.”
Although CAR now has a hold over more licensees than it did when the DRE’s code of ethics was first implemented — and his reference to CAR’s code is misleading as best — Fox’s logic is no less persuasive now than it was in 1979.
“Nothing,” he wrote, “is more important to the advancement of the real estate profession.”
Check out Part Two of this series, where we take a closer look at what’s in these codes — and what should be.