Broker Code of Ethics

John Ezell wrote a blog last week on the unfortunate truth that sometimes brokers lie to get listings.  This blog has generated quite a bit of discussion and email with one of the most common questions being, “what are the ethical guidelines for business brokers?”

Before we address the ethical guidelines, let’s define what we are talking about.  We need to understand that in selling a practice (a listing) a broker is establishing an agency relationship based on a contract. This is a relationship that involves one party (the broker) acting for the benefit of another (the seller).  For this reason, when entering into a contract it is important for an agent, in this case the broker, to disclose all facts which could be considered material even if not expressly asked about.

A false statement of fact made by one party to another party, which has the effect of inducing that party into a contract, is known as a misrepresentation.  There are several bodies that have statutes, canons or codes of ethics that address misrepresentations:

• First, there is the Uniform Deceptive Trade Practices Act.  This is federal legislation and addressed in statutes in every state in the nation.  Direct reference in this Act is given to “Using deceptive representations in connection with goods and services” as constituting a deceptive trade practice.  The FTC and many states also prohibit unfair practices that include taking advantage of bargaining power of vulnerable groups.
• A handful of states regulate business brokerage through their Department of Real Estate. Most enforce the National Association of Realtors code of ethics.  Article 12 states, “Realtors shall be careful at all times to present a true picture in their advertising and representations to the public.”
• In addition, there are many state and national associations for business brokers. The International Business Brokers Association has a code of ethics and business broker standards for its members. Article 1 of their code of ethics states, “Business Brokers should avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to properties and business transactions.”

So the ethical guidelines for business brokers are out there, published and readily available for all brokers to follow.  Be aware of the tricks and deceptions some use and avoid being induced into an agency relationship based on a misrepresentation.