Should Agents Disclose That They’re Related to a Client?
Let’s say you’ve just decided to sell your home and your favorite sister-in-law is a real estate professional. It follows that you may go to her for advice, and maybe even ask her to be your seller’s agent. (Ditto if you’re looking to buy in the area where she works.)
Are you working with a real estate professional—who also happens to be a close family member—to sell or buy a home? Then you may be wondering whether or not you’re legally required to disclose the nature of your relationship with an agent to everyone involved to ensure an arm’s length transaction.
Keep reading to learn more about when disclosure is necessary. And how you and your agent can go about delivering the information in the right way.
Real estate agents are generally encouraged to disclose whether or not they have a personal relationship with a client. But they’re obligated to do so only if they are a Realtor®. The National Association of Realtors® explicitly states that its members must make this disclosure in its code of ethics.
Article 4 of the NAR Code of Ethics states the following: “REALTORS® shall not acquire an interest in or buy or present offers from themselves, any member of their immediate families, their firms or any member thereof, or any entities in which they have any ownership interest, any real property without making their true position known to the owner or the owner’s agent or broker. In selling property they own, or in which they have any interest, REALTORS® shall reveal their ownership or interest in writing to the purchaser or the purchaser’s representative.”
The above paragraph uses a lot of industry jargon. However, it basically states when a Realtor is obligated to disclose a relationship that could be perceived as a conflict of interest to parties on either side of a transaction.
NAR’s code of ethics specifically requires Realtors to disclose relationships to immediate family members they are representing in a transaction. Often, for agents and their clients, this brings up the question of who, exactly, counts as an immediate family member?
Unfortunately, there is no one-size-fits-all definition. Many states use varying definitions in their legislature. Your agent should ask his or her broker or check out your state’s legal code about whether or not disclosure of the relationship is required.
That said, the definition of an immediate family member generally tends to include those who are related by blood or by marriage. Typically, they include the following individuals:
- Parents (including in-laws)
- Siblings (including those with adoptive, foster, step-, or half-relationships)
Yet, in some instances, the definition of immediate family can be expanded to the following:
- Aunts and uncles
- First cousins
Disclose your relationship early
At the very least, a personal relationship between a buyer or seller and the agent should be disclosed before an agent reviews any offers.
In fact, it’s usually a good idea to get your disclosure on the table as soon as possible.
“Come out with it right from the start,” says Nicholas B. Creel, an assistant professor of accounting and business law at Georgia College and State University in Milledgeville. “Listing agents should even consider disclosing this information upfront in the MLS.”
Put the relationship in writing
The NAR Code of Ethics states that this disclosure must be given in writing. It may be tempting for an agent representing a family member to shoot off a quick email to the other agent involved in the transaction. But it’s best for all involved to either put this information in an addendum or use a designated disclosure form.
“Many states have a written form that agents must complete disclosing the fact that they are related to their clients,” offers Link Moser, an agent with Experience Homes Group in Loudon, NH. “This form is often made available with other disclosures for listings or presented with an offer if working with a buyer.”
“Disclosure is always the best policy,” advises Brittney Dale, an associate with DH Realty Partners in San Antonio, TX. “So I make a practice of disclosing any personal interest in my transactions.”
And if an agent has a question about whether a disclosure is required?
“It’s a good idea to follow the instruction of their broker,” adds Dale.