Realtor organizations -- local, state, and national -- find themselves in a bit of a bind. On the one hand, they have a sincere and pressing desire to heighten the professionalism of those in their ranks. On the other hand, it is part of their mission to do what they can to decrease their members' exposure to legal liability. Consider, for example, events that took place at the January meetings, in Anaheim, of the directors of the California Association of Realtors® (CAR).

There, directors were introduced to new forms being proposed and/or planned for release later this spring. This is a common occurrence at CAR director meetings. These meetings provide the Standard Forms Committee a good opportunity to get feedback from a large cross section of California Realtors.

Not surprisingly, the reaction to new forms is sometimes negative. There is always, of course, the "oh, no, not another form" response. But critical comments are often substantive too. In the present case, a reaction to one of the forms pointed to a significant issue. The introduction of a form -- even though use of the form is not legally mandatory -- can lead to a widely accepted practice; and that practice itself can then raise the bar of legal liability.

The form at issue was a new disclosure form. It is meant to provide Realtors with a checklist, so to speak, of items they should look for and pay attention to when they are doing their inspection of a property for disclosure purposes. Both buyers' and sellers' agents are required by California law "to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to that prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal … ." (Civil Code Section 2079) But the law does not specify in any detail what an agent should look at or for, nor how he or she should conduct that investigation. The proposed form is meant to help in that regard.

But here's the rub. If a realtor association adopts such a form, and if it becomes widely employed, then, even if the form is not required by law, its use will likely be looked at by the courts as necessary to satisfy the standard of care required in performing the duty to inspect. That is, someone who doesn't use it will incur legal exposure.

The Risk Management Committee of the National Association of Realtors (NAR) recently released a letter warning state and local associations that "by adopting standards, even if identified as 'voluntary,' the standards can be claimed to represent the legal standards by which the legal liability of all brokers is measured." The context of the NAR letter had to do with standards proposed by the Real Estate Standards Institute, most of which ranged from matters of common courtesy to simple good business practices. The point, though, remains the same.

The NAR letter referred to a long history of court reliance on standards of practice established through the Realtor Code of Ethics. Now, the Code of Ethics is not law. It is voluntarily adopted by those who are members of a trade association. Nonetheless, courts have held that these standards may set the bar of liability, applying even to non-members. As an Arizona court quaintly put it in 1962, the NAR Code of Ethics "is regarded as the standard of conduct by real estate men throughout the United States and shall be regarded as such in the State of Arizona."

While newly introduced standards and practices may raise the bar of liability, that doesn't necessarily trump their adoption. Those who argue on their behalf claim that raising the standard of care doesn't have a great overall negative effect anyway. After all, it will only be a problem for those who don't conform; and what good reason could there be for nonconformance? Moreover, even if any increase in the potential for liability is considered a negative, it is far outweighed, many would assert, by the positive effects of increased professionalism and better consumer service.