Illusion No. 17: Real estate agents have no professional ethics!

Unfortunately, simple traders or self-proclaimed agents are often to be found in the Real Estate industry and confirm the prejudices that sometimes exist about this sector. However, professional estate agents adhere to strict ethical principles and consistently adhere to legal and professional guidelines. The following is an overview of the legal framework and ethical rules laid down by professional associations and their organizations.

Compliance with the Code of Conduct by the broker.
The Code of Conduct*, which has been in force since 2007, was drawn up in line with international practice. These include the following points:

1. General provisions with principles on professional practice, diligence and responsibility, service quality, independence, professional secrecy, accountability, client assets, avoidance of conflicts of interest, duties of the financial intermediary, consideration of special laws, duties to provide information to SVIT Switzerland.
2. Principles of business activity, especially with regard to fees, logo and advertising.
3. Conduct towards members with the topics of fairness and collegiality, sanctions, procedures and final provisions.

A broker who is subject to the professional association must always adhere to these rules of conduct when carrying out his activities. In addition to issuing a code of conduct for the whole of Switzerland, the professional association has taken all precautions to professionalize and expand the training of brokers so that professional ethics and integrity will play a major and decisive role for brokers. Serious brokers want to differentiate themselves from “simple brokers”.

To ensure compliance with the code of conduct, there is also a professional tribunal, which can be called upon by both clients and brokers of the association and deals with gross violations of the code of conduct.

Legal guidelines
The law, in particular OR 413ff and case law, also regulate the following further important points in brokerage law:

Distinction from double-dealing
The question of whether brokers are allowed to receive fees from buyers and sellers without the knowledge of their clients is repeatedly raised. This procedure would damage the image of estate agents and is illegal in certain cases.

A reputable estate agent clearly distances himself from double-dealing. Depending on the type of contract, current case law does not allow them to work for both parties to the contract. He will even give the client a contractual guarantee that he will not engage in covert double-dealing. If the broker nevertheless wishes to receive fees from the other party, he must notify his client immediately.

Acceptance of client funds
In principle, real estate agents are not subject to the Anti-Money Laundering Act, as they only act as intermediaries between buyers and sellers, but not as financial intermediaries. According to the code of conduct, estate agents are obliged to always keep client funds separate from their own assets and in separate bank and postal accounts in the name of the
client. Client assets held separately must be invested in such a way that they can be reclaimed by the client at any time.

Refund of Reservation Deposits
In the context of Sales, reservation payments may be made by the buyer to the seller prior to the notarization of the deed. Particularly in new construction projects involving condominium units, lenders—depending on the developer’s creditworthiness—require a certain number of purchase commitments before granting a construction loan. Reservation agreements are also increasingly being entered into during the sales process for existing properties.

Although these private-law contracts (without public notarization) have no public-law character, reservation contracts are widespread in the real estate sector and bind the buyer at least morally. According to a very old ruling by the Federal Supreme Court, it must still be assumed today that a contractually agreed reservation fee is not enforceable in every case and that the seller can only charge the prospective buyer for his verifiable costs if the buyer withdraws. In principle, the seller can also withdraw from a reservation contract and sell the property to another interested party.

Opinions differ in the real estate industry regarding the acceptance of reservation payments. If the estate agent accepts the money, the question arises as to whether he passes it on to the seller or withholds it to cover his fee claims. Legally, the entitlement to a success fee would usually only come into effect when the purchase contract is notarized. Depending on the situation, however, buyers may prefer to pay the reservation payment to a reputable estate agent acting in a fiduciary capacity. It may be difficult to get the reservation money back from the private seller immediately. Other buyers prefer to pay the money directly to the owner because they are not sure if the funds will be held in trust by the real estate agent.

Termination of brokerage contracts
Brokerage contracts are legally simple contracts and can be terminated at any time, except at an inopportune moment. The right of termination is mandatory and cannot be excluded or limited by contract. Brokerage contracts concluded for a fixed term can also be terminated at any time. The right of termination can be exercised by any contracting party, including the broker. It should be noted that termination at an inopportune time may result in claims for damages. Two points in time are to be particularly noted as untimely termination:

1. Termination during an agent’s preparatory phase—that is, when the agent has invested time and/or money in preparing for a Sales listing and, due to the (premature) termination, did not have the opportunity to complete the sale. In such cases, the agent may bill for his or her expenses.
2. Termination if a buyer is found, i.e., if the real estate agent has found a prospective buyer willing to purchase on the terms agreed upon with the client. In this case, the agent’s right to a commission remains in effect, even if the Sales did not take place until after the termination of the brokerage agreement.

Arbitration by the professional association.
The SVIT has issued arbitration rules that each member can agree in the contract with its clients. This means that disputes are settled quickly and at little cost by a court of arbitration.

Tip: Check your broker for professional competence!

There are many real estate professionals who offer to sell properties. However, as in other sectors, not all self-proclaimed experts are actually able to offer professional support. The estate agent can only present himself to the client in a professional light through training, experience and serious business conduct. A qualitative differentiation can be made between the various market participants. The following criteria and questions can help a client to check the broker’s qualities and professional business conduct:

M A K L E R – C H E C K L I S T S

• When handling a sales listing, is the real estate agent able to provide a brief assessment of the property’s value and justify the potential selling price?
• Does he handle other listings in the market area that could create synergies for the property being sold or leased through Sales?
• From the perspective of a potential buyer or renter, can he explain both the advantages and disadvantages of a property and point out potential difficulties in the Sales or Rental process?
• Do they have local market knowledge? It is essential that the experts have not only made a name for themselves with valuations, but also with successful sales and lettings.
• Has he mastered real estate marketing? Does he know how to work a defined market with suitable marketing measures in order to reach potential buyers or tenants for the property?
• Is he recognized as an expert in the relevant region? What do other market participants such as banks, notaries or lawyers say about him?
• Does the specialist have a basic commercial education, a professional diploma, e.g. the Federal Real Estate Trustee, Real Estate Broker or Real Estate Appraiser with Federal Certificate and many years of successful professional experience in the real estate sector?
• Is he affiliated to a professional association, such as the SVIT or USPI in French-speaking Switzerland? As a broker, he should be a member of the SMK, the Swiss Chamber of Real Estate Agents, if possible.

PDF Illusion No. 17

Author: Claude Ginesta

Claude A. Ginesta is a Swiss-certified real estate trustee and CEO/owner of Ginesta Immobilien AG.
The company was founded in 1944 and specializes in real estate sales in the Zurich and Graubünden regions. For properties of supraregional significance, the company operates as a real estate broker throughout Switzerland via its branches in Küsnacht, Horgen, and Chur.

Publisher of the Illusions series Ginesta Immobilien AG, www.ginesta.ch