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Menzel v. Morse -- Code of Ethics: Iowa Supreme Court Reviews NAR® Code of Ethics

Article 11 (excerpt): REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.

Buyers purchased new construction with extensive defects, based on various representations and assurances of the listing broker, whom buyers believed was representing them. Buyers subsequently sued broker for breaching his fiduciary and contractual duties and for negligence. At trial, broker admitted that NAR’s Code of Ethics was “widely recognized and uniformly accepted by real estate salespersons.” The court noted that even though the record did not indicate whether broker was a REALTOR® member, broker accepted the Code of Ethics as the applicable standard of conduct for real estate professionals and was aware of the following provisions:

Article 9 (Rev. Article 2) - REALTORS® have an affirmative obligation to discover adverse factors that a reasonably competent and diligent investigation would disclose.

Article 11 (Rev. Article 11) - REALTORS® cannot undertake to provide specialized services outside their field of competence.

Article 2 ( Rev. Preamble) - REALTORS® must always endeavor to be informed of relevant laws, legislation and regulations.

Article 17 (Rev. Article 13) - REALTORS® must not engage in the unauthorized practice of law and must recommend legal counsel be obtained when the interest of any party so requires.

The trial court dismissed buyers’ claims, asserting that broker had not breached his duty to buyers. On appeal, the Iowa Supreme Court first took note of numerous cases that had established that NAR’s Code of Ethics constitutes the established standards of conduct in the industry and indicated that broker in this case had admitted this at trial. The court then reversed the trial court’s decision and remanded the case because the trial court had erred in not recognizing these standards.

Menzel v. Morse, 362 N.W.2d 465 (Iowa 1985).