Ethics and professional conduct. (Features).
One of the several distinctions that characterize Members of the American Institute of Real Estate Appraisers is the fact that they are pledged to abide by its rules of professional conduct. This does not assume that only MAIs are ethical and competent; for every one knows appraisers not affiliated with the Institute who bear high reputations for ability and personal integrity. It does mean, however, that each and every Member of the Institute is definitely pledged to observe and conform to the avowed deals and principles of conduct published by his profession.
One of the several distinctions that characterize Members of the American Institute of Real Estate Appraisers is the fact that they are pledged to abide by its rules of professional conduct.
This does not assume that only MAIs are ethical and competent; for every one knows appraisers not affiliated with the Institute who bear high reputations for ability and personal integrity. It does mean, however, that each and every Member of the Institute is definitely pledged to observe and conform to the avowed deals and principles of conduct published by his profession.
It is pertinent, therefore, that we study these rules in detail in order so that we may know specifically just what the Institute recognizes as being the obligations and responsibilities of its Members, to each other, to the profession, and to the public. It is equally important that we understand the fundamental concepts underlying these rules and the reasons why the Institute considers them of such vital importance.
It is significant that all professions have codes of conduct-and that many businesses have developed them, too. Even before the days of the NRA there were more than 100 such codes on record in the office of the International Rotary Club. These codes can be traced to fundamental concepts of morality as well as to sound policy in an actual business sense. They are based on a purely selfish dollar-and-cent motive as well as on the broader impulse of being fair to mankind in general. We shall not attempt to explore this particular field of abstraction at this time, but confine ourselves instead to a consideration of the important functions that these rules are intended to serve.
One of the major objectives sought by almost every group that announces a code of ethics is that of professionalizing the vocation in which its members are engaged. The motive behind this objective is to establish the vocation in the public esteem as a profession. If this is accomplished, the members of the group are automatically accorded the goodwill and the confidence of the public. Thus, it is easier to secure patronage, and "sales resistance" is not a problem.
So, unless the public already quite generally recognizes the group as constituting a profession, its activities will include efforts to bring about such recognition. This always involves (1) setting up standards for admission to membership and (2) the development of rules of professional conduct.
These rules are usually self-imposed devices for leading the individual member to conform to the ideals that the public expects him to observe. They thus safeguard the professional status of the group on the one hand, and the public confidence accorded to other members of the group on the other.
It must be clearly understood that no code of ethics is sufficient of itself to change a non-professional into a professional vocation. The ingredients that go to make up a profession must be present. 'What are these ingredients? Are they present in the profession of real estate appraising? Is real estate appraising a profession? As we consider these questions, let us note certain relationships they bear to the avowed principles of right conduct-or improper conduct-published by the American Institute of Real Estate Appraisers.
John Maurice Clark says in his book entitled Social Control of Business (1):
The professional man is an expert, selling services of guidance to persons who in the nature of the case are not experts... moreover their need is peculiarly vital to their well being.
It is obvious that this is true of a physician. He is an expert; his patient is not-and the patient's need is vital to his well being. It is true of the relationship between the lawyer and his client. It is true of the teacher and the pupil. It is quite often true also of the appraiser and the persons whose welfare is affected by his opinions of value. The buyers and sellers of fee interests and of leasehold interests in real estate are seldom competent to judge real estate values. The buyers of mortgages and bonds, likewise are not specialists in judging the actual worth of the properties securing the loans. They are dependent upon the competency and integrity of the appraiser.
The dependency of the individual served by the appraiser is recognized, either directly or indirectly, in a great many of the several rules of conduct published by the Institute. An example is Article VI, Section 1:
It is unethical for an appraiser to issue an appraisal report on a fractional part of a property unless he specifically states that the value reported is invalidated if used in making a summation appraisal of the property as a whole.
The practice to which this refers has frequently led to gross overvaluations and has occasioned severe financial losses on the part of individuals who relied on the values reported. In many cases it has jeopardized the only means of subsistence possessed by widows and orphans.
This provision is the code, therefore, is intended directly as a protection for the dependent member of the public who might be affected by the appraisal, even indirectly. It is also intended as a protection for the profession and for the individual members of which it is composed. Public esteem and confidence are the most precious assets of any profession. This provision is one of many designed to preserve that esteem and confidence.
A learned judge on the King's Bench in England, in rendering an opinion in the case of Commissioners of Inland Revenue vs. Maxse in 1919, said in part:
A profession in the present use of language involves the idea of an occupation requiring purely intellectual skill or of manual skill controlled, as in painting, sculpture, or surgery, by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale or arrangement for the production or sale of commodities.
It requires no argument or involved explanations to apply this definition to the vocation of real estate appraising. Like most, if not all, of the many definitions of the term "profession," however, this one advanced by the learned Judge does not fully cover the meaning of the term as it is commonly understood.
Let us consider the thought of another member of the King's Bench, quoted from an opinion rendered in the case of Currie vs. Inland Revenue Commissioners in 1921:
I myself am disposed to attach some importance in findings as to whether a profession is exercised or not to the fact that the particular man is a member of an organized professional body with a recognized standard of ability enforced before he can enter it and be a recognized standard of conduct enforced while he is practicing it.
Application of this principle to the American Institute or Real Estate Appraisers clearly marks it as a profession. Article II of the Institute's By-Laws prescribes the high standards for admission contemplated by the learned Judge's definition. The Institute's rules of professional conduct, as a whole, defines the standard of conduct of individuals admitted to the membership, but let us note in particular the following:
Article I, Section 1: It is unethical for an appraiser to accept an order to appraise a property if his employment or fee is contingent upon his reporting a predetermined or specified amount of value, or is otherwise contingent upon any finding to be reported.
This rule refers to what is known as an "instructed" appraisal and is not to be confused with contingent fee appraisals, covered in Section 2 or Article I. What is here defined as improper conduct is illegal and immoral as well as unethical. It involves fraud and the basest sort of dishonesty. From the point of view of ethics, it brings discredit upon the profession and indirectly affects the financial interests of other members of the profession by reason of the loss of public confidence resulting from the practice.
Section 2 of Article I provides that:
It is unethical for an appraiser retained in cases where damages result from the exercise of the right of eminent domain, or result because of fraud, misrepresentation, etc., to make his compensation contingent upon the amount of, or to fix his compensation as a percentage of, the damages which may be decreed by the court deciding the issues in the case involved.
Employment upon a contingent fee basis is not uncommon in the field of real estate appraising. Likewise, in the legal field. It is a practice that has been defended by some and condemned by others. It has been contended by some lawyers that certain worthy clients without means of paying legal costs would be denied the privilege of legal advice and the opportunity of redress for wrongs and losses suffered unless they were allowed to employ counsel on a contingent fee basis. Some have sought to apply the same reasoning in justification of the contingent fees charged by an appraiser. The analogy is not a good one, however. The lawyer does not testify; but the appraiser does testify. The appraiser, therefore, has the greater moral responsibility.
"The contingent fee," says Carl F. Taeusch, (2) "is a euphemistic term, whereby the basis of professional charges is shifted from 'fairness' to 'contractually arranged' thereby enabling the lawyer to charge more than professional decency would countenance." The same thing can fairly be said of the appraiser who follows this practice.
Charles A. Boston branded the contingent fee as "The chief wedge that has tended to break down the honorable tradition of the legal profession."
If such discreditable things can be said of contingent fees in the legal profession where it does appear that there may sometimes be a modicum of justification for the practice, how much more scathing the denunciation that should be accorded them in the profession of real estate appraising.
Of course, it must be admitted that in a given case the fee may well be a fair one-and can be in all cases, if the appraiser succeeds in disregarding his own selfish interests and really finds a value that is wholly consistent with his honest judgment as to what the property is actually worth. It is contrary to human nature, however, to expect unbiased judgments where self-interest is involved. In such cases the appraiser is always open to suspicion-and not uncommonly a just suspicion-that his interest in the fee outweighs his desire to find an honest value.
Let us not forget that the basic reason for this rule is that public suspicion attaching to an appraiser working on a contingent fee basis, however honest he may be, reflects upon the prestige of the profession and tends to vitiate public confidence in the sincerity and integrity of all appraisers. In this case, we have a practice that is not illegal, may or may not be immoral, but is always unethical.
Section 3 of Article I of the Institute's rules of professional conduct covers another type of fee:
It is unethical for an appraiser to accept an assignment to appraise a property when such assignment involves a bonus, a favor, or any special inducement other than a fair professional fee for the responsibility entailed and the work and expense involved...
The practice to which reference is made here is known by the uglier name of "bribery." Regardless of how it may be disguised, the practice is branded as improper and unethical and subject to disciplinary action.
We have been saying here that ethics lie at the very heart of professionalism. With this in mind we have been considering whether or not real estate appraising may claim to be a profession. Let us revert to this thought again and note the following from the official journal of the British society:
The suggestion is that a business man other than a professional man is one whose function it is to promise and effect a specified thing or state of affairs, while it is the function of the professional man to undertake to do and do his best. Thus the contractor who builds bridges is responsible for them answering to requirements of fitness and/or specification; the provision merchant who accepts an order for Cheddar cheese is bound to deliver Cheddar cheese, and so forth; these are business men and not professional men. But those who exercise professions are in different case. The schoolmaster makes no promise that his pupils will pass the examination for which he prepares them; the doctor who adopts the 'no cure, no pay' method of business attracts the attention of the General Medical Council; and I have little doubt that most of my readers have had experience of the client who seeks to treat the legal profession as a business in that sense. (3)
How does this fit in with your ideals of real estate appraising as a profession or as a business? If we accept this as a standard we must concede it is unprofessional for an appraiser to agree in advance as to the amount of value he will find in a given case.
The following quotations from Professional and Business Ethics by Carl B Taeusch present an excellent background for the consideration of one of the important provisions of Article XIII, Section 2 of the Institute's rules of professional conduct:
A profession consists of a limited or clearly marked group of men who are trained by education and experience to perform certain functions better than their fellow men.
In general the standards of any profession are menaced if the line of demarcation between it and other activities is not clear, or if its members may indulge in highly profitable ventures in easily accessible alternate activities.
Every man owes it to his profession to indicate clearly what his business is; otherwise he has no right to the benefits accruing to the members of that profession. On the other hand, any profession which fails to insist on the identity of its members must take the consequences. The function of its marginal and ambiguous members react unfavorably on the profession as a whole.
It is thus apparent that a prime duty of every profession is to raise its standards sufficiently to admit only the skilled and to exclude the amateur.
In the light of the above quotations consider Section 2, Article XIII of the Institute's rules of professional conduct:
Any oral or written statement by a member with references to his affiliation with the Institute that is not specific and exact shall be construed to be professional misconduct under Article VI, Section 2 of the By Laws, and subject to immediate disciplinary action.
This provision contemplates that the Institute's Limited Members and its Affiliate Members shall invariably, and under normal circumstances, designate themselves as "Limited" and as "Affiliates" in any references they make, either oral or written, to their connection with the Institute. Thus, for example, it is improper for a Limited Member or an Affiliate Member when testifying in court to make the simple answer, "Yes," to the question, "Are you a member of the American Institute of Real Estate Appraisers?"
John Maurice Clark has pointed out that the recipient of professional services is dependent upon the one who is serving him and must, therefore, rely upon the competency and the honesty of his survivor. He cannot afford to wait and learn for himself by the trial-and-error method, since the first erroneous or false opinion may lead to disastrous financial consequences. Therefore, the rule of caveat emptor does not apply in professions.
Professional services are rendered by professional men in person. As a consequence, the professional relationship is characterized by a high degree of sympathy and implicit reliance. Intimate personal service precludes mass or large-scale production and makes commercialized methods of selling odious to the public and, therefore, unprofitable, in the long run, to the servitor. This is why it is considered unethical for professional men to conduct advertising and sales campaigns.
It should now be evident that professional rules of conduct are not arbitrary regulations imposed by self-constituted rulers upon an indifferent or tolerant vocational group. They are self-imposed rules of conduct expressive of moral principles deeply embedded in the very fiber of the race. They express the ideals of the public in the group as curbs upon the uncertain impulses of the "marginal" member. They have developed in the flaming fires of controversy, in righteous indignation over inexcusable fatal errors, and as a safeguard against the disastrous consequences of improper conduct within the law.
In no code of conduct is there a single rule that did not grow out of the clash of personal greed against the welfare of the group. Each such code is the profession's public recognition of the fact that human behavior and business relationships extend through a broader and more extensive field that can be compassed by the law. Further, it is a public avowal of the profession's obligation to the public and to its own right-thinking members that it accepts the responsibility for the conduct of its individual members.
(1.) John Maurice Clark, Social control of Business, University of Chicago Press (chicago Illinois, 1926): 226.
(2.) Carl F. Taeusch, Professional and Business Ethics, Henry Halt & Company (New York, NY, 1926): 226.
(3.) Auctioners and Estate Agents Institute (8:95).
Harry Grant Atkinson served as the Director of Divisional Activities of the National Association of Real Estate Boards and as the managing editor of The journal of the American Institute of Real Estate Appraisers.
Reprinted from The Journal of the American Institute of Real Estate Appraisers of the National Association of Real Estate Boards (October 1935).