Standing on Principles; a Question of Ethics: Rating the Real Estate Industry. (Feature)

Article excerpt

If you think the Enron/Arthur Andersen scandal is irrelevant to property managers ask yourself: How much unethical behavior would you tolerate from a client before you quit?

The scandal may seem distant to property managers, but some experts on business ethics agree it raises at least one important question: At what point would you sacrifice your business, your career and your livelihood to stand on principle?

Professional Integrity

Consider this hypothetical from Susan B. Glenn, CPM[R], one of the first instructors of IREM[R]'s ethics course and President of the Chicago-based Gilbert Realty Co. Suppose, just after your owner has spent thousands of dollars to bring his smoke alarms up to code, the city made the standards even more stringent and costly. The owner refuses to comply, yet, it's the law. What do you do?

Glenn said, "You can be penny-wise or pound-foolish. If you don't [meet the new standards], and there's a fire, you'll get sued by the residents and the family. The city will come down on you. But, if push comes to shove, and the owner continues to refuse to make the upgrades, I would probably quit. We make our livelihoods based on our reputations. People hire me because I do a good job. People don't hire me because I throw a dart."

Her sentiments were echoed by Perry N. Ives, CPM, vice president and regional manager for SunTrust Bank in Washington, DC, and Walter J. Edwards, CPM, owner of Sacramento-based GET Development Corp. "If we even sense an ethical problem, there should never be any hesitation [to fire a client]," said Edwards, a member of IREM's Executive Committee and former chair of the Ethics Hearing Board. Ives, a 10-year member of the Ethics and Discipline Committee, said IREM's Code of Ethics speaks of the "highest moral and ethical standards." Whether it is complying with fair housing laws or following underground storage tank regulations, "You need to be protecting the owner's interests. If the owner persists [in unethical or illegal activity], you need to sever that relationship."

However, firing the owner isn't always the issue because property managers also commit ethical infractions. Most complaints filed with IREM through December 2001 involved legal violations. Other top violations to the CPM Code of Ethics include fiduciary obligations to clients, protection of funds, and accounting and reporting. "Fiduciary mismanagement seems to be fairly high on the list," said Douglas A. Palmer, CPM, vice president and director of property management for Hudson Real Estate Co. in Boulder, CO.

But if concern is rising about property management ethics, the statistics don't reflect it. The number of new cases filed with IREM's Ethics and Discipline Committee peaked in the late 1980s and early 1990s with about 20 cases filed annually. More recently, it is about half that number. Suggested explanations range from better education and code enforcement to declining IREM membership.

A Strong Commitment

When ethical complaints are made, they aren't taken lightly. Of the 306 cases filed from 1978 to 2001, 25 percent resulted in termination. While nearly 50 percent were dismissed, more than 7 percent ended in suspensions and almost 10 percent resulted in a letter of censure. No discipline was taken in the remaining cases.

Compared with most professions, the ethical review process in property management can be considered quite stringent. Like lawyer and physicians, real estate professionals must answer to the government through state licensing procedures. Complaints to IREM's Ethics and Discipline Committee work their way through three panels: the Board of Ethical Inquiry, the Ethics Hearing and Discipline Board and the Ethics Appeals Board.

Here's an example: A tenant filed a complaint about lack of heat, ant and rat infestation and other problems in a property managed by an AMO[R] firm. While the firm responded in writing it had won in court, the hearing board found the court did not address the case's serious substantive issues and the firm failed to show it had alerted the owner of the problems in writing. …