Consumers are demanding increased transparency about how their personal information is being used. Follow these best practices when handling sensitive client data.

As more aspects of a transaction head online, real estate professionals are collecting more client information digitally, from Social Security numbers to bank account information and copies of driver’s licenses. How you collect and store that information could get you into legal trouble if you’re not careful.

Enforcement of data privacy laws have ramped up nationwide as more states enact rules. It’s critical that real estate brokerages understand how this could impact their business and how to handle sensitive information they collect, says Maame Nyamekye, associate counsel at the National Association of REALTORS®, in the latest “Window to the Law” video.

While there are no federal laws regarding data privacy that apply to real estate, more states are adopting comprehensive data privacy laws to protect consumers’ personal information. Nyamakye says these laws often grant consumers several rights:

• To know what information a business collects on them.
• To ask a business to delete or correct the data.
• To know if the business is selling their information.

Almost all states have enacted rules around data breach notifications, requiring businesses to notify individuals when their personal information may have been compromised. Many states also have adopted data disposal laws that require businesses to destroy, dispose of or encrypt personal information to protect individuals’ privacy.

NAR has supported efforts to protect consumers’ sensitive personal information. The REALTOR® Code of Ethics acknowledges members’ obligation to help preserve the confidentiality of their clients’ personal information in any agency or nonagency relationship.

REALTORS® shouldn’t take their role lightly when collecting client data information, Nyamekye says. Greater enforcement increases “the likelihood that a violation of a data privacy law may be detected and pursued,” she adds. “So, to avoid harm to your business—both financially and reputationally—it is important to ensure that your business is complying with applicable state laws.” She notes that even if an agent is located in a state that does not have a comprehensive data privacy law, the agent can still be subject to another state’s law if he or she collects personal information of out-of-state clients.

In the video, Nyamekye shares some of the best practices for data privacy, including:

1. Publish and maintain a privacy policy. Explain your policy to consumers to put them at ease about how your business will manage their personal information.
2. Know the laws. Understand state laws and consumer rights regarding data security and privacy that could affect your brokerage. For example, some states have laws that require businesses to have a written information security program in place or to dispose of personal information that serves no business purpose.
3. Adopt document retention and data breach notification policies. The Federal Trade Commission shares five key principles for businesses to follow when creating a data security program: Take stock, scale down, lock it, pitch it and plan ahead.

Access NAR’s data security and privacy toolkit, which includes an example of a written data security policy, for more tips.

©National Association of REALTORS®
Reprinted with permission

Artificial intelligence is shaking up how agents and brokers do business. But there are some legal pitfalls to watch out for.

Artificial intelligence is enabling real estate professionals to streamline some of their work by generating instant responses to customers or even predicting the next client. But using the technology in your business comes with the potential for liability, warns Chloe Hecht, senior counsel for the National Association of REALTORS®.

In the latest “Window to the Law” video, Hecht details the risks for real estate pros, whether using AI for chat bots, personalized advertising or automated messaging. AI tools are being used to craft social media posts, draft property descriptions and improve lead generation, among other tasks. The public awareness of AI technology has increased due to the recent launch of platforms like ChatGPT and Stable Diffusion.

Hecht offers these tips when using AI tools in your business:

1. Watch for accuracy. “AI platforms are not 100% accurate, which makes your oversight critical,” warns Hecht. When using AI, especially to write listing content like property descriptions, you must ensure the information is correct. Hecht reminds NAR members that they are bound to the REALTOR® Code of Ethics, which prohibits exaggeration, concealing pertinent facts and misrepresentation in communication and representations to clients.
2. Watch for copyright laws. “Under U.S. copyright law, a work must be authored by a human to qualify for protection, meaning AI-generated works are not protectable,” Hecht says. However, laws governing AI are likely to evolve over time.
3. Watch how you use it. Avoid using AI to draft contracts, modify standard forms or provide legal advice to clients, Hecht says. She adds that many state laws, as well as Article 13 of the Code, prohibit the unauthorized practice of law. “AI is not a licensed professional, and the platforms make no reliable warranties or representations,” Hecht says.

©National Association of REALTORS®
Reprinted with permission

Latent material defects must be disclosed, despite an owner’s demand.

Q: A few months ago, I had a transaction fall through because the home inspection revealed a cracked heat exchanger. The seller not only refused to fix it but also told me to not disclose it to any buyers or cooperating brokers. I told the seller “no way” and canceled the listing. Now, the property is back on the market with a different broker. I’m not an expert on heat exchangers, but I know enough to realize that it could be a serious issue for the safety of a home. I don’t see anything in the listing or seller disclosure about this. It’s possible the owner has replaced the furnace or fixed it. I want to call the new listing broker to find out and, if not, to make the broker aware of this defect. But the seller told me to keep it confidential.

A:That is quite the dilemma! Fortunately, the Code of Ethics provides guidance on this situation. Article 1, Standard of Practice 1-9, obligates REALTORS® to preserve confidential information gained during or following the termination of that listing. In other words, REALTORS® cannot use confidential information to the client’s disadvantage, like revealing their motivation or price they would accept. However, this is a latent material defect that left unrevealed could cause serious harm to a homeowner. A 2001 amendment to Standard of Practice 1-9 speaks directly to your situation: “Information concerning latent material defects is not considered confidential information under the Code of Ethics.” While the Code of Ethics establishes obligations that may be higher than those mandated by law, in any instance where the Code and the law conflict, the obligations of the law must take precedence.

©National Association of REALTORS®
Reprinted with permission

Digital forms of currency can pose significant risks to both buyers and sellers. Know the safeguards to put in place in case cryptocurrency is ever used in one of your transactions.

While it’s still rare that buyers use a form of digital currency to purchase real estate, it’s happening in some areas of the country and could become more widespread in the future. Cryptocurrency is a digital payment that uses encryption to secure and verify transactions, allowing purchasers to bypass a bank. Transactions are stored in a digital ledger called a blockchain.

“Despite recent volatility in the value of cryptocurrencies, the public failure of many crypto firms, and the decade-old predictions of imminent collapse, cryptocurrencies appear to be here to stay,” Matt Troiani, senior counsel and director of legal affairs at the National Association of REALTORS®, says in the latest “Window to the Law” video. More than 420 million people worldwide own cryptocurrency, Troiani adds.

Nearly a quarter of real estate professionals predicted that blockchain, crypto and smart contracts will play an impactful role in real estate over the next two years, according to NAR’s 2022 Technology Survey.

But the volatility of cryptocurrency can pose risks in a real estate transaction. Troiani cautions that standardized contract forms to purchase real estate do not adequately reflect transaction requirements when crypto is being used. A main concern with cryptocurrency is that it could depreciate in value between the contract and settlement dates. Home buyers who decide to convert cryptocurrency to cash also could face settlement delays, Troiani adds.

Despite the potential obstacles, Troiani says real estate pros can take several actions to assist and protect their sellers in crypto transactions, such as requesting proof of cash funds or providing a lender letter along with the offer that demonstrates the buyer could complete the purchase without cryptocurrency if necessary. Also, listing agents might negotiate a larger earnest deposit from the buyer as a sign of good faith when purchasing the home.

On the other side of the transaction, buyer’s agents can protect their clients by advising them to convert cryptocurrency to cash prior to submitting an offer or ratifying the contract to avoid a seller’s concerns about currency depreciation prior to closing, Troiani suggests. He also urges real estate pros to connect the buyer with banks, lenders, attorneys and title companies who have knowledge about cryptocurrency in real estate to help ensure a smooth closing.

©National Association of REALTORS®
Reprinted with permission

Claims that NAR influenced how Zillow displayed listings in its website redesign were dismissed in federal court Wednesday.

A federal judge in the Western District of Washington on Wednesday dismissed claims against The National Association of REALTORS® stemming from an antitrust lawsuit filed by REX (Real Estate Exchange Inc.). A culmination of a two-year battle, REX filed the lawsuit in March 2021 against Zillow, Trulia and NAR, taking issue with Zillow’s website redesign implementing a two-tabbed interface that indicates properties listed on the MLS versus those that are not. 

REX claimed that NAR influenced how Zillow displayed listings, which is false, and the judge’s decision establishes that the allegations in this case have no merit. NAR says this is a positive and encouraging development for REALTORS® and the entire real estate industry.

How It Impacts You

Most importantly, this decision means local MLS broker marketplaces can continue to decide for themselves how their data is displayed on other listing sites.    

NAR policies recognize that each real estate market is different, and the guiding principle is to empower REALTOR® association-owned MLSs, as well as their participants and subscribers, to be an independent, local broker marketplace that can best serve the evolving business needs of their markets. The goal is to provide flexibility in light of emerging technology and workplace trends and encourage value-driven competition among local broker marketplaces. The court’s decision protects this market dynamic and allows local broker marketplaces to continue to foster competition, promote equal access to listings and ensure consumers have access to the most accurate, transparent and up-to-date information on home listings. 

The bottom line is that NAR has and always will work to ensure that local broker marketplaces continue to provide information on homes that is accurate, reliable and transparent to the advantage of buyers and sellers. Otherwise, without NAR and the local broker marketplaces, buyers and sellers likely would have less choice among brokerages, services and compensation models, hurting the average consumer.

Benefits of local broker marketplaces: 

• Local broker marketplaces create the largest opportunity for connections between real estate agents with properties to sell and those with clients looking to buy.
• They give first-time, low-income and other buyers better access to the American dream of homeownership while also exposing a seller’s property to the greatest number of potential buyers.
• Local broker marketplaces benefit competition and fair housing and provide consumers with the most accurate, transparent and up-to-date information on home listings. 
• They provide verified, trusted, detailed and accurate property information.
• Ensure equal opportunity for all home buyers and sellers, leveling the playing field between large and small brokerages.
• They provide unprecedented competition: Many different service and fee business models—from varied commission models to flat fees—thrive in local broker marketplaces.

NAR encourages members to continue to educate themselves and the public about how local broker marketplaces work and promote equity, transparency and market-driven pricing options for consumers. Check out competition.realtor, which provides a comprehensive overview and suite of materials related to how REALTORS® and local broker marketplaces benefit consumers, or read about NAR’s legal win in HousingWire(link is external).

©National Association of REALTORS®
Reprinted with permission

You can comply with and promote fair housing laws by taking steps to avoid misinterpretations during a transaction.

Proper protocols in your business can ensure nothing gets lost in translation when you’re working with clients who don’t speak English. The real estate transaction is already complex and full of opportunities for misunderstandings, but there may be even more obstacles for non-English speaking clients trying to navigate a contract that is in English. The latest “Window to the Law” video from the National Association of REALTORS® highlights best practices for serving non-English speaking customers and how to avoid risks from potentially inaccurate translations.

Misinterpretations can happen, and real estate professionals can be found liable when they do. In one situation, a real estate broker was suspended and had his broker’s license revoked after serving as the interpreter in a transaction. He was accused of misrepresenting the terms of the English-language agreement to French-speaking buyers, NAR Associate Counsel Deanne Rymarowicz explains in the video.

Here are some of her tips for ensuring a smoother transaction when working with Limited English Proficiency (LEP) clients: 

• Use a translator. Be skeptical of Google Translate or other automated translation tools. “Even if you are fluent in the other languages, consider using a third party to translate documents for the client,” Rymarowicz suggests.
• Put it in writing. Use an interpreter or translator agreement, which should establish who will serve as the client’s interpreter, their relationship to the client and whether they will assist the client through the entire transaction or part of it, such as closing or the home inspection, Rymarowicz says. “The agreement should also disclaim any broker liability for incorrect translations,” she adds.
• Find extra resources. For example, the EPA already offers translations of its Lead-Based Paint Disclosure, which is available in 11 languages. Fannie Mae provides translations of its essential loan forms in five languages. Many state and local REALTOR® associations offer translated copies of key forms and contracts. NAR en Español offers Spanish-language resources for home sellers and buyers.
• Ensure understanding. “If a contract is translated, ensure that the LEP client understands that the translation is only provided to facilitate their understanding and that the transaction will be governed by the English documents,” says Rymarowicz.

©National Association of REALTORS®
Reprinted with permission

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