agency
In July, some important changes are coming to Virginia’s agency law — the law that governs how Realtors® work with their clients. Before that happens, here’s a brief primer on what “agency” is all about. By Blake Hegeman Agency: It’s a simple word that describes a complex set of relationships that Realtors® engage in every day. Its complexity is evidenced by the volumes of books written about it, the fact that it is taught as a semester course in law school and, most importantly, the way it is misunderstood in everyday real estate practice. With that fact in mind, here’s a quick refresher on existing agency laws, some common scenarios, and a preview of upcoming changes. In the next issue of Commonwealth, we’ll delve fully into the statutory changes set to take place this July 1.
What is agency? Agency means every relationship in which a real estate licensee acts for or represents a person by such person’s express authority in a real estate transaction, unless a different legal relationship is intended and is agreed to as part of a brokerage relationship, such as an independent contractor. The agency relationship commences at the time that a client engages a licensee and requires the mutual agreement of the firm and client. That is an important point to remember: agency relationships are consensual. A listing agent cannot deem someone that walks into her open house as her client. There
must be a meeting of the minds concerning the nature of the relationship. It is important to remember that agency relationships must have a definite termination date or 90 days is assumed.
What are the forms of agency? There are two basic forms of agency: standard and limited service agency. Note that under Virginia law you are not limited to an agency relationship when representing a client. You can also represent a client in a non-agency relationship (i.e., as an independent contractor). Independent contractors are discussed below.
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A standard agent has numerous mandatory statutory duties outlined in the Virginia Code. A few familiar examples are: •R eceive and present in a timely manner written offers and counteroffers between the sellers and purchasers, even when the property is already subject to a contract of sale; • Maintain confidentiality of all personal and financial information received from the client during the brokerage relationship, and any other information the client requests be kept confidential during the brokerage relationship, unless otherwise provided by law or the client consents in writing to the release of such information; and • Account in a timely manner for all money and property received in which the seller has or may have an interest. A limited services representative performs limited services selected by the client. This can only be done pursuant to a written brokerage agreement in which the limited service representative: • Discloses that he is acting as a limited service representative; • Provides a list of the specific services that he will provide to the client; and • Provides a list of the specific duties of a standard agent that the limited service representative will not provide to the client. The law requires that the disclosure be “conspicuous and printed either in bold lettering or all capitals, and shall be underlined or in a separate box.” Here’s an example of language that meets the disclosure requirement: “By entering into this brokerage agreement, the undersigned do hereby acknowledge their informed consent Volume 19 ● Issue 2
to the limited service representation by the licensee and do further acknowledge that neither the other party to the transaction nor any real estate licensee representing the other party is under any legal obligation to assist the undersigned with the performance of any duties and responsibilities of the undersigned not performed by the limited service representative.” Another form of representation is that of an independent contractor or non-agent. This is created by a written brokerage agreement that specifically states that the real estate licensee is acting as an independent contractor and not as an agent. The agreement must also state that the only obligations the independent contractor has are those agreed to by the parties in the agreement.
When do you need to disclose your brokerage relationship? The law states that a licensee must disclose any brokerage relationship that she has with a party to the transaction as soon as she has a substantive discussion about a specific property or properties with an actual or prospective buyer, seller, landlord, or tenant who is not her client and who is not represented by another licensee. Unfortunately, the term “substantive” is relative, and can create confusion as to what exactly constitutes such a conversation. Good judgment on the agent’s part must be exercised, because the requirement is that the “disclosure must be made in writing at the earliest practical time, but in no event later than the time when specific real estate assistance is first provided.” That’s confusing, so here is an example of how it works: You’re a listing agent who has
Agency Best Practices • Visit VAR’s Agency Center – it contains the most frequently asked questions about agency: VARealtor.com/agency. • Article 16 of the Code of Ethics makes it clear that prior to entering into a representation agreement, an agent must make reasonable efforts to determine whether a prospect is exclusively represented in the same type of real estate service. Please don’t forget: Always ask the prospect! • Take the time to explain all agreements and contracts to your clients; many headaches can be prevented by doing this up front! • Make sure to have multiple copies of the brokerage relationship disclosure form on hand at open houses to avoid disclosure issues with prospective buyers.
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You should have arrived at the open house with completed copies of a disclosure of brokerage relationship, indicating clearly that you represent Mr. and Mrs. Seller.
entered into a brokerage relationship – a ratified listing agreement – with Mr. and Mrs. Seller. You hold an open house. Mr. and Mrs. Buyer attend and express that they are actively seeking to purchase a home. They begin discussing the paint color in the living room – not a substantive conversation that requires any disclosure – but then transition to asking whether the Sellers might agree to paint the walls or reduce the price. At this point, you ask the Buyers whether they’re represented by an agent. They are not. This is when you must stop the conversation and provide Mr. and Mrs. Buyer with written disclosure of your brokerage relationship with the sellers. In fact, you should have arrived at the open house with completed copies of a disclosure of brokerage relationship, indicating clearly that you represent Mr. and Mrs. Seller. The sales transaction disclosure may be given in combination with other disclosures or provided with other information, but if so, the disclosure must be conspicuous, printed in bold lettering, all capitals, underlined, or within a separate box. And please remember that Article 9 of the Code of Ethics makes it clear that all agreements should, if possible, be in writing.
If you’re thinking of working both sides When an unrepresented purchaser is interested in a property that you have listed on behalf of a seller, there is a temptation to persuade that purchaser to be your client so you can keep the entire transaction in the firm and
represent both sides. Of course you should first consider representing just the seller and allow the purchaser to remain unrepresented in the transaction. But if you are seeking to represent both the purchaser and the seller, the two common ways of doing this are Disclosed Designated Agency and Disclosed Dual Agency. In either case, the buyer and seller must both agree in writing to enter into the dual or designated relationship before commencement of such relationship. Designated agency occurs when a principal or supervising broker assigns different licensees within the firm to represent the seller and buyer exclusively. In that case, the principal or other broker is considered a dual agent, while the agents have duties to their respective clients. That means the agents may not disclose (except to the dual agent broker) any personal, financial, or other confidential information they receive from their client. In other words, designated agents act very much like an exclusive buyer or seller agent – they represent one party in the transaction. Dual agency involves a licensee who has a brokerage relationship with both the seller and buyer, or both the landlord and tenant, in the same real estate transaction. A dual agent represents both sides generally. Dual agency is always more controversial and can be problematic. Like designated agency, the parties must agree in writing to enter into a dual agency relationship. However, dual agents are much more limited in what they can do for sellers and buyers. A
few examples are below: • Licensees are prohibited from advising either party as to the terms, offers or counteroffers; • The licensee cannot advise the buyer client as to the suitability of the property, its condition (other than to make disclosures required by law for seller agents), and cannot advise either party as to the repairs to make or request; and • The licensee cannot advise either party in any dispute that might later
arise relating to the transaction. In short, both clients are getting much less service for usually the same fee. The aforementioned caveats should have been disclosed to clients before entering into the dual relationship. However, in actual practice, agents may not be disclosing these caveats as clearly and thoroughly as the current law requires. That fact alone was a spark behind clarifications to agency law set to take effect this July. l
As mentioned earlier, substantial changes to Virginia agency law take effect July 1, 2012. In the coming months, VAR will provide a variety of resources to help you adapt to the revisions including, videos, webcasts, articles, new forms, and classes. Below is a preview of the changes:
• All agents must have written brokerage agreements with consumers they represent. These agreements must, at a minimum: Provide a list of services that the agent will deliver; Provide a schedule of fees that will be associated with service, and when payable; and Provide a definite termination date. • Dual agents must now provide, and have signed by the clients, a new form expressly describing the limitations on what dual agents can and cannot do for parties to a transaction. These are called “enhanced disclosures.” (There are exceptions for situations where existing clients come together in a common transaction and commercial transactions.) • Agents must take a three–hour course on the provisions of the agency statute and the changes made in the legislation. This means that if your current license expires after July 1, 2012, you may take the 3-hour agency course at any time, beginning right now. In fact, if your license expires in July 2012, you will need the course very quickly. However, if your license expires in February through June of 2012, you should wait to take the course until after you have renewed your license. You may take the course now, but you will need to take it again (for credit) in your next license cycle. You can find more information about the new agency laws at VARealtor.com/agency.