Source: https://journal.firsttuesday.us/what-you-need-to-know-about-the-refreshed-and-mostly-improved-agency-law-disclosure/66264/
Timestamp: 2019-06-27 12:59:36
Document Index: 715704964

Matched Legal Cases: ['§2079', '§2079', '§2079', '§2079', '§5', '§5', '§7', '§8', '§2079', '§2079', '§2079', '§2079', '§2079']

What you need to know about the refreshed – and mostly improved – Agency Law Disclosure | first tuesday Journal
Posted by ft Editorial Staff | Jan 21, 2019 | Agency Law, Feature Articles, Latest Articles, Your Practice | 1
The Agency Law Disclosure, refreshed
As every active agent and broker knows, the Agency Law Disclosure is the most familiar form you deal with throughout your practice – from listings to negotiations. The disclosure form is designed to educate agents, buyers and sellers alike.
Effective January 1, 2019, multiple significant changes to the real estate disclosure requirements are now the law for sales listings and written negotiations regarding every type of property.
As you might recall, the Agency Law Disclosure form is a restatement of existing codes and case law on agency relationships of licensees acting on behalf of one or more persons in real estate sales listings and transaction negotiations. [See RPI Form 305, 305-1 and 550-2]
The rules of agency consist of two pages of copy about licensee conduct when acting as an agent on behalf of another. The exact wording is dictated by statute. Thus, the content is the same for all publishers of the disclosure form – provided they have updated the form they publish.
Page two of the Agency Law Disclosure presents definitions for words and phrases commonly used as jargon within the real estate industry. The only entries placed on the form are the identity of the document the disclosure is attached to, the principals involved and the signatures. [Calif. Civil Code §2079.16; see RPI Form 305]
The obligations of the broker owed to the participants in a sales listing or written negotiations are divided into two categories:
the special or primary agency duties of an agent owed by a broker and their agents to their principal, known as fiduciary duties;and
At the listing stage, the seller’s agent hands their seller the Agency Law Disclosure before the seller signs the listing agreement to employ the agent’s broker. Thus, it is treated by the seller’s agent as a preliminary and compulsory listing event. [CC §2079.14]
Failure to provide the seller with the Agency Law Disclosure prior to entering into the listing agreement is a violation of disclosure laws. As a consequence of this up front failure, the broker will lose the fee on a sale if challenged by the seller. [Huijers v. DeMarrais (1992) 11 CA4th 676]
Separately, a buyer’s agent hands their buyer a prepared Agency Law Disclosure before the buyer signs any writing that initiates negotiations to contemplate a sale. [CC §2079.13]
Editor’s note – Unlike with the seller’s listing agreement, a buyer’s listing agreement does not require the disclosure. However, the law ought to mandate such activity so the buyer, like a seller, understands the agency law on retaining an agent. [See RPI Form 103]
Getting familiar with the changes
At its core, the goal of the real estate Agency Law Disclosure is to better inform the public and licensees about the duties licensees owe to members of the public. The law was put in place over 30 years ago in an effort to eliminate misconceptions about duties held by licensees and principals alike. Do the recent updates under AB 1289 serve this goal?
First the good. Previously, the term “selling agent” was used to identify the buyer’s agent. This expression, peculiar solely to real estate brokerage operations, is non-intuitive, has no common meaning to buyers and sellers and misses the mark in its effort to enlighten the public.
This arcane verbiage has been phased out. The update improves the legislative language, freeing it from the more antiquated term “selling agent” in favor of the clearer, universally recognized wording of “buyer’s agent.”
Further, the definition of buyer’s agent has been simplified to simply cover any agent who represents a buyer in any real estate transaction. Previously, the cluttered definition went into more detail about the agent’s relationships and duties. [CC §2079.13(n)]
Similarly, the language of the agency confirmation provision has been updated too. More on that later.
Most critically, a new section entitled Seller and Buyer Responsibilities has been added to the Agency Law Disclosure. [See RPI Form 305 §5]
Much of the new section replicates language that was present in the prior version of the form. However, it has now been repositioned as an advisory to transaction participants concerning:
what they are to expect over the course of the transaction; and
steps the principals are to take to exercise reasonable care to protect themselves when dealing with licensees who are acting as agents in a real estate related transaction.
Concurrent with this rebranding of the existing provisions, new language has also been added.
Let’s take a look at the first new provision:
Either the purchase agreement or a separate document will contain a confirmation of which agent is representing you and whether that agent is representing you exclusively in the transaction or acting as a dual agent. Please pay attention to that confirmation to make sure it accurately reflects your understanding of your agent’s role. [See RPI Form 305 §5]
This additional notification to the principals that they are to receive a separate agency confirmation provision at a future date is a positive move.
Agency status in future sales negotiations is not known at the time of the listing stage for employment – the first time the Agency Law Disclosure is presented to the principal. The new language makes direct reference to the logical conclusion of the agency disclosure scheme: confirmation.
Previously, the existence of the agency confirmation provision was referenced only on the second page of the disclosure, which itself is a straight recitation of the statute. Due to its buried placement within the legalese of the second page, it was not likely reviewed by the majority of principals.
There are two other new provisions that are part of the Seller and Buyer Responsibilities section:
If you are a Buyer, you have the duty to exercise reasonable care to protect yourself, including as to those facts about the property which are known to you or within your diligent attention and observation. [See RPI Form 305 §7]
Both Sellers and Buyers should strongly consider obtaining tax advice from a competent professional because the federal and state tax consequences of a transaction can be complex and subject to change. [See RPI Form 305 §8]
The addition of the first paragraph is a positive, if lateral, revision. However, the second paragraph concerning tax advice muddles what principals ought to reasonably expect from their licensed representation.
The belief that real estate agents are generally incompetent or are to remain silent on the tax knowledge they have that affects a sale is perverse, as well as a common erroneous judgment call.
All brokers and agents have a duty to disclose to their client material facts known to them that may affect the client’s decisions in a real estate transaction. Brokers further owe their client a specific duty to advise on the consequences of material facts known to exist in the property and in the transaction.
However, the Agency Law Disclosure imposes no obligation on a seller’s agent to disclose their knowledge of possible tax consequences, even when tax implications are known to affect the client’s decision on how to handle the sale of the property. [CC §2079.16]
In fact, the language of disclosure encourages the belief that clients are to obtain tax advice solely from competent professionals other than the real estate broker and agent who is actively negotiating the transaction and may be fully equipped to give the advice.
Knowledge of taxes is merely a matter of learning, which licensees are fully as capable of doing, just like accountants or attorneys. It is learning by research.
This revision doubles down on this inadequate premise. Under the AB 1289 changes, there are now two references to the participant soliciting advice from a “competent professional” when tax issues are presented.
Editor’s note – One wonders just who drafted this document for legislation. Accountants and attorneys are suspect, but Big Brokerage firms also contribute to this idea as part of the “Dumb Agent Rules” that have prevailed with their encouragement for decades. This is not what the consumer needs as clients rarely involve an attorney or an accountant in the deal before closing.
Note the revised language merely encourages the principal to obtain tax advice – it does not prohibit a licensee from disclosing their knowledge of known tax consequences and thus shirking their fiduciary duties when they have the knowledge but keep it to themselves.
Brokers and agents who provide tax advice are best served by clearly stating what is known to them, while also involving the client’s other advisors, such as their attorney or tax accountant should they exist.
Feedback from other professionals eliminates future claims arising from adverse tax consequences alleged to be due to the client’s reliance on the agent’s opinion.
Editor’s note – Big Brokerage firms are not just concerned that the agent’s advice might be misunderstood. Many also fear that an attorney or accountant will become involved in the transaction as they have the propensity to kill deals, not create them.
Attorneys and accountants collect facts as they exist and advise on the consequences so the client can make a decision to buy or sell. Alternatively, real estate licenses advise on the merits of a property in the hands of the client.
In practice, the ideal method for avoiding liability is to insert a further-approval contingency provision in the purchase offer or counteroffer. Thus, the advice of the agent is not the final word before closing.
The contingency provision requires the client to initiate a good-faith investigation by obtaining additional tax advice and further approval of the transaction’s tax consequences from an attorney or accountant before allowing escrow to close.
Under these circumstances, a broker and agent can offer their earnest tax advice – and completely fulfill their fiduciary duty to their client – but ensure their client ultimately relies on the comprehensive information provided by tax professionals to confirm the advice of their agent.
Advising clients on the tax implications of a transaction is typically not a required duty of a real estate licensee involved in a single family residential transaction. However, it is certainly not prohibited and may, in fact, increase an agent’s marketability by widening the range of services and advice offered to clients.
Take note dear reader: now is the time to enhance your brand in anticipation of the coming 2020 recession.
Previously, dual agents representing both the buyer and seller were specifically prohibited from disclosing to the buyer that the seller is willing to accept a lower price than offered or listed. Vice-versa, the dual agent was prohibited from revealing to the seller that the buyer is willing to pay a higher price without the express written consent of the seller or buyer.
This prohibition is now eliminated as it was too specific in application. Instead, a blanket general provision has replaced it. Dual agents are now prohibited from disclosing any confidential information obtained from their buyer or seller without the client’s written permission, as has always been the law.
This includes facts about their clients’:
financial positions;
bargaining position; or
other personal information unrelated to aspects of the property involved in the transaction. [CC §2079.16]
While dual agents wear multiple hats in the transaction, this broader prohibition on sharing confidential information expands protection for both clients. This cut-and-dry approach is all-inclusive and encourages a level playing field for both buyer and seller when they provide information about their transactional intentions to their agent.
Best practices when aiming for a moving target
The changes to the Agency Law Disclosure are not limited to the mechanics and language of the form itself.
The circumstances surrounding when it is to be presented and in what types of transactions have also shifted, if minimally.
As before, the seller’s agent and buyer’s agent need to obtain a signed acknowledgment that the buyer and seller each received the disclosure. [CC §2079.14]
Previously, the buyer’s agent was required to give this disclosure to the seller as well as the buyer. Now, the buyer’s agent is not required to give the Agency Law Disclosure to anyone other than their buyer. This streamlines the dissemination of information and eliminates a redundant if not chaotic paperwork regime. [CC §2079.14(b)]
Further, the types of transactions which require the use of the Agency Law Disclosure have shifted – expanding in some areas, while shrinking in others.
The Agency Law Disclosure needs to be presented to all parties when listing, selling, buying or exchanging:
single family residential property;
multi-unit residential property with more than four dwelling units;
a ground lease coupled with improvements; or
manufactured homes. [CC §§2079.13(j)]
Collectively, these are known as targeted transactions. The Agency Law Disclosure is required for targeted transactions – period.
Some of these targeted properties are new to the list, such as the sale of raw property and multi-family apartment sales of five or more units.
However, astute readers will notice that certain types of properties and transactions that were previously targeted no longer are.
For example, multi-family residential properties of two-to-four units are not explicitly targeted, though they were prior to 2019. Also, lease transactions for greater than one year were also formally targeted, but no longer are.
Is the Agency Law Disclosure to be used on non-targeted transactions, such as those which until very recently would have required it?
Yes! As a matter of good practice, it is still recommended.
Remember, fundamentally, we’re talking about the duties and obligations of a broker and agent when negotiating a client’s need for shelter – regardless of the specific type of shelter sought, and regardless of whether the property is to be purchased or leased, residential or commercial.
Though not mandated by statute, use of the disclosure in these situations helps to clarify the duties of the licensees involved and dispel claims of a conflict of interest or deceit. Simply, it’s just good practice.
In real estate, transparency at the earliest possible opportunity is the best practice. Always.
Thus, Realty Publications, Inc. (RPI) continues to produce two versions of the Agency Law Disclosure. Each version contains language engineered to best identify the participants involved in the two sets of transactions:
the sale or exchange of real estate (the disclosure being required by statute) [See RPI Form 305]; or
the lease for a period exceeding one year (in which the disclosure is recommended as a matter of good practice, though not required by statute). [See RPIForm 305-1 and 550-2]
Editor’s note —Two identical versions of the agency disclosure exist for leasing to place the form in both the “disclosure” and “property management” series of RPI forms. [See RPI Form 305-1 and 550-2]
Introducing the new agency confirmation provision for sale and purchase negotiations
In conjunction with the revised Agency Law Disclosure, the agency confirmation provision has received a similar refurbishment.
The agency confirmation provision declares the agency relationships each broker may have with the principals in the specific transaction underway. With the agency confirmation included in written negotiations to purchase (or lease agreements), this relationship is consented to by each participant when they sign a purchase agreement or sales proposal.
These documents are commonly called Purchase Agreements or Letters of Intent – the documents which initiate negotiations for the sale and purchase of real estate, regardless of the type of property. [See RPI Form 150-159, 185 and 186]
The update makes more explicit who the broker – and separately the agent – represents in the transaction.
Further, the dual agency status of the participating brokers and agents is clarified with the explicit use of the term “dual agent,” which wasn’t mentioned in the prior version.
Other terminology now contained in the confirmation includes the terms “salesperson or broker-associate” as a description of the agent who works for the broker employed by the client. This expanded vernacular clarifies to principals the different types of classifications an agent may use when identifying themselves to the public.
Also abandoned are the archaic terms of “selling agent” and “listing agent,” adopting the widely understood terms of “buyer’s agent” and “seller’s agent.”
Like the linguistic updates to the Agency Law Disclosure, this is a definitive victory for clarity and promotes broader understanding by the transaction participants the statutory language is designed to inform.
Agents: make sure you’re up to speed on the new agency disclosure rules.
Brokers: make sure your agents are up to speed on the new agency disclosure rules.
Editor’s note – RPI’s Agency Law Disclosure and all forms containing the agency confirmation provision have been timely updated to comply with the new law. Download the new forms on our Forms Download Page.
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LEMOINE Bond Realty Counsel CaDRE 00287022	on January 23, 2019 at 10:34 am
As always, your thorough presentation of the convoluted issues of AGENCY as related to realty transactions us absolutely spot on. Having worked on the original DRE agency (and ethics) disclosure working committee in the seventies – at a time that most brokers/agents had NO idea of the multiple implications of relationships in a transaction. Whatever, over the years FT has in my opinion been the best resource of astute information on this and other salient to the brokerage game players. Keep up the top notch work and leading professional learning experience so sorely needed…THANKS, LeMoine Bond, DRE 00287022, LeMoineBond.MetrolistPro.com